When you think of blockchain, “bitcoin”, “finance” and “shared ledger” are some of the terms that may cross your mind. But how does this technology have anything to do with real estate? Well, at first glance, you may not find any relation. But if you chew over the long-standing problems in the real estate industry, it will make you realize that blockchain could be the next step in the evolution of technology for real estate. So, let’s dive deep to understand the problems in the real estate industry and how blockchain is addressing these challenges.
- Real Estate Investing
Investment in real estate has long been the playground for the rich. This is because the roadblocks for entering into the real estate business have always been high. From financing to cash requirements, accreditation, citizenship, and international bank accounts, there are several barriers for the investors to enter the market. Blockchain can streamline this investing process using the fractional ownership and tokenization concept.
In tokenization, the owner can provide digital tokens to those who have a share in the property. And, as every blockchain transaction is immutable and time-stamped, it is easier for them to track the investment. Fractional ownership allows unrelated parties to come together and share the risks associated with the ownership of a high-value tangible asset. That means no need to take hefty loans to buy one expensive asset. You can simply pay for one-fifth of that asset and reduce the risk.
Another issue with real estate investing is the time acquired in the process. If you need to invest in another country, you have to plan an international trip to visit the property. Also, you have to involve several middlemen in the process and spend a lot of time to invest in the property of your choice. However, with blockchain, the potential investors around the world can try their hand in real-estate investment regardless of location or distance.
In the real estate sector, all the data are usually kept on papers that can be easily altered or corrupted by anyone. In fact, according to the report from the Federal Bureau of Investigation’s Internet Crime Complaint Center, 11,300 victims reported real estate or rental fraud that resulted in losses of more than $149 million in 2018. Thus, to prevent any kind of legal, technical, or financial issues, intermediaries are involved in the process. This costs a hefty price as well as a huge chunk of time to the real estate companies.
However, with blockchain-powered platforms, the property-related papers are stored in digital form which can be accessed publicly but can’t be altered. This automates the financial evaluation and due diligence process and makes it quick, and accurate.
Another area that is hugely impacted by blockchain is payment and transaction. The involvement of intermediaries and extensive documentation makes the payment process lengthy, taxing, and expensive. It becomes even more daunting when it comes to international transactions or mortgage. This is when the blockchain technology comes in. The technology streamlines the filing process through the introduction of digital identities for properties. Also with the use of cryptocurrencies, the barrier of different currencies in different countries can also be lowered down. Moreover, blockchain can also minimize the high taxes and fees associated with the process.
- Realty Deeds
Formerly, managing deeds in real estate was a cumbersome challenge with a lot of paperwork and payments to tackle. Because of this, there has always been a higher risk of errors and fraud cases. Thus, the realty agencies pay a large sum of finances to financial institutions like banks and auditors for thorough inspections of their money trace process. But with the blockchain-powered smart contract, real estate can finally enjoy the benefits of deals automation and transparency. In smart contracts, the seller includes all the property details and the buyer puts all the required information on an encrypted block. Thus, the transaction can be completed in less time with far less chance of fraud.
- Property Management
The property management process is quite complex and currently, it is done either offline via manual paperwork or with the use of some independent software. Thus, the information remains restrained to a specific database or person. However, with the use of decentralized Blockchain, the whole process can be streamlined. From signing a contract or agreement to managing the cash flow, a smart contract can handle it all. It automatically sets up the payments between the parties. And when the conditions are not met, it can automatically transfer the amount back to the sender and offer a seamless experience to both parties.
Blockchain has a lot to offer to the real estate industry. However, we are still in the first inning when it comes to the adoption of blockchain. We have scratched just the surface of what could be possible with this disrupting technology in the real estate space. Hopefully, we will witness more exciting applications of blockchain in this evolving sector soon.