Blockchain Technology in Real Estate: 4 Ways It’s Supporting the Industry
Blockchain application has now reached a peak, as industries including banking, financial services, governance, insurance, media and supply chain management, among others, are now realizing the possibilities that blockchain holds.
The now widespread use of blockchain applications in some of the world’s most lucrative industries comes as no ordinary occurrence.
The inception of blockchain largely took off in late 2008 or early 2009 after it was created by a person – or group – using the pseudonym Satoshi Nakamoto. While this may be the case, the blockchain we know today came long before Nakamoto and Bitcoin.
In 1982, David Chaum, then a doctoral candidate at the University of California at Berkeley, outlined what became known as a blockchain database in his thesis “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.”
Whether you support Team Nakamoto or Team Chaum, the use and application of blockchain technology has found itself in a deep position in recent years, seeing mass adoption among businesses and, more recently, consumers.
Yet, while blockchain can now be found in everything from retail, telecommunications, mining and manufacturing, the next phase of development within the larger global economy has been its introduction to the real estate and property management industry.
Blockchain in real estate
For decades, real estate and property management operated on a tediously outdated system that required an endless list of middlemen, costing buyers, sellers and investors a pretty penny to complete their transactions.
In a recently published MSCI report, the professionally managed global real estate investment market was estimated at more than $11.4 trillion in 2021, up from a reported $10.5 trillion in 2020.
You would think an industry of this size, which accounts for a significant portion of global economic assets and transaction activity, would have seen a faster transition towards blockchain technology.
Although its uptake has been marginally slow, recent developments have revealed some promising and practical solutions that could help revolutionize how the real estate industry can offer buyers, sellers and stakeholders better accessibility and transparency.
Increased transaction security
Real estate transactions are known to be painstakingly slow, requiring deep pockets and an abundance of resources to complete the deal. Blockchain-based real estate platforms can help simplify the entire process, from searching for a property to eliminating any fraudulent activities that could jeopardize the transaction.
With blockchain, real estate companies and securities firms can seamlessly scan documents for any inaccuracies in an application. Historical data can be tracked and used by the current application to determine whether information is falsified or inaccurately presented.
It is estimated that in the second half of 2021 around 1 in 120 mortgage applications contained fraud. By allowing the storage of data and transaction details in a digital ledger, real estate agencies and stakeholders will be able to remove the risk factor, creating safer, simpler and less expensive methods.
Use of smart contracts
As part of creating a safe and transparent environment for all stakeholders throughout the transaction process, blockchain enables real estate agents, buyers and sellers to use smart contracts to speed up the sale or purchase process.
Having smart contacts eliminates intermediaries, which helps save both time and money. With smart contracts, blockchain technology will be able to automate real estate transactions, title searches and escrow services. In addition, buyers and investors will be able to review historical data related to the property, such as previous owners, tenants and the physical changes that have been made to the property.
Companies that manage rental properties will also be able to check tenant information such as accounts, work history and previous leases to ensure that applicants comply with the outlined requirements.
Smart contracts are a simplified way of keeping important information in one secure digital ledger, giving only interested parties access to the data and making it easier for involved parties to complete real estate transactions.
Tokenizing property and real estate
A central element of blockchain technology is the digitization of securities, in this case often referred to as tokenization. With this, certain real-world assets and securities can be tokenized into a digital format, which can then be distributed to investors and transferred to certain counterparties.
By allowing the tokenization of property and real estate, the industry not only allows it to become more democratized and accessible to a wider range of interested buyers, but also makes digital assets more customizable to meet the needs of investors and stakeholders.
After being tokenized real estate, it becomes easier to spread the assets among several groups of investors, while taking advantage of secondary market opportunities. What this means is that issuance can be completed faster, which helps speed up the exchange process and manage financial components such as payouts or dividends to involved stakeholders.
Increases property liquidity
The current market turmoil, which is mainly driven by inflationary rates and high interest rates, means that there are not always buyers or sellers available in the market.
Although many people tend to sell liquidity to the bank in times of economic uncertainty, the use of blockchain could mean that individuals could sell a percentage of their home equity in the form of tokens. We have previously discussed real estate tokenization and in this case it provides an alternative investment opportunity between a pool of investors.
Already we are seeing how blockchain is making real estate more digital and tokenized due to the introduction of Web 3.0 capabilities. Recently, a home in Columbia, South Carolina was sold for $175,000 to a real estate investor via a non-fungible token (NFT) through a subsidiary Roofstock Chain.
The sale marked the first NFT-based home sale in the US, which required multiple layers of blockchain players to complete.
This is a simple example of how real estate, whether commercial or residential, can be digitized and streamlined to help increase equity value and attract a larger pool of investors.
Final thoughts
Blockchain technology is proving to be a diverse, versatile and multi-layered addition to the real estate industry that can potentially improve the security, transparency and accessibility of real estate for a wider group of investors, buyers and sellers.
While there is still much development required for more practical and logical integration into the larger real estate industry, it has already proven to be a successful addition to a global industry that sees trillions of dollars in annual asset transactions being moved around the world.
On a smaller scale, real estate agents and real estate companies can implement alternative practices that help provide more stable solutions. This will not only improve the transaction process, but allow for a safer and more streamlined industry, making real estate a democratized resource on a global scale.
Featured Image Credit: Photo by Karolina Grabowska; Pexels; Thank you!
