Real estate is the largest global asset class with a market value of around $200 Trillion. And it is very difficult for any new technology to break into, especially with all that money on the stack. But the trend is shifting and it is only a matter of time before blockchain infiltrates the real estate market. Due to the endless offering of the blockchain, it can be game changer tech in the real estate sector. A blockchain is incorruptible decentralized ledger system that records information in a chain of blocks on a distributed network. For real estate, the blockchain has the potential to stir things up and change the way we do business.
Smart Contracts: In laymen term, Smart contract can be compared with vending machine concept where we pay money and machine provide whatever we want without any human interference. Similarly, smart contracts provide a simplified automated process which helps you exchange a valuable asset in a more transparent way. Blockchain facilitates the representation of real estate asset in a digital token for any transactions.
Major Use Cases of Smart Contracts in Real Estate Sector
♦ Property Title Transfer, Search and Insurance: The current procedure for buying or selling a house is a nightmare. Imagine you want to buy a laptop from an unknown person and he says here is your laptop and give me my money. But what if he is not the owner of the laptop, maybe he stole or borrowed the laptop. Is he trustworthy? Maybe it’s best to ask a friend for reference and contact an agent to secure the deal and pays some money to him also.
The escrow period during real estate transactions involves countless middlemen- realtors, title companies, title insurance company, brokers, notary, and banks. Within this process information processing is ambiguous and secrets are kept deliberately to increase middle-man cut cost. In other hands, the insurance industry doesn’t need to exist and making more than $18 Billion a year.
Using blockchain technology, we can’t fix all the problems but it will make this process more efficient and transparent. Blockchain eliminates the involvement of middlemen and automates real estate transaction. In the same way, blockchain also records the ownership of title on the public, secure digital ledger and eliminates title claim fraud.
Some parts of the world are already exploring blockchain to digitalize property transfer. Sweden’s Lantmäteriet becomes the first government agency to conduct property sales on the blockchain. Similarly, Propy recorded the 1st real estate deal on Blockchain and velox.RE successfully completed first permission less real estate property transaction on bitcoin blockchain with Cook County. Ubitquity is also using blockchain technology for the storage and search of titles.
♦ Rental Services: One of the major industry rental markets still cries for a transparent transaction, safety, and security. Due to unpredictability and less transparency in rental agreements, renting experience became painful. According to one of the surveys among tenants, more than 55% of renters are confused about their rental agreement. However, blockchain technology makes it possible for everyone to create a smart contract, e-sign the agreements that obligate both sides to follow the terms set in the smart contract.
In fact, a company called Rentberry is already using a decentralized platform to create smart contracts and make it impossible for fraud to undermine the rental procedure.
♦ Real Estate Investing: Typically, the investment process in real estate move around S&P which causes funds to reach liquidity for a given time period. Smart contracts would not only automate the process but also bring more efficient management process. Representation of real estate asset as token followed by the creation of trade market these tokens can increase the liquidity of these assets by minimizing frictions in trade. Blockchain will facilitate an easy exchange of shares between investors. It would give more opportunities for existing investors to get out if and when they want to and new investors to get in.
♦ Fractional Ownership: Fractional ownership takes the logic of tokenization of asset to a step further. In most blockchain network, tokens are divisible. Therefore, even if a token is the digital representation of an indivisible physical asset, the digital representation of ownership can be divided into multiple parts and sold to different owners.
In fact, a few companies called PropertyShare and SmartRE is allowing investors to buy fractions of residential or commercial properties. Similarly, Meridio is also planning to launch a similar kind of service on the Ethereum network in the USA.
♦ Global Real Estate Marketplace: In the US almost every individual uses multiple listing services (MLS) to buy property. The MLS originated in the late 1800s when real estate agents would congregate to exchange information about the properties they were trying to sell. Current MLS networks include more than 800 local databases. These databases are accessible to licensed agents or realtors in exchange of fees. Each region has their own database and agents have to pay fees for the individual database they want to access.
Blockchain network provides benefits to create open communication channels between the real estate networks in a more secure environment that is entirely owned and controlled by its valued participants. It will eliminate existant of different regional databases and will be more cost-effective for agents to retrieve information. Imbrex and Rex have developed a blockchain based listing platform and already listed more than 3000 properties on the blockchain.
♦ Mortgage Crowdfunding: Mortgage industry system hasn’t changed much from the procedures used by Ancient Egyptian. It still follows the paper-based recording of transactions and a lengthy and tedious process for application approval.
A decentralized and distributed ledger system, the blockchain provide a platform to simply and automated the transfer of and access to information between different channels. Blockchain startup like Homeland takes a more global approach to help their users to crowdfund their mortgage loans without relying on banks.
The use cases that I’ve presented are few proposals that smart contracts can offer. But before that, a lot of pieces will need to fall into place for successful implementation of the blockchain. Anyway, due to the limitless offering, real estate professionals will continue to thrive in the era of the blockchain.
In case you are working in this industry and we missed to add your reference, please drop in a comment. In case you are a company in real estate looking to solve inefficiencies in your business, write to me at email@example.com to learn how we can help.