Traditional VS Blockchain #1
Real Estate Investments
The adoption of blockchain technologies has been notably gaining traction across various industries, including the notably traditional banking sector in South Korea, which up until recently took on a more welcoming approach to embrace the advent of such new technologies.
In this series of Traditional VS Blockchain, we look at how blockchain can disrupt different industries by reforming traditional and oft-tedious processes, while boosting efficiency and productivity.
The first industry which could significantly benefit from this digital transformation would be the global real estate market, where blockchain technology could help in revolutionising core operations, from the purchase of property to the execution of due diligence and title management.
According to Yolande Barnes, head of the world research team at London-based real estate advisor, Savills, real estate is “the pre-eminent asset class which will be most impacted by global monetary conditions and investment activity and which, in turn, has the power to most impact national and international economies”. Savills’s report in 2017 stated that global real estate values totalled US$228 trillion, an increase of five per cent from the reported figure of US$217 trillion in 2016.
However, despite this incredible potential, there have been several problems known to affect the industry and deter investors, which blockchain technology can help to overcome.
- Accessibility — By allowing fractional asset ownership and tokenization of real estate property, blockchain can effectively lower barriers to entry for investments and encourages better and equal global participation opportunities for property owners.
- Transparency — With immutable public ledgers, parties are able to transact directly with each other without the need of a trusted third party and the peer-to-peer distributed network will retain a secure and clear record of all transactions and proof of ownership.
- Flexibility — Fractional ownership also allows individuals to diversify and have more control over their portfolio and spread risks by owning various shares of several assets.
- Cost efficiency — Incurred costs are significantly lowered with the removal of intermediaries like brokers, transfer agents, registrars and clearing firms, benefiting both investors and property owners.
- Speed — With no more paperwork processes required, trade settlements and transactions can be completed instantly via blockchain technology.
1. Real estate investing
Traditionally, real estate investing requires large sums of capital and the engagement of expensive third parties, like fund managers. However, asset tokenisation can decentralise the process via blockchain technology and create potential for a property to have numerous co-owners — each having a stake in potential returns with their share of the property.
2. Title management
Title management processes are often paper-based and most property owners incur high legal fees to mitigate the high likelihood of errors and fraud of their documents. Blockchain can build immutable digital records of these property titles, effectively minimising time and effort during the process while making it transparent and secure.
3. Financing & payment systems
Transactional processes including financing and payment can be slow and tedious due to the requirement of various documentation and intermediaries. Through the application of blockchain technology, these processes can be simplified with easily verifiable digital identities and immutable smart contract-based documents.
4. Property management
With most properties either being managed offline by agents, or online through different programs and platforms, property management can be overtly complicated and tedious. A single decentralised application or platform utilising blockchain-based smart contracts can conduct the same procedures in a more secure and efficient manner without any risk of fraud and corruption.
5. Due diligence & financial evaluation
Manual verification procedures can require significant time and effort with the review of the physical paperwork and documentation and coordination of third-party service providers. With the digitization of identities on blockchain databases, which can include information like tenant profile and financial and legal status, the entire process can be streamlined, thus increasing efficiency and security while reducing costs and chances of manual errors.
6. Property search process
Storing and accessing property listings through multiple listing platforms can often cause data to be outdated, inaccurate or incomplete. However, blockchain technology can consolidate all of these listings on a single, decentralised database and the implementation of standardised processes can allow brokers and participants to have more control over their data.