Blockchain & Real Estate: Part 3
Forecasting the future of the home-buying process with Blockchain technology.
The Opportunity of Blockchain
From what we’ve learned so far, blockchain technology has the capability to drive straightforwardness, productivity, and savings for the commercial real estate sector by expelling the current wasteful aspects of key processes. Organizations and industry members assessing a redesign or update of their present frameworks ought to have blockchain on their radar, as its exhibited helpfulness can convey huge incentive to every cog of the real estate machine.
After exploring the due diligence process in Part 2, we now examine the sale and property management process. The intricacies of these processes include the tracking of various transactions, examining and interpreting data, and accounting for the various members involved. The amount of steps and the amount of parties involved can vary case by case, making this part the most rigorous and exacting.
The key opportunity then for blockchain technology is alleviating the dreadful experience of managing the documents, data and financials for a given property.
Smart Contracts & Ethereum
The cryptocurrency and blockchain revolution will allow for the creation of Smart Contracts that will identify, hold and trade properties from owner to owner, using the aforementioned securitization process featuring a blockchain system.
These contracts would get rid of the need for banks, lawyers and other intermediary figures, and instead validate transactions purely using digital encryption.
According to Ethereum’s own white paper, Smart Contracts can be described as “cryptographic boxes that contain value and only unlock it if certain conditions are met” and can “also be built on top of the platform, with vastly more power than that offered by Bitcoin scripting because of the added powers of Turing-completeness, value-awareness, blockchain-awareness and state.”
This allows Smart Contracts to effectively function as multi-signature accounts, wherein funds are only released contingent upon a specific percentage of people agree to the terms. It also means that agreements between users can be managed effectively, feeding into the possibility of insurance purchases and other user-specific premiums.
Ethereum Smart Contracts have the potential to transform real estate specific contracts. For example, typical lease contracts can turn into a kind of smart tenancy contract that enables transparency in lease terms and the subsequent transactions.
Even if we are overestimating the staying power of smart contracts and they do not radically transform leasing and sales, the technology behind it promises for:
- more information available instantaneously
- less error, less duplication, less human inefficiency
- lower costs and greater transparency
- reduced transaction times, greater market liquidity and turnover
Simplifying Title Management
Legacy title management systems are severely low-tech, almost completely paper-based, and completely inaccessible to over 70% of the world’s population, according to World Bank. With title defects and misrecorded information riddling the transaction process and billions being spent on title resolutions yearly, there is definitely room for improvement.
Such instances of fraud can be relieved and eliminated with the use of blockchain. With a blockchain-based unique property ID, buyers, sellers and banks alike can leverage this tamper-proof title system to increase transparency, security and simplify the entire title-check process.
The idea of recording property transactions on a blockchain-based technology is currently being tested in Sweden through ChromaWay and their land registry authority. By eliminating all paperwork, fraud risk is subsequently squashed and secure transactions are able to be made at a quicker rate. It is estimated that this implementation could save the Swedish taxpayers over €100 million ($106 million) a year.
Chicago’s Cook County in partnership with Velox.re is currently testing the usage of blockchain to transfer and track property titles and public records. The Recorder’s Office for Cook County is the second largest in the US, and will be the first to experiment with blockchain as a potential system for filing liens, transferring property titles and organizing vacant properties, among other things.
Industry Connectivity
Many PropTech companies have been aiming towards specific solutions in the industry, but thus far, most of which are stepping on each others toes and operating on identical business models or running in different directions altogether.
The commercial real estate industry and the players that comprise the transacting parties and databases could use a connective tissue like blockchain to add some much needed structure and promote positioning that drives true innovation. Fabrica is a PropTech startup that is looking to peel back the layers of the homebuyer process and use blockchain to revolutionize it one step at a time.
“An open protocol to facilitate a more efficient, more liquid and more just opportunity is what is needed. Imagine a future where less fees go to obscure middlemen and the end user (in the midst of the most important and emotional purchase of their life) need not blindly agree to things they can barely comprehend or truly know they need.” says Simone Brunozzi from Fabrica.
While the real estate tech sector has been steadily growing, it has simultaneously become infamous for surface level solutions. PropTech is involved in only 15% of all VC funding, which is not nearly enough velocity when you consider how massive the industry truly is.
As PropTech 2.0 continues to reward the middlemen, blockchain will surely help usher in the new 3.0 era focused on eliminating them altogether.
Thanks for reading our series on Blockchain & Real Estate. If you have any thoughts, questions or responses, please engage with us on Twitter and follow us on Medium for more content.
