Real Estate, a Real Mess.
In the past decade, technology has had a colossal impact on a wide range of economic sectors. However, real estate has been more resistant to change than many other domains due to complex, bureaucratic legacy processes that have become embedded over generations. Nevertheless, real estate has some real problems, so change is now inevitable. In this article we’ll discuss the main issues faced by the real estate sector and how distributed ledger technology (DLT) can be used to accelerate the digital transformation of the industry.
One word comes to mind when talking about real estate data: a mess. The main industry players have a monopoly over the data and properties are managed in a way that is intransparent as a result. In particular, people struggle to find out where properties are listed and how to access more in-depth information about them.
Land titles are a case in point. After the 2016 Haiti disaster, for example, it was often impossible to ascertain who owned damaged properties because so many documents had been lost, damaged, or possibly even falsified. However, conventional online records are also subject to manipulation — 30% of property documents in the US are not reliable due to past data breaches. DLT has the potential to offer a comprehensive, publicly accessible ledger for all properties, enabling property management which is more transparent, efficient and resistant to fraud.
A recent Deloitte study shows that it takes a total of eight steps to get a mortgage: an exhausting and time-consuming process. Again, the main issue here is fragmented information stored and owned by many different parties. Throughout the process, information is analyzed, and risk assessments are carried out by numerous external parties before a sales agreement can be drafted. This bureaucracy is a reflection of the lack of transparency and unreliability of the data used in the mortgage approval process. DLT could make the market quicker and more streamlined by enabling the buyer, seller and bank to reliably exchange validated information without all the costly intermediaries.
An illiquid sector
The real estate sector is by nature illiquid. Tokenization can change this by enabling fractional ownership in tangible assets. For example, a building worth $10 million can be tokenized into 10,000 digital assets costing $1,000 each. This enables both big ticket institutional investors as well as smaller private investors to invest, opening up the asset to people who were previously priced out of the market. The asset-backed tokens are traded on an exchange, which provides an ongoing and publically accessible indication of supply and demand for the asset, making it easier to price buildings than in the past. Token holders benefit by receiving a percentage of earnings if it is a rental property, and a percentage of the sale price when the property is resold. These payouts can be handled by a smart contract, which eliminates the need for intermediaries and greatly reduces transaction fees, as illustrated below:
DLT startups in the real estate sector
This all sounds very good in theory, but what is being implemented in practice? Let’s look at some promising startups that are already implementing DLT in the real estate sector:
- Ubitquity: In 2019, many people still rely on a piece of paper to prove ownership of property, and not just in Haiti. This is clearly a big risk. Founded in 2015, Ubiquity aims to store the titles of properties on a blockchain, so they’re safe from fraud and easier to manage.
- Elea Labs: This Swiss-based startup aims to give each building its own identity, including a well-maintained record of ownership history and renovation work, which they call this the “Property DNA”. Elea has already successfully tokenized a building in Zug this year, a milestone in the field.
- Tokenestate: Based in Neuchâtel and Geneva, Tokenstate is employing tokenization and digital signatures to try to make investing in real estate faster, cheaper and easier.
- Blockimmo is a Swiss decentralized, online real estate marketplace. They aim to facilitate an accessible, efficient and transparent real estate market.
All these companies have the potential to make a big impact on the real estate market. In order to enter the mainstream, however, they need to develop a trustworthy brand which is well-positioned in the market. To achieve this, you need a marketing agency that understands DLT technology and segments your target audiences accordingly. At THE RELEVANCE HOUSE, we work with innovative emerging technology projects in sectors ranging from music to financial services. We tell stories that express your company’s values and help people see the relevance of your project.
THE RELEVANCE HOUSE is a full-service marketing consulting agency for firms in the blockchain and emerging technology sector. We don’t operate like a regular agency. Think of us more as an outsourced marketing department. We become part of the team. We focus on helping technology start-ups and projects to build and communicate a relevant brand and story. Why? Because only relevance has impact.