Democratization of Real Estate via Blockchain
Blockchain technology to attract new investments & do away with age-old issues and tsunami of coronavirus in real estate
Since the disruption of blockchain in the financial services, particularly cryptocurrencies (Bitcoins), this technology has known no barriers in every sector it steps in. And real estate is known for its age-old issues of transparency, red tapism, property ownership to name a few. Researchers have found a way to benefit real estate sector through the surge of blockchain technology. This step could prove to be an evolution of real estate by democratizing its activities.
Blockchain disruption has also attracted many entrepreneurs to garner the opportunities it provides. One of my articles was based on this as follows:
Let’s know what a Blockchain is all about:
Blockchain is a network of decentralized distributed databases, i.e distributed ledger, in which digital information of each transaction is stored in the form of a group of hashes (called ‘blocks’). These blocks are stacked together in an immutable way (each block has information about the previous and next block) to form a chain of blocks.
According to Grand View Research, the global real estate market is expected to create a revenue of $4,263.7 billion by 2025.
Real Estate
Real Estate is an immovable property (tangible asset) having lands and building on it, as well as the natural resources of the land, including uncultivated flora and fauna, farmed crops and livestock, water, and any additional mineral deposits. It has three basic categories: residential, commercial, and industrial.
Issues faced by Real Estate:
Real estate sector has a myriad of problems. Out of which few irresistible issues are listed below:
- Difficulty in accessing finance
- Sky-rocketing property prices
- Unsold inventories
- Intermediaries
- Pricing commitments & Inordinate project delays
- Severe lack of transparency
- Transaction Speed
Facts & Stats of Real Estate:
- In 2019, the real estate website Zillow estimated the total value of all U.S. homes in 2018 was $33.3 trillion, which is 71% higher than the nation’s gross domestic product (GDP) of $19.4 trillion at the time.
- Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and will be contributing 13% of the country’s GDP by 2025.
Ways in which Blockchain has changed the Real-Estate scenario
- Decentralization: Blockchain, as a decentralized technology, demands trust and security as its primary attribute. The digital data which is stored in the blockchain is transparent and immutable. One of the main reasons for the Lehman Brother’s housing crisis is the lack of transparency which had catastrophic consequences. A decentralized exchange can instill trust into the system where information can be verifiable to peers, so that buyers and sellers can have more confidence in conducting transactions. Fraud attempts would also be lessened.
2. Smart Contracts:
“Smart contracts are automated, self-executing contract having terms of the agreement between buyer and seller being directly written into lines of code.”
Real estate sector hosts a lot of intermediaries or middlemen right from entities for due diligence, lawyers to verify the promises on both ends, brokers to communicate the issues, etc. For a partnership to work, there needs a lot of documentation, verification, and monitoring. Introduction of blockchain-based smart contracts can streamline and completely change the real estate process by automating the most tedious and complex procedures. It can automate the rental contracts, lease agreements, and also the land title transfers, which is a huge issue now. It can speed up the transactions also.
3. Tokenization:
“Tokenization, in data security is an operation where a sensitive data element is exchanged with a non-sensitive equivalent (i.e, token) having no extrinsic or exploitable meaning or value. The ‘token’ generated is a reference which maps back to the sensitive data through a tokenization system.”
Simply, a token is a digital representation of a real-world asset, value, or function which has the most exciting use-cases of blockchain technology. So, there will be no need for the platforms and marketplaces for trading. This can be done online.
Fractional ownership is one of the most interesting outcomes of tokenization, which is intriguing when it comes to dealings in expensive assets like real-estate. Fractional ownership via tokenization can decrease the entry barriers by a staggering amount, increases liquidity by a considerable margin, and allows for greater portfolio diversification & risk reduction.
4. Liquidity: Real estate is considered to be the most illiquid asset as it takes time to conclude the selling process. But this isn’t the case when it comes to using blockchain technology. Assets in the form of tokens can be readily traded without any delays. As the liquidity in real estate increases, the investment will also increase gradually.
5. Costs: The decentralized network provided by the blockchain provides transparency, which trims down costs associated with real estate transactions. Beyond the savings made by cutting out intermediaries’ commissions, there are other costs such as inspections costs, registration fees, loan fees, and taxes associated with real estate. These can be reduced by automating the trade and transaction processes without inordinate delays.
Beyond this, the Distributed Ledger Technology (DLT) will also enhance the underlying operations of the real estate industry through automation, tokenization, and access to real-time information.
Corona impact on blockchain
Now it is widely accepted that Coronavirus is the ‘Black Swan of 2020’. The virus started in Wuhan, China had spread like wildfire and creating panic across the world. Since the lock-down of the movement in the different parts of the world, tourism sector has been affected badly. And so as the real estate sector involved in tourism. Direct impacts are of people are not initiating any new deals and indirect impact of stocks and investments going down. Like other sectors, real estate will need a big push by the respective authorities to get back in track.
Conclusion
The implementation of blockchain in the corporate blockchain is most crucial as it involves high net transactions. This capital intensive real estate sector along with blockchain technology, can reduce the operational cost and has a potential of wider acceptance. And it’s no doubt that blockchain could be an evolutionary change in the real estate sector.
If you are interested to implement blockchain in real estate business, we are here to help you. Consult our Blockchain experts in Brugu Blockchain Services and know the feasibility of your idea.
You can see other blockchain related articles of mine here below:
