In this new age of technology advancement, you do not need a computer science degree to understand blockchain. You may wonder, “isn’t blockchain the same thing as a database?” Well, they both serve as the same purpose of storing data. However, blockchains have different encryptions that give them a more robust security system than databases. Databases are easy to change and hack. Meanwhile, the information on blockchains is permanent once the data is inputted into them. To break it down a little further, A blockchain collects related information and groups them together – also known as “blocks” that hold data sets. Each block has a specific storage limit. Once a block is full, it gets chained onto the previously filled block. That creates a chain of blocks with data. Hence, the name “blockchain”. The chain around the blocks makes the data unchangeable and indestructible. And since this data is then distributed with a network of computers, the chain creates a verifiable ledger of transactions that anyone can review without being able to alter. That makes blockchains different from databases, which just store data in tables, often without secured encryptions.
How useful is blockchain technology in real estate? (What We have seen so far)
There are many benefits of using blockchain technology in real estate. From the title transfers to price negotiations, blockchain technology offers a simple and secure way to perform complex real estate transactions. Let us consider how in recent years, apartment tours have gone digital. You can schedule a self-guided tour and view an apartment without talking to a leasing agent. Similarly, blockchain technology digitalizes and simplifies many steps of purchasing a property by providing secure and virtual solutions.
A brief history of blockchain technology in real estate
Since the 1910s, real estate agents have acted as middlemen between the seller and the buyer. Having the agent facilitate the property transaction helped establish a level of trust between the two parties. The agent is an expert on the local laws and regulations. So, they can confirm that the seller owns the property, and the buyer has the funds to buy it. These tactics and practices are still in use till this day. However, blockchain is slowly but steadily transforming the process. On January 9, 2009, an individual (or a group of people- no one is certain about this) under the pseudonym Satoshi Nakamoto released the very first version of bitcoin, and subsequently, blockchain database. About Nine years later, in February 2018, America oversaw its first ever blockchain real estate transaction in Vermont.
The transaction was part of a pilot program with Propy. Propy is a San Francisco- based startup that allows anyone to buy or sell real estate completely online from anywhere in the world. Its blockchain technology records each step in a real estate transaction, from expressing the initial interests to signing contracts to transferring ownership titles.
What is yet to come for blockchain technology in real estate?
Although still in its early days and developing, using blockchain in real estate is exciting and full of possibilities. Numerous startups, such as Propy as mentioned previously and Redfin, are already transforming all real estate transactions to be entirely digital. These tech-enabled brokerages reduce the cost of intermediaries – including realtors and bankers- by annihilating the need for paperwork, audits, and insurance whenever possible.
Here are some of the exciting ways blockchain will enhance the real estate industry:
- Blockchain-based smart contract.
- Making property investing accessible.
3.Property listing services that are transparent and secure.
Blockchain-based smart contracts
A smart contract is a self-executing contract outlining the terms of the agreement between buyer and seller. The terms are written into lines of codes that are stored across a distributed and decentralized blockchain network. The blockchain codes monitor the execution of the contract, and such transactions are trackable and irreversible.
Listing agreements, letters of intent, offer sheets, and closing documents are examples of contracts that can become digitized on blockchains. Signing smart contracts instead of paper contracts can significantly speed up the whole transaction process. It also eliminates the need to meet and negotiate with brokers, bankers, and lawyers while ensuring peace of mind that the transactions are secure and legitimate.
Making property investment accessible
Real estate investing has long been exclusionary and time-consuming. Whether you are investing in a single-family home or a multi-building property, you need to involve multiple parties in the due diligence process. You also need to be well off financially to even think about investing in a property.
With blockchain technology, multiple people can buy tokens of a particular property and co-own the building. This is the tokenization of a property, allowing fractional or partial ownership of the asset. Tokenization also allows real estate to be a more liquid commodity, meaning that owners can easily buy or sell their shares cheaper and faster. Therefore, this process attracts more potential investors and buyers in the real estate market by democratizing and decentralizing it.
Property listing services that are transparent and secure
Most property listing services available today are privately owned and do not have a centralized database for cross-referencing. Real estate is historically a “pen and pencil” business, often relying on old and inefficient methods to keep track of transactions and records. Even worse, those services often require users to pay hefty subscription fees.
However, moving those property listing services to a single decentralized blockchain-based server creates a uniform and secured database accessible to everyone. Also, since the data is vetted and stored securely, third parties cannot interfere with it by inflating the price or listing fraudulent information.
However, Blockchain technology has big implications for:
- Property developers
- Property owners and investors
- Residents and tenants
- Property managers
Property developers
When multiple parties can invest in a development project, developer can embark on fund raisers for the project faster and more efficiently. This practice of fractionalization is not new in real estate, blockchain technology streamlines the process and casts a wider net for potential investors. This ensures confidence in sponsors to solicit for capital contributions outside their immediate network without fear or worrying about vetting them or completing massive loads of paperwork. Blockchain facilitates the signing of smart contracts, issues briefings, securely stores all architectural documents, engineering plans, appliance manuals, and other information. This makes the access to those materials and data easily available to investors, owners, and everyone else involved in the development project. This saves transaction time and costs, allowing developers to focus on actual development.
Property owners and investors
Since we can agree that blockchain technology makes falsifying or corrupting data nearly impossible, this guarantees peace of mind when buying real estate to potential buyers. They are confident that the price and legitimacy are transparent and accurate. Furthermore, converting its value into crypto – liquidates the industry (tokenization of real estate) Liquidation makes the entry point for potential buyers and investors more accessible.
Residents and Tenants
By taking virtual tours and signing leases with smart contracts to submit rent payments or making maintenance requests, renters will enjoy better leasing and living experience with blockchain. Blockchain technology makes it easy to negotiate deals from distance, eliminating geographical barriers and prevents privacy and data breaches.
Property managers
Presently, property management encompasses a lot more than just applying a fresh coat of paint or upgrading the appliances. A chunk of the job entails processing paperwork, whether for lease agreements or maintenance requests. However, with decentralized property management made possible by blockchain, all that paperwork becomes smart contracts that are nearly error-proof.
A blockchain-based system provides fully transparent information on rental value, payment frequency, tenant and property history, and contractor agreements. Although cryptocurrency has yet to be fully adopted in the mainstream real estate industry, quite a few companies are using blockchain technology to record rent and other related transactions. Some of these great benefits and value created by blockchain technology highlights its contributions and importance. Blockchain can also help prevent subleasing. Blockchain has the potential to revolutionize every aspect of the real estate industry. It is, bluntly, a disruptive innovation that will change the roles of players in the sector. However, just as we have seen every other technological advancement initially seeming impossible or far – fetched. For example, consider smartphones. Just 14 years ago you could not imagine always having the world wide web in your pocket. Or that you could buy items miles away, settle payments (transactions) from the comfort of our homes, turn on a car or even unlock your apartment door with such a device.
It is evident in recent times that real estate has a bright, exciting, and promising future ahead, thanks to blockchain. Some ways the current trend will influence the future of real estate:
- The increasing popularity of cryptocurrency
- The continuous growth of the internet of things
- Increased property security
We have discussed expansively how blockchain will- and already is- reshaping the real estate industry. Rather than feeling stuck or left out as to what to do right now to adapt to such a technologically advancing world
Tech icon Bill Gates once said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”
