Blockchain in Real Estate
While it has been a struggle for years to get recognized as a new technology, blockchain has finally begun to gain the respect it deserves. It is currently used in various sectors, with special applications emerging regularly. Because the initial goal behind blockchain was to offer an alternative to the conventional financial system, it’s common for people to see blockchain technology as having its greatest impact on financial services. The most talked about blockchain trend of the year, decentralized finance (DeFi), is another indication that blockchain technology is gaining traction across the industry.
Real estate problems today
The real estate market is a crucial indicator of the health of an economy. Economists closely watch house prices, housing starts, and sales on existing homes as indicators that reflect the economic state of a particular country or area. To understand the significance of this sector for the world economy, it is enough to look back on the 2008 financial crisis and the resulting economic downturn caused by the bursting of the US housing bubble.
To avoid another possibly catastrophic bubble in the property market in the near future, the real estate sector requires greater transparency, end poor sales practices, establish more stringent mortgage regulations as well as limit risky derivative trading in secondary markets, and encourage better investment in property strategies.
How can blockchain help the real estate industry?
A few of the points mentioned in the preceding paragraphs offer a solid concept of how blockchain technology in real estate may be utilized within this area. In many ways, real estate is a component of the larger financial market. That means that the blockchain’s initial purpose is mostly applicable to the real estate industry. Additionally, it can also enhance transparency, compliance with regulatory requirements, and protection of consumers across the entire industry.
Now, let’s take a closer look at what blockchain has to offer.
Processing real estate transactions
The revolutionizing of online payments as well as the world of remittances was one of the first and most prominent uses for blockchain as well as real property. It is the perfect match for real estate. Real estate marketplaces can use the fundamental strengths of blockchain to manage the millions of dollars traded on them every day. Its trust-free nature makes it possible for the direct exchange of funds between buyers and sellers without the requirement of an oversight institution to verify the legitimacy of transactions. Using smart contracts could further strengthen this process. These contracts ensure that the buyer and seller can transact only when they meet certain requirements.
Transparency and secure storage of transactional records
The fact that blockchain technology used in real estate has the ability to reduce the need for outside surveillance of transactions already points to the immense possibilities it has for enhancing security in the real estate market. The potential for this becomes clearer when you take into account other important characteristics of blockchain technology, namely its mutability and the decentralization aspect. In addition, the members of a blockchain-based network have the same, easily-verifiable historical transaction history, which ensures an open and transparent network. Additionally, the records saved on blockchains cannot change. Combining these two features makes blockchain able to function as an undisputed point of truth. This can significantly aid in fraud detection and prevention, as well as data storage regulation compliance and due diligence.
Cutting out the middleman
The third-party validation of transactions is not the only player at risk of becoming obsolete when blockchain is adopted widely in the real estate industry. Title companies are one of the most affected since blockchain-based technology can automatically verify the validity of the title transfer. Blockchain-based platforms that can connect buyers and sellers directly can also reduce the requirement for real estate brokers, which will remove the cost of huge fees for property from the equation.
Real estate markets are likely to benefit by joining the fast-growing trend of tokenization. Tokenization is the issue of tokens that act as the representative for the asset or fraction or a portion of an asset. One can apply this method to any tangible asset, including stocks, fiat currencies, precious metals, art, and luxurious objects. Real estate is not an exception. Tokenizing property can provide greater liquidity to the industry, improve transparency, and help allow investment for real estate to be more affordable, in addition to other advantages.
How can blockchain be implemented in real estate?
Blockchain’s ability to change the world of real estate is indisputable. It is the responsibility of real estate firms and developers of blockchain to discover how to make use of the unique features to benefit the industry. Here are a few suggestions, and we are currently investigating some of them.
Shared real estate database and blockchain-powered marketplaces
Division of real estate
The argument for the tokenization of real estate becomes more compelling when you consider the possibility of allowing individuals to purchase a portion of a property or another kind of property. A fractional ownership model can enable real estate investments to be easier for consumers. If one owns a fraction of the property in kind of tokens investor can claim part of the profits generated by the leases and also some of the profits from the sale in the future.
Initiatives to make the market to less savvy investors have proven successful the in the past. It has been in existence for many years and a long time. Real estate investment trusts (REITs), along with other schemes for property investments, offer the possibility investors can pool their money in order to gain access to income-generating commercial real property. However, in these cases, a specific REIT or fund’s performance, which may contain properties with poor performance, links the returns. A tokenization strategy would make to make a more targeted investment. RealBlocks, a New York-based company that enables investors to buy fractional interests in real estate, is among the firms that have adopted this strategy.
We have shown the numerous methods by which the real estate market can leverage the potential of blockchain technology. We hope that our argument has convinced you why you should harness the power of blockchain technology. Because it is such a significant component of the economy, overall real estate demands robust mechanisms to guarantee that the industry is healthy. In the same way, new ideas and strategies could greatly help to revive the industry, which has at its peak of maturity.