The real estate industry has tangible and meaningful immediate use cases for the blockchain. The technology is generally applied to improve efficiency, security, and privacy in asset leasing, purchase and sale, and management.
The following are some specific ways blockchain is used in the real estate sector.
It can be challenging to keep track of everything, especially in cases where a real estate investor has a significant portfolio or the ownership of an asset has many stakeholders.
Besides the need to maintain an unerring balance sheet, it is also important that an accurate ledger of funds flowing into and out of the system is kept.
The blockchain can be a ledger for those particular functions. It is transparent and auditable in real-time. It is also immutable so that no one entity can arbitrarily change its details.
Meanwhile, the same ledger can also include a native digital cryptocurrency used as a medium of exchange in asset leases and purchases. The digital currency can also settle utility bills, a process automatable through smart contracts.
Indeed, smart contracts on the blockchain can also automate lease agreements and rent payments. In addition, the blockchain can provide real-time data that can be used to make critical decisions regarding asset management.
Often, real estate projects are immense. Hardly any single entity can finance their development. Many stakeholders may provide the necessary financing in such cases, creating a management challenge.
The blockchain offers the capacity to manage, secure, and automate financing arrangements. Besides providing a shared ledger for tracking stakes, the blockchain offers smart contract-based mechanisms for stakeholders to participate directly in the project's management, such as through Decentralized Anonymous Organizations (DAOs).
Ownership of property is at the center of what democratic societies are. In particular, that translates to the ability to easily and undoubtedly prove and secure it. This is achieved through titling systems, otherwise known as the property registry.
However, real estate ownership is as secure as the property registry. If the system does not exist or can easily be tampered with, those with power can dispossess those who don't have it. Also, weak land registries can be hacked, and property ownership arbitrarily changed.
That can make a real estate property investment highly risky and attractive.
A land registry on the blockchain benefits from cryptography, immutability, and decentralization, making arbitrary changes difficult to achieve. Titles can exist on the blockchain as non-fungible tokens (NFTs).
Identity is important in real estate transactions. The tenant or buyer needs to know if the person claiming to be the asset's owner is actually the owner. It is also important that a landlord knows the actual identity of the tenant.
This information is available through centralized databases. However, the data can be more accurate if it is recorded in a format that protects it from possible manipulation.
Investors, agents, brokers, and other real estate professionals often use several silo-ed systems to initiate and process a transaction. Each stage of the due-diligence process can be time-consuming as it is predominantly manual and paper-driven.
The blockchain offers the capacity to improve the existing systems right from the property search process. With records on the blockchain, a property owner can use a private key to prove ownership.
Whoever is interested in buying, leasing, financing, or getting involved in any other way can easily look through the immutable ledger to verify ownership and also check its prior transactions, including if it has any liens.
Making payments in real estate transactions often involves many processors, which increases the cost of the property. Sometimes, it can also take days or weeks before the payment is completed.
This blockchain application, through its native currencies, makes it possible for the payment to be instant and managed through smart contracts.
For example, the title and the payment can be exchanged simultaneously in sales. Meanwhile, payment plans can be stipulated and automatically executed in smart contract lease agreements.
The transactions are recorded on an immutable ledger that can be queried at any time.
The blockchain increases efficiency in the real estate processes in several ways.
It removes intermediaries in most of the processes. For example, a buyer and seller might not need to go through Multiple Listing Services (MLS) or rely on other time-consuming, paper-driven offline systems.
Through a blockchain, counterparties can meet at the property, negotiate and transact peer-to-peer through a smart contract. Likewise, the payment does not need to go through intermediaries like banks. It can go directly from the buyer to the seller.
Removing intermediaries reduces costs and also accelerates the processes. Data on issues such as rent, mortgage, legal disputes, and inspections can be fed real-time into the title file through oracle systems.
Transacting and managing residential or commercial real estate properties often involves many stakeholders. The list might include owners, tenants, property managers, lenders, investors, and agents.
With the use of blockchain, these stakeholders have the opportunity to audit transactions in real-time.
Each can also easily access data that can help them act appropriately. For example, owners can create financial models based on rents, occupancy, and costs. The security and integrity of the data are improved through the immutability, cryptography, and decentralization of the blockchain.
Assets can be tokenized on the blockchain, and ownership subdivided among many. These co-owners can receive proceeds or contribute to any overheads according to what part of the asset they own. Meanwhile, the processes are managed through smart contracts on the blockchain.
The blockchain makes it possible that even small-scale investors can own part of major property investments as they can easily buy tokens representing part of real estate on the blockchain.
The tokenization of assets can make them accessible to a wider market. For example, it is possible to tokenize such a project so that while, in the physical sense, it remains as a single unit, stakeholders own pieces of it in the accounting books based on their capital contribution.
It is still early days for using blockchain in the real estate industry. With many developers and startups building solutions for the industry, a lot could change in a few years.
No one can accurately predict how exactly blockchain will change the industry. However, it is almost certain that the technology will make the market more liquid and accessible.
It could take minutes to complete transactions as the counterparties can easily authenticate the asset title as well as each other's identity and use robust smart contracts to transfer ownership or manage leases.
It might seem like real estate agents might lose in adopting blockchain as peer-to-peer transactions become easier to achieve. However, agents are the most likely to have the capacity to write and maintain the most secure and reliable smart contracts that other stakeholders in the industry can use.
Meanwhile, the technology can significantly reduce their overheads.
Casper has built the capacity to give practical advice on using blockchain in key industries, including real estate.
It has also built a technical environment for building highly upgradable and dynamic smart contracts that industry players can use (see also potential future use cases for blockchain implementation and more benefits of utilizing blockchain technology in industry).
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