Blockchain and real estate are probably unrelated when you first think about them. You might be able to relate the shared ledger, immutability, and security use cases of Blockchain technology, but nothing particularly special.
Utilizing Blockchain for the real estate market, however, looks to be the next development in technology for real estate when you concentrate more on the long-standing issues that the sector is facing.
In this article, we’ll go deeply into the issues plaguing the real estate sector right now, particularly as they relate to commercial real estate (CRE). Map these issues to the remedies that blockchain technology has to offer after that.
Industry of Real Estate: The Present
Let’s try to comprehend the regular property buying process before discussing CRE:
- A person trying to purchase real estate either visits a website with listings, a website with brokerage services, or a real estate broker in person.
- These middlemen recommend some sellers who are offering homes that meet the buyer’s specifications based on the person’s needs.
- Then, to discuss the terms of the transaction and to negotiate, these middlemen get in touch with the seller. (Note: Some websites that offer properties allow the buyer to get in touch with the seller directly. However, rather than being the owner of the property, these sellers may instead be real estate agents.)
These middlemen guarantee to find the finest rates for the buyers based on their requirements. No matter how trustworthy and upstanding these intermediaries may appear to be, they are inevitably subject to the following restrictions:
All of these middlemen are in the market to benefit financially. Each of them has a business plan that steers them toward transactions that will increase their profits. These offers aren’t always advantageous to buyers. These intermediaries can decide to exclude certain possibilities from the seller’s view or to prioritise those that will bring in the most money. The house, which might be the best fit, would therefore likely be lost to the purchasers.
Everyone is aware of the potential of online scams. Customers can be duped into purchasing a property that is not available or appropriate for sale by using an outstanding website and a small number of imposters. Not all customers are knowledgeable or watchful enough to investigate the history of these middlemen. Numerous legal actions are brought as a result, and a considerable sum of money is lost.
Adding to the aforementioned argument, counterfeit documents are extremely important in deceiving customers into purchasing unlawful, non-for-sale, or inappropriate property. The ability to modify a person’s entire image has been made available via morphing software. With these developments, it is simple to alter text in a physical document and reproduce it. These tangible records could include mortgage paperwork or bank statements. Additionally, fraudsters can demonstrate the legitimacy of the false documents with the help of the appropriate contacts.
4. Extra Charge
The buyer wants to buy the property, while the owner wants to sell it. Why should any of them pay the middlemen extra money? They frequently overcharge for the services they provide, which is unfair. They wind up doing more harm than good instead of obtaining better discounts and facilitating the entire purchasing process for the customer. Additionally, the broker frequently collaborates with the seller to sell a property at a price above the going rate.
Commercial real estate (CRE) market issues
CRE is a significantly more difficult procedure that involves more parties as compared to the approach stated above. So from a business standpoint, Blockchain Real Estate Software Development makes even more sense. The CRE leasing process involves numerous recurring transactions, which increases reconciliation costs, error rates, failure spots, and redundancies.
- Complex Contracts
As was already noted, there are numerous parties involved in CRE leasing, and numerous contracts have been made between them. Any inaccuracy or discrepancy in any of these documents has the potential to halt business operations and cause losses for all stakeholders.
- In charge of cash flow
Managing lease payouts is challenging because the property is rented by several different organisations rather than just one. The procedure is complicated by having to keep track of everything, ensure that payouts have been received, obtain confirmations, distribute maintenance fees across businesses, and other tasks.
- Keeping Records and Security
It is difficult to document each transaction when there are so many going on. It’s not only about making sure everything is recorded; it’s also about making sure the records are secure and only available to those with the proper permissions.
- Real-time data is not present
Access to real-time data is necessary to take advantage of the most recent modifications and choose the property that best fits the requirements.
Blockchain for Real Estate: Use Cases
Blockchain is a system of distributed databases (sometimes referred to as a distributed ledger) where each transaction’s data is kept in the form of a block of hashes. A chain of blocks is created by stacking these blocks together in an immutable manner (each block has information about the previous and subsequent blocks).
A hacker would need to traverse the entire blockchain in order to access the data contained in a specific block, which would take a tremendous amount of processing power. Hacking and information tampering cease to be advantageous for the offender. This technology is also “write-once.” That means the old information cannot be changed; it can only be appended. Blockchain is virtually unchangeable due to all these properties.
As a result, the uniqueness and legitimacy of real estate document information will be guaranteed by keeping it on the Blockchain. Additionally, because all parties are connected to the Blockchain network, any approvals and confirmations can happen quickly. The timestamp can be used to store these approvals and confirmations for referencing in the future.
The distributed database acts as the only reliable source of information. The database is duplicated throughout the network, therefore the reconciliation is carried out automatically. Every node (system) in the network receives a copy of the database whenever there are changes to the main database, which is updated almost immediately. As a result, there are no chances of mismatches or errors.
Additionally, the verifying authority validates each transaction in the context of private permissioned Blockchains, which are more pertinent for businesses. As a result, only authentic transactions are processed and added to the Blockchain.
Two notable characteristics of blockchain that are useful in real estate are as follows:
1. Streamlining Lease Payouts with Smart Contracts
They are the lines of code created to run automatically in response to a certain data trigger. Once they are coded, smart contracts are a set of preset rules that cannot be changed (in most cases). As an illustration, transfer the sum in the proportion 20:30:50 to A, B, and C if X occurs. These Smart Contracts can thereby simplify very complicated leasing payout contracts.
There is no need to keep a record of anything because every transaction is time-stamped and logged. As a result, the entire procedure is automated, resulting in time, effort, and financial savings.
2. Using Tokenization to Streamline the Land Registration Process
A blockchain-based smart contract is a token in the literal sense of the word. The digital representation of a physical asset, however, is the true application of a token. When a token representing an asset, in this case a property, is produced on the Blockchain and has a distinct identity and cannot be exchanged for another token, the asset is said to have been “tokenized” (non-fungible). This digital token can be thought of as belonging to whoever has it.
As a result, establishing who actually owns the land is simple. Additionally, trading these tokens is simple. This function is especially useful when purchasing or selling real estate anytime, anyplace, and practically instantly.
Tokenization may not entirely replace the documentation needed to buy a home (this is only possible if the government completely switches to a blockchain-based digital system), but it can serve as a rapid and dependable method for establishing the first level of commitment in the buying process.
Blockchain Real Estate Process
Contrary to the typical property purchase procedure, the CRE process on Blockchain can go something like this:
Step 1: Real estate market
The lessor and lessee will meet on the online marketplace where verified information regarding the property, such as owner data, geo-location, chain of custody, the area covered, and more, is clearly available to everyone. To verify the accuracy of the information, the market will be integrated with the administrative systems.
Step 2: Identity verification
The marketplace will be coupled with a different identity verification system based on blockchain technology. The identities will be verified by several parties, including investors, banks, government organisations, and third-party verification firms. The answer will verify the data from many sources, including bank transactions.
Step 3: Immutable Agreements
The terms and conditions of the agreement will be saved in the Smart Contract after both parties have decided to proceed with entering into it.
Step 4: Autonomous Payouts
The lease payout will be credited to the lessor’s accounts in accordance with the T&C recorded in the smart contract. All of the data will be time stamped on Blockchain and available for real-time data analysis.
Benefits of Utilizing Real Estate Blockchain
Improved access to property data
Customers will have more control over their data thanks to a marketplace built on the blockchain. The information can’t be manipulated by a middleman, like a broker or broker website. Costs will go down, openness will increase, and foreign listings will be more visible as a result.
Lessen the number of middlemen
The function of intermediaries will either be eliminated or at least reduced because buyers and sellers will be able to connect directly thanks to Blockchain technologies.
More rapid background checks
With the help of the network’s numerous verifying partners, the Blockchain solution can instantly validate the data. Compared to the present offline method, the process will be a lot faster.
Free of hassle cash flow management
The operations that entail numerous stakeholders coordinating with one another to distribute lease payouts and pay maintenance fees can all be automated using blockchain-based smart contracts. For future reference, these transactions can be tracked back.
Corporates can make better judgements thanks to the data insights produced by data analysis and the availability of real-time data.
Due to the high net worth transactions involved, corporate real estate requires blockchain deployment more than most industries. A technological solution like Blockchain that can lower operational costs has the potential to gain widespread acceptance and be adopted quickly in the capital-intensive real estate sector. Without a question, blockchain technology is the next development in real estate technology.