- Any tech, idea, or even people who provide tremendous value to the market by creating new opportunities or offering solutions to a problem, contributes to the inevitable business success. Blockchain is one such technology that has the potential to take the real estate industry to new heights. A custom real estate web development company can help businesses to integrate blockchain in real estate and enjoy the wonders!Among several industries like insurance and online quoting, banking, website security, cannabis, and more that have admitted to the significance and benefits of incorporating blockchain technology, real estate is one. The real estate industry, one of the most valuable and largest asset classes in the world, has realized how blockchain can be the right tech weapon to deal with the majority of the existing industrial challenges.Want to know in detail how the real estate industry is using blockchain or how the blockchain technology helps the real estate industry tackle the prevailing issues, then you’re at the right place! Read on!
Well, if you are in a hurry, you can check out this quick infographic showcasing the major opportunities blockchain offers to the real estate industry.
Challenges Faced by the Traditional Real Estate Industry
Before we start enlightening you about the perks of blockchain in real estate, let’s check out some of the major pain points that this traditional legacy business has been suffering from.
For a long time, entry into the real estate market has been limited to only those who are rich. Considering the huge amount of passive income as well as the capital appreciation that the real estate industry offers, more people have wanted to invest in it. However, the barriers to venturing into the real estate market have been too high.
From citizenship to credit score, financing to having international bank accounts, accreditation to cash requirements, and access to the right managers and sponsors, the hurdles are too many. Plus, if you plan to invest in some other country, going through numerous middlemen and spending a lot of time visiting the property or researching about it locally can be a nightmare.
Thanks to the involvement of several intermediaries, investing in real estate means bearing excessive-high fees, such as broker fees, exchange fees, attorney fees, taxes, transfer fees, investment fees, etc. Rest alone the need for consulting with accountants or lawyers to keep your tax returns in order, which means some more fees.
With all these fees piling up on one another, investing in real estate becomes extremely expensive.
Lack of Transparency
You might find it hard to believe, but there is no concrete way or market database available to access the information necessary to take a real estate buying or selling decision. Yes, the unavailability of solid market data makes the real estate industry turbid and unclear which means there’s no way of fighting tax evasion, money laundering, and other real estate-related corruptions.
Can’t guess the depth of dishonesty and corruption in the real estate business? Then the example of the Panama Paper leaks might ring a bell!
Investing in the real estate market involves several people. And it is due to the involvement of multiple persons that the processes here suffer from terrible transaction speed.
To better explain how slow a real estate transaction can be, let us give you an example. Imagine you’re interested in the real estate market investment. Now, while it can take almost six months just to get the right property, it will surely take another six months to acquire it by fulfilling all the formalities necessary for it.
Lack of Liquidity
The term liquidity stands for how fast an investment or asset can be turned into money. And when it comes to real estate investments, they are infamously difficult to convert, which is surely one of the biggest challenges that the real estate industry faces. Real estate investments are not as liquid as cryptocurrencies.
Because unlike in cryptocurrencies, the number of buyers is limited in real estate as it is not open for all, the barriers for entering the industry are too high, and you can’t just list real estate on a public exchange and sell it quickly during open hours.
More or less every transaction in the traditional real estate market involves a string of time-consuming and monotonous paperwork. And many a time, due to the tedious paperwork that real estate companies have lost potential customers and money.
Presence of Intermediaries
The real estate ecosystem has always consisted of middlemen or intermediaries. From brokers to lawyers and even banks, to invest in the real estate industry you have to deal with them all which often leads to paying high fees and commissions asked by the intermediaries. The involvement of intermediaries not only makes both the buyers and the sellers shedding out more and more money but also makes the processes much slower as the back-and-forth between the middlemen keeps going on.
Risks of Fraud
The trust in the real estate business is based on papers and on humans. Yes except for the property agreements there’s nothing more that can offer you security for your investment. And this exclusiveness to paper-based property agreements increases the risks of fraudulent activities. For example, 24% of all mortgage-related fraud cases in the US are reported to take place in California.
Opportunities and Benefits Blockchain in Real Estate Offers
It’s hard to find an industry or segment that has not been influenced and benefited by blockchain technology.
If you’re wondering what is blockchain, then know that this technology is nothing but a time-stamped series of unchangeable or inflexible data records that are managed by a bunch of computers that no single entity owns. Using cryptographic principles aka ‘chain’ each of the data blocks aka ‘block’ are bound to each other and secured. And this blockchain technology offers numerous advantages to the real estate industry as well.
Let’s take a detailed look into how blockchain has changed the real estate industry for good.
Efficient Transaction Process
Even today, the majority of real estate transactions are conducted through wire transfers. And these wire transfers require verification processes to be fulfilled that are costly as well as takes days to get completed. However, once the transactions become blockchain-based, a streamlined process can be easily enabled that will reduce the cost and speed up the delivery.
Marketplaces and Platforms
When it comes to traditional real estate settings, the major concern has always been the listings and connecting with buyers and sellers. With blockchain, however, things are gonna change, and for good. Introducing new ways for real estate trading, blockchain technology can enable marketplaces and trading platforms to offer more comprehensive support to real estate transactions.
With tokenization of real property, one of the several utilities introduced by blockchain to the real estate ecosystem, assets can be bought and sold online just like stocks are traded on an exchange.
Real estate has always been considered to be an illiquid asset as to conclude a real estate sale you need time. However, through exchanges, cryptocurrencies can be easily traded for fiat money. But as blockchain technology lets you tokenize your assets, real estate can be as easily traded as any cryptocurrencies.
With blockchain, it’ll be possible to say goodbye to the long wait of finding a buyer who is interested in buying the entire property for getting some value out of your real estate property.
Along with providing high-end security with its excellent encryption system, blockchain being a decentralized technology commands trust. The information that is stored on a blockchain can be accessed by not any particular one entity but by all the peers that are there on the network. And what does this decentralization mean in real estate? It means immutability and transparency in data.
On decentralized blockchain technology, information is verifiable to peers which means both buyers and sellers can confidently conduct transactions and fraud threats would be reduced.
We have already discussed how the presence of intermediaries adversely impacts the real estate processes. But with blockchain, all this can be averted. Yes, from escrow companies to brokers, this technology can limit the use of middlemen. And not only just limit, once a completely block-chain based approach is in, but several intermediaries could also go obsolete even.
Blockchain, in the form of smart contracts real estate, can establish trust between two interested parties, without requiring the involvement of any third party.
Blockchain-based platforms can take care of functions like legal documentation, payments, and listings. By using blockchain, records can be stored, transferred, and verified. And this means the intermediaries will be no more which can not only save time but the cost will be reduced too.
Being a decentralized network, the transparency that blockchain offers in real estate dealings can also help with bridging down the associated transaction costs. No, we are not repeating the savings you can make once the professional commissions and fees charged by the intermediaries are cut out by the implementation of the blockchain tech.
We are talking about the other costs that typically come with traditional real estate transactions such as registration fees, inspection costs, loan charges, etc. Just like the middlemen, blockchain can reduce these costs or eliminate them as well as trading platforms can make these processes a part of their system and automate them.
If you’ve read the first half of this article, you are aware of the hard-to-cross barriers that prevail in the real estate industry for new interested investors who might not have a huge bank balance. But guess what, like offering many other opportunities and advantages, blockchain real estate projects lower those barriers too.
With fractional ownership, blockchain disregards the need for having a significant amount of money upfront to acquire a property. If you’re not aware of what fractional ownership means, then know that it refers to the process where multiple unrelated investors can come together to purchase a property that they all are interested in by paying equal share for it.
Now with blockchain, such interested investors buy and sell a fraction of tokens as they want by accessing a trading app where assets can be tokenized. No need to worry about managing the property or worrying about the leasing or maintenance of the property as the buying and selling of the property will be done in the form of tokens.
Impacts of Blockchain in Commercial Real Estate
Recently, blockchain has been adapted by the CRE or commercial real estate industry. The smart contracts based on blockchain are believed to play a huge role in the CRE industry. The implementation of blockchain in commercial real estate can transform the major operations like sale, purchase, leasing, financing, and other property transactions including managing the transactions. Let’s take a look at the various opportunities blockchain technology can create for the commercial real estate industry.
- It can improve the entire property searching process
- It can help with smart decision making
- It can increase transparency and security during the purchase or selling process
- It can speed up pre-lease due diligence
- It can make property title management relatively cheaper
- It can alleviate cash flow, leasing, and subsequent property management
This technology has tremendous potential for efficiency, transparency, and cost savings for commercial real estate owners. Removing many of the challenges and inefficiencies in the major processes, blockchain for commercial real estate is becoming more crucial than ever.
Blockchain in Real Estate Making Things Easier
Aren’t you curious to know about the several areas of the real estate industry that are being or could get transformed by blockchain technology? Then, here are some of the major applications of blockchain real estate development that can be improved beyond imagination.
Presently there are various property listing platforms available out there such as Zillow. From buyers to owners, tenants and even brokers turn to these platforms for any property related information.
However, these subscription-based platforms not only charge high fees but also provide property data that are outdated, inaccurate, and even partially distorted. But a blockchain-backed real estate app can put a stop to all these inefficiencies by decentralizing data.
With blockchain, data is distributed in a peer-to-peer network, market participants will be able to access reliable data for a much lesser cost while brokers will have better control over their data.
Property management processes have always been considered to be something of a complex job in traditional real estate as several stakeholders are involved. Even all the property management information stays limited to one person or database as the management processes are performed either on paper manually or via some independent software. However, with blockchain, the entire property management stuff can get simplified.
With blockchain-based smart contracts, property management processes like signing lease agreements, setting up lease payments, filing maintenance requests, regulating cash flow, transferring security deposits, can be automatically done.
Deed management is another area where the impact of blockchain can be witnessed on the real estate apps market. Presently, property titles are paper-based which results in higher risks of fraud cases and errors. According to the American Land Title Association, almost 25% of all the land titles turn out to be defective during transactions.
A defective title makes proceeding with the deed management illegal. In such cases, either the property owner has to wait until the title issue is resolved or pay high legal charges to ensure authentic and accurate property titles.
However, blockchain providing immutable digital records can make the whole process secure and transparent.
Real Estate Investing
The investing process can also get streamlined when real estate platforms implement blockchain. Using the concepts of fractional ownership and tokenization, the limitations of investing in real estate can be removed.
Don’t know whether blockchain will be right for your business or not?
Well, if you wish to strive for a unique sharing platform or streamlined process with less risk and more transparency, then your business needs blockchain.
Blockchain technology is believed to open up new gates for potential investors to venture into the real estate industry. Boosting the real-life utility of tokens, this tech is expected to be tremendously beneficial to the crypto-space.