Blockchain is a continuously growing list of records, called blocks, linked and secured using cryptography. It is most well-known for keeping track of who owns digital currencies like Bitcoin. In terms of cryptocurrency, blockchain is described as ‘a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly’.
A new form of data management that has caught the interest of the real estate industry, and financial institutions and lenders in particular, blockchain has the potential to revolutionise real estate deals and recording keep costs.
Traditionally, real estate transactions are conducted offline involving face-to-face dealings. Using digital channels for transactions concerning high value assets such as real estate are rare. However, blockchain is set to change this. Blockchain platforms now offer smart contracts, which enable assets such as real estate to be tokenized and traded similar to cryptocurrencies (i.e. bitcoin and ether).
Blockchain offers other potential benefits as well:
Intermediaries have long been a part of real estate transactions. Brokers, lawyers and banks play their part and get a tidy sum in the process. However, blockchain is set to disrupt this arrangement. New platforms can eventually take over the functions traditionally done by intermediaries, such as listings, payments and legal documentation. Removing the intermediaries from the equation will help buyers and sellers save on commissions and fees charged by them.
Real estate has always been regarded as an illiquid asset, because selling it takes time. However, blockchain can allow real estate to be traded as tokens. Therefore, a seller does not need to find a buyer who can buy the whole property to get some value out of it.
Blockchain reduces the obstacles to real estate investing by allowing something called ‘fractional ownership’. Usually, property investment requires a large sum of money upfront. Investors could also pool their money to acquire larger assets. Now, blockchain is able to present would-be investors with more options – they could access a trading app to buy and sell even fractions of tokens when the need arises. The potential of fractional ownership would also help them avoid managing the properties themselves.
Blockchain is a decentralised technology, where data stored is transparent and immutable, and accessible to all peers on the network. A decentralized exchange system has trust built into it. As such, buyers and sellers can have more confidence in conducting transactions.
The inherent transparency of the blockchain can also help to trim down all costs associated with real estate transactions. Besides saving on intermediaries’ professional fees and commissions, there are other costs such as registration fees, loan fees, inspections costs, and taxes associated with real estate. In the future, platforms can automate these processes and make them a part of the system, thus eliminated these costs from the equation as well.