If you think the real estate industry has frozen in time and the coming digital changes will bypass it, you cannot be more wrong. The blockchain in real estate proves that without applying the latest technologies, you will lose your credibility in the market and customers.
Digital transformation and technology innovations have already reached the real estate market. This industry, which had been long considered an adversary of all innovations and digital changes, has given in and welcomed cutting-edge tech solutions. According to Statista, the global revenue of Proptech companies has constantly been growing since 2012, reaching $18 billion U.S. dollars in 2018. Another statistics portal, Blue Future Partners, reports that investment in real estate tech rose from $33 million in 2010 to over $5 billion in 2017. The tendency is clear: tech innovations are disrupting the real estate industry.
If you ask our team to name the most functional digital technology to apply in the real estate market, you will get an immediate response – Blockchain and blockchain-based systems. Below you will find detailed answers to such questions as how blockchain works and what benefits it provides for those who work or whose interests are connected with the real estate sector.
Blockchain in Real Estate and Why It is So Revolutionary
Blockchain is often referred to as “the new technology of trust.” With all the notorious data breaches, digital frauds, and money laundry, trust is something that we all need so much in the 21st century. Applying a trustworthy blockchain database will allow you to be safe from crooks and phonies.
Accenture defines Blockchain as “a new way of storing data in a distributed ledger that allows multiple stakeholders to confidently and securely share access to the same information.” In essence, Blockchain is a distributed data system that anyone can join or leave at will. Sounds like nothing revolutionary? But it really is.
The most important advantage of blockchain technology is security. All information is encrypted and stored in a blockchain ledger that cannot be altered or hacked because it is managed by a cluster of computers.
Once Again: How Does It Work
Let us consider a typical situation. A user of a blockchain-based platform requests a transaction, for instance, a payment transfer for real estate property. Firstly, the requested transaction is sent to a peer-to-peer network consisting of many computers called nods. Then, applying smart algorithms, the network of nodes validates the transaction, encrypting it. The next step is to integrate the transaction with another one by creating a new data block for the ledger. Once this block is created, it is added to the existing blockchain database.
- A user requests a transaction;
- This transaction is sent to peer-to-peer network of nods;
- The requested transaction is validated by the network of nodes;
- The transaction is encrypted;
- Connection with the other transaction in a new block of data;
- The newly created data block is added to the existing blockchain system.
Current Real Estate Challenges and How Blockchain Can Tackle Them: Restricted Access to the Market
Problem: Real estate industry has long been a sphere of business for the rich. The barriers to entry in this sphere have always been very high, with access granted only to “well-resourced” individuals and organizations. Moreover, people working in real estate must cope with numerous requirements and fees from banks, governments, and other third parties.
Solution: Applying Blockchain allows for expensive assets to be co-owned. Additionally, blockchain-powered systems cut out the middlemen, leading to significant cost savings. Just imagine how much you can save by eliminating third parties, such as banks, brokers, and lawyers.
Lack of Transparency
Problem: A real estate business is extremely prone to high levels of corruption and dishonesty. According to the United Nations, from 800 billion to 2 trillion USD dollars is laundered globally every year, of which the biggest part comes from real estate operations. According to the estimates of the United Nations, this figure is in the region of $1.6 trillion per year.
Solution: Blockchain significantly increases transparency, offering more transparent record-keeping systems for real estate entities and assets.
Low Transactional Speed
Problem: Many real estate transactions are slow. Usually, it takes approximately six months to find a property and another six months to fulfill all necessary formalities and requirements. According to Juwai Chinese Consumer International Travel Survey, 56% of Chinese investors spend over one year finding their ideal US investment property.
Solutions: As already mentioned, blockchain technology eliminates the influence of third parties, allowing direct transactions. It also helps to reduce the time required for the fulfillment of formalities. Moreover, storing all the property-related data allows investors to make more informative decisions and reduce the time spent on property study.
Blockchain Applications for Real Estate
Smart contracts are self-executing contracts whose specific instructions are recorded as a code placed in a blockchain network. Fully automated, they do not require manual support or maintenance. Such networks connect real estate companies with their clients in a shared system, allowing them to speed up transfer processes, simplify cross-border payments, enhance the accuracy of transactions, and offer the most competitive prices for their services.
- Instructions and Conditions are recorded in the form of a code placed in a blockchain network;
- The contract is self-executive once the conditions are met;
- Regulators use blockchain technology to keep an eye on a contract.
According to Deloitte, tokenization of assets is “the process of issuing a blockchain token (specifically, a security token) that digitally represents a real tradable asset.”
In essence, tokenization enables property owners to issue tokens through blockchain-powered platforms. These tokens represent a certain amount of shares for real estate assets. Blockchain-based tokenization excludes third parties from real estate procedures and buys asset shares by acquiring tokens from the exchange.
According to the World Economic Forum, in the next ten years, 10% of the world’s GDP will be stored in crypto assets. In other words, 10 trillion USD worth of assets will be stored as tokens.
Moreover, blockchain-powered tokenization has opened new avenues of fractional ownership. Now asset owners can issue their shares of assets digitally, allowing people with restricted resources to become investors. Depending on the tokenization platform, the investment buy-in requirements can be set at different levels, allowing more people to participate. As a result, this will significantly decrease the barrier to entry into the real estate business and increase the liquidity of assets.
Use Cases of Blockchain in Real Estate: Hilton Property Management
The hotel chain Hilton Worldwide has recently implemented a blockchain-driven technology to increase the efficiency of their hotel management by connecting the entire chain. Applying blockchain ledgers allows Hilton Hotels to maintain integrated data services and provide a high level of service at a low cost. The blockchain platform allows hotels to maintain secured and trusted records of their clients across various locations and put more control into the hands of the customers, who can validate and change their profiles while their data remain protected and encrypted.
X5 Retail Group: Liquidity Management Service
X5 Retail Group announced that they have launched Distributed Treasury and Cash Management (DTCM), a blockchain-based customizable service. The DTCM, a Bank-as-a-Service platform, allows clients to maintain their payments, deposit products, and loans inside the holding.
X5 Retail Group CFO said: “The experience we gained constitutes a new benchmark in our interaction with banks: we get a unified treasury application, improve data management, and cut costs and operational risks.”
Emaar Properties: Tokens
A United Arab Emirates (UAE) real estate firm Emaar Properties, has launched its blockchain token-based platform. The platform is designed to reward Emaarclients with tokens for their loyalty and referrals. EMR tokens will not only be redeemable in Emaar’s real estate, e-commerce operations, hotels, and malls but can also be traded with other users.
Hadi Kabalan, Director of Tokenisation at Emaar, said: “We have an existing ecosystem and a large customer base, as well as millions of further potential users globally who have yet to discover Emaar. Our blockchain token platform positions us to grow our user engagement with today’s digital-native, mobile-first generation who expect a fairer internet and want to be part of the conversation.”