Blockchain in Real Estate: Ignore It At Your Own Risk

You might have heard the terms Bitcoin, cryptocurrency and blockchain being thrown around lately. This emerging technology is disrupting business models across various industries. The consensus is that it is here to stay. But what does this mean for real estate?

Before we dive into the nuts and bolts, let’s define blockchain.

Think of blockchain as a spreadsheet that’s concurrently hosted on thousands of computers. It records all transactions without the need for a central authority such as a bank.What are the benefits of by-passing a central authority?

Let’s use the bank example: Traditionally, when you transfer money to an overseas account, your financial institution would charge you a fee to facilitate the transaction. The transaction takes place immediately but settlement can take days. With Blockchain technology, you can transfer assets digitally without a bank. Cutting out the middleman means smaller fees and faster transactions.

In a real estate context, this means reduced legal and title-related costs, along with faster settlement processes.

How Will Blockchain Impact Real Estate?

#1: More Affordable Home Ownership

Global property prices have risen by 60% since 2000 (Source: IMF: http://www.imf.org/external/research/housing/). Similar to previous generations, many young adults do aspire to become homeowners. Unfortunately, they find themselves priced out of the market and unable to afford a deposit on a home loan. The same applies to budding property investors. Blockchain allows both homeowners and property investors to split the financial commitment. Financial interest in property can be split into small parcels or ‘token’s that can be bought and sold through a secondary marketplace on the blockchain.

#2: Release Equity From Existing Properties

The same applies to existing properties. One major challenge property owners face is that while they are asset rich, they can’t free up equity. Hence there are no viable options apart from refinancing and taking on more debt. Or selling their assets that they spent years acquiring. Both scenarios are typically not ideal for the owners’ financial situation.

#3: Facilitate Transactions With Smart Contracts

The blockchain supports self-executing agreements known as smart contracts.Once verifiable conditions of a contract are met, funds are released automatically, nullifying the need for escrow agents, brokers, and neutral third parties. This mechanism provides for an element of trust that was once only achieved by the engagement of a third party. Hence it eliminates the need for go-betweens entirely. For instance, real estate agents, bankers, brokers, and lawyer.

#4: Reliable Storage Of Property Information

The blockchain can store untampered information regarding properties. For instance, previous owners, repairs, additions, past sale price, the cost of running the home in a year. This information makes it easier to for people to make investment decisions.Also, blockchain applications make it easier to transfer and track title transfers. This can have profound implications, particularly in third world countries. For instance, settlers are often displaced due to war and famine. They often return to discover their land has been stripped away with paper title been destroyed.

Our Recommendations Moving Forward

As blockchain is an emerging technology, the full extent of its applications are still difficult to predict.  What we do know it that real estate businesses need to adapt or risk becoming obsolete. Ex-market leaders such as Toys R Us, Kodak and Borders fell victim to disruption because they ignored emerging technologies.  The late Stephen Hawking said that intelligence is the ability to adapt to a changing environment.

We’ve published a report titled “Innovation in Real Estate 2018”. Simply download a copy of our report and get insights on how to adapt and stay ahead of the competition.

DOWNLOAD OUR FREE EBOOK ON INNOVATION IN REAL ESTATE 2018.

The Real Estate industry is on the cusp of significant upheaval. Technology, changing consumer tastes, business model innovation, radically different ways of working, shifting economic realities and lower barriers to entry are fundamentally changing the game and forcing real estate companies to rethink their business models. In this ebook, we provide a brief overview of Proptech, what it means for incumbents in the real estate industry and what they can do to best prepare and respond to these imminent changes to BAU.

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