Technological advancements, like crypto and blockchain, are massively disrupting all sectors – and real estate is no exception. Though real estate is notoriously a slow-mover when adopting new technologies, blockchain is already making huge waves in the industry.
In fact, blockchain technology has already begun tackling the underlying challenges in real estate, such as fraud, overvaluation, and hefty paperwork. In this blog, we’ll take a closer look at how blockchain is revolutionizing the real estate industry, along with the practical benefits it offers:
- Tokenized Fractional Ownership
- Smart Contracts
- Cost-effective Process
- Greater Transparency
- Increased Liquidity
What is blockchain?
First, we’ll briefly go over what the blockchain is. With the introduction of virtual real estate on the metaverse and as NFTs, blockchain technology is what helps facilitate these digital real estate transactions, which are typically made in bitcoin or another cryptocurrency. The simplest way of describing blockchain is as a technology that enables the secure and permanent storage of a digital, public ledger of all transactions in a “block” that is publicly available in several peer-to-peer databases, known as the “chain”.
So, how could it reshape the real estate industry? Well, blockchain acts as a reliable source for both parties involved in a deal, as it provides a secure, decentralized way to record, access, and transfer ownership of assets by storing all transactions, contracts, agreements, and other key information collectively in the network. This technology means that real estate transactions can now be completed in minutes, as opposed to weeks or months, like in traditional real estate.
Not to mention, it’s almost impossible for data to be removed, or changed, as the blockchain is designed for data to be secure and inflexible. Such a transparent ecosystem helps provide ownership rights, eliminates paperwork, cuts costs, and leaves no room for error or fraud.
What Are The Benefits Of Blockchain?
1. Tokenized Fractional Ownership
One way in which blockchain proves to be a major benefit is through tokenization. Tokenization involves converting real estate assets into digital tokens that can be traded on a blockchain platform. Essentially, what tokenization of real estate does is that it allows for fractional ownership of assets, as people with smaller budgets can then invest in real estate assets.
So, with the help of blockchain technology, a group of people can pool their resources together to own fractional shares of real estate assets. Further, rather than having to sell an entire property in order to raise capital, owners could tokenize their assets and sell tokens, or fractions of their tokens, representing a percentage of ownership, opening up a whole new world of opportunities for both individual and institutional investors.
Blockchain-powered platforms make it possible for a wide range of people to invest in real estate through tokenization, as they democratize the real estate market and offer investors more control over investments.
2. Smart Contracts
Another revolutionary blockchain feature is a Smart Contract. Smart contracts outline the terms and conditions of agreements between two parties in code language. When certain conditions of the agreement are met, a smart contract is then stored on a decentralized blockchain platform.
In simple terms, smart contracts efficiently facilitate various types of transactions, including real estate transactions, without the need for a third party. For example, a smart contract, having captured all the property details and conditions, can be used to automatically transfer ownership of a home over to the buyer upon meeting set conditions, eliminating the many layers of paperwork.
Thanks to smart contract platforms, real estate can be sold as digital tokens in a transparent manner from anywhere in the world.
3. Cost-effective Process
A major benefit of using blockchain in real estate is the reduction of intermediaries, significantly cutting down transaction fees and processing costs. Given that real estate is laden with an overwhelming number of intermediaries, from lawyers to realtors, blockchain effectively eliminates the middlemen involved in facilitating a real estate deal.
As the blockchain provides the solution to the long-winded process and extortionate fees typically associated with traditional real estate, deals can now be completed in a reliable, automatic, and swift process. And, with the use of smart contracts, everything, such as listings and legal documents, can now be contained within lines of code, making the process even more seamless.
Overall, blockchain integration in real estate ensures that listings go through a rigorous verification process, to cut costs, streamline transactions and prevent scams from occurring.
4. Greater Transparency
Speaking of which, ever wonder what causes real estate scams and corruption to begin with? A lack of transparency! For that reason, transparency and data accessibility is one area that the decentralized blockchain network effectively improves, as property information is not only stored but is also visible and verifiable by anyone on the network.
This high level of transparency and security generates an equally high level of trust for investors, as blockchain-powered real estate investments are more secure than those carried out the traditional route. Since this data is available to everyone, blockchain technology makes it nearly impossible to alter or manipulate the data stored, making blockchain networks immutable. Moreover, it also helps participants keep track of the transactions at a glance, so the transactions are transparent.
5. Increased Liquidity
The tokenization of real estate inevitably makes the whole asset class more liquid. Historically, real estate assets are not particularly liquid, as investors or homeowners would need to sell their property to liquidate their assets, all in an overly time-consuming closing process.
Again, that was before real estate could be tokenized. Since digital tokens on the blockchain represent ownership of a property, owners could actually sell their tokens and avoid the hassle that comes with selling a house the traditional way. Instead of weeks or even months, it’s theoretically possible for investors and owners to cash in on their tokenized real estate in mere moments.
In A Nutshell
Blockchain is changing the future of real estate transactions to be more secure, transparent, and efficient. By simplifying and streamlining the entire real estate transaction process from start to finish, buying and selling a property will become much faster, easier, and cost-effective once this technology is fully integrated.
Blockchain technology has opened up real estate investment opportunities by offering fractional ownership in tokenized real estate assets, which can be traded on blockchain-powered networks. Additionally, smart contracts automate many of the tasks associated with a real estate transaction. And, considering traditional methods of property ownership are often vulnerable to fraud and errors, blockchain helps offer a tamper-proof way to store this information.
Ultimately, blockchain has enhanced data transparency and liquidity in the real estate industry. Though it will take time for blockchain technology to be fully accepted into the real estate industry, as more and more people realize its potential, blockchain is set to revolutionize the way we buy, sell and invest in real estate.