Blockchain and Real Estate
Today we’re going to talk about what the blockchain is and how it will impact everybody from homeowners to investors.
What is Blockchain technology? As we have explained before, it is a digitized distributed ledger that immutably records and shares information. Immutably meaning that it can not be changed. A Ledger can be almost imagined as a locked excel sheet, with every transaction recorded. Transactions are inputted into the sheet and since no one can make changes to it, it is accurate and secure. And this is essentially what bitcoin is: it is blockchain technology, which solves inefficiencies and inaccuracies. Blockchain technology in real estate therefore provides a much faster and efficient transaction, and we will delve deeper into this in a moment. Now that we know what Blockchain technology is, what would this look like in real estate?
There are two main categories to discuss. Firstly, smart contracts in real estate, in other words, programmable money and transactions. Smart contracts can assume the rules of listings, payments and legal documents, so that intermediaries such as realtors, lawyers and banks may have much less involvement in real estate transactions compared to today. As a result, buyers and sellers will save more money through reduced fees for these services, and have a smoother transaction as — once one step of the process is complete, the next step is automatically triggered.
Secondly, we must discuss Blockchain real estate tokenization. Tokenization for real estate is the process of creating a virtual token that represents ownership of a specific type of real estate asset. For example, if a house is worth 100 thousand dollars. With tokenization you can buy a token that represents the full 100% ownership of that home. To take it one step further, instead of one token worth 100,000 let’s break it into 10 tokens worth 10,000 dollars each. We now have fractional ownership of real estate. Traditionally as an investor, the minimum deposit for a house you need to put down is usually 10%-20% of the property’s value to own the property, depending on which country you are purchasing in. For example, on a 500,000 you may need to pay up to 100,000 to start with. This would make investors wait to save the cash, or have multiple investors pool the cash together. Instead, in the future, you would be able to buy tokens with 10,000 dollars each as an example, so that you could have real estate exposure in your investment portfolio. This reduces the barrier to entry and it now levels the playing field because what was once dominated by wealthy and large corporations is now available to regular folk.
If you can tokenize real estate, which would be similar to owning shares in equities, this may make selling your real estate also easier through exchange. For sellers, traditionally to sell real estate it may take you a month to many months; if there was just an exchange, this would make real estate assets just as liquid as equities, trading online with the tap of a finger. Since hypothetically, everything would be on the blockchain, the history of transactions for a specific real estate asset would all be public information, helping with checks and records. This liquidity would help us to see in real time what a real estate asset is worth, as it is recorded on the blockchain — making the transfer visible and immutable. Anything purchased on the blockchain increases trust and allows transparency, allowing all individuals to see the entire transaction history of a property, and it reduces the risk of fraud. The automation of real asset transactions will expedite contract processes, save time and reduce costs automatically.
Blockchain Technology and cryptocurrency is sure to disrupt the entire real estate industry from residential to commercial and industrial, and multi-family residential. In fact, it’s already happening.
