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5 Blockchain Use Cases in Real Estate
5 Blockchain Use Cases in Real Estate
Each industry, be it Agriculture or Supply chain, is keen to explore the invaluable benefits that blockchain use cases can supplement. Real Estate and land management sectors are also not far behind. Numerous projects are already being planned and implemented even as you are reading this.
There are multiple blockchain use cases that land management can take account of in order to sustain the growing population. Moreover, today’s real estate sector is crammed with multiple stakeholders, unclear land titles, fragmented properties, a very opaque system, frauds, and corruption. Hence, for the unique peculiarities that blockchain offers, it becomes more than relevant to build a blockchain empowered real estate and land management platform.
The Real Estate Sector
The Real Estate sector has a huge contribution to the economic growth of a country. The more robust a country’s land management system is, the more it impacts the GDP of a nation.
In the case of India, the real estate sector amounts for 7-8% of India’s GDP. This figure is set to increase to 13% by 2025. Additionally, India’s real estate sector is set to reach the US $1 trillion by 2025. Analyzing this bundle of information reveals the huge impact, the real estate sector has on a country’s GDP. This holds true for any country/region.
It, therefore, becomes necessary to have a system which is efficient, cost-effective, timely, transparent and secured. However, currently, the land management and real estate sector of any country seems to be majorly lacking.
Blockchain Technology Features
Blockchain technology can play a huge role in transforming the real estate sector. An integrated approach with blockchain can help in removing the outdated methods of the industry.
Before we move forward to blockchain use cases in real estate, let’s take a look at the characteristics of blockchain technology. Further, we will explore how each of these characteristics can change or add value to traditional land management methods.
- Decentralization– The blockchain protocol works on a decentralized framework. The information stored isn’t kept on a centralized server or location. This ensures that even if one or more server fails, the data isn’t lost.
- Peer to Peer- Any kind of transaction of data or money is directly conducted between two parties without the need for intermediaries to handle or monitor.
- Uniform Ledger- All the bits and pieces of information gathered is stored on a ledger which is uniform (same) across all the stakeholders involved in the project.
- Transparent- The data stored on the ledger in blockchain remains transparent and accessible to all the involved parties.
- Traceability– Any information, once stored on a blockchain, cannot be modified or changed. Furthermore, this data can be traced back to any point in time. This reduces the possibility to induce fraudulent activities as it can always be traced back.
- Real-time- Another key characteristic of this protocol is that all the information is updated in real-time across all the copies. If any stakeholder updates the information, it automatically gets updated to all the other stakeholders of the same platform.
Blockchain Use Cases in Real Estate
Now that we have a better understanding of the qualities of blockchain, we can explore how each of these can be of value particular to real estate sector.
We will take up the issues faced by real estate and land management sector in today’s world and try to find blockchain solutions for the same.
Decentralized Digitized Records
Despite the advancements in the technological era, land records are still stored on paper in most of the nations, even today. These dust-gathering land records are kept in centralized siloed locations. The paper-based land records are very easily prone to natural or man-made disasters.
The classic example of what happens when you store land records in a centralized location is the case of ‘Haiti city’. In 2010, in a catastrophic earthquake, most of the land records of the city were either damaged or destroyed. The city still faces disputes on land with the lack of clear land titles.
Additionally, the paper-based system is not only hard to maintain but also vulnerable towards corruption of land titles. It reduces the authenticity and security of land records. Moreover, the historic pen and paper system makes the whole land registry process more complex and tedious
Storing digital records on the blockchain can be the first step to having a robust land registration system. First and foremost, the records are stored on a decentralized platform. This immediately removes the threat of losing, destroying or damage of records. Because if, the records are lost or destroyed from one server/location, can always be retrieved from another location.
The shared platform of blockchain also makes digital records less susceptible to frauds and manipulation. Since the information once entered on a blockchain is impossible to edit or delete, it becomes difficult to exploit it. Hence, the disruptive technology ensures that documents remain tamper-proof.
Identical Records Across Multiple Stakeholders
Another major issue faced in our present system is that it is stuffed with too many stakeholders. Moreover, the information across the network of stakeholders is inaccurate and fragmented. This, in turn, affects the customer- who has to go through the same procedure multiple times.
Additionally, the lack of trust among these stakeholders fails to keep the system updated, and also working in real-time. The system becomes lengthy and costly. There is a lack of uniform documents across multiple stakeholders. This leads to data redundancies, frauds, lack of security and transparency in the land management system
Bitcoin proved to be successful because it incorporates the blockchain ledger technology in its protocol. The public ledger holds one single truth across the millions of bitcoin nodes. Bitcoin is one small example of the blockchain powerhouse. It is similarly possible to have one single truth across the real estate platform
The ledger holds all the data and keeps it uniform across the platform.
So, all stakeholders are now in possession of the same copy or bundle of information. Also, the changes made by one stakeholder are automatically updated across all the stakeholders copy along with a timestamp and digital signature. The ledger ensures that the stakeholders remain honest and the process remains transparent. Additionally, it saves time by not having to repeat the same procedure.
There is no need for stakeholders to have trust between each other in order to exchange information. One stakeholder who updates the information will automatically be received by the other stakeholders (who have permission to view the data). The blockchain ledger also gives an added advantage of updating the information in real-time. Consequently, this reduces the processing time needed to give approvals. It further streamlines the registration management system with a lower workload.
Standardized Multiple Search Listings of Property
Multiple Search Listings (MLS) is one of the most used ways to access information related to real estate properties. It is used by tenants, buyers, renters, sellers, and brokers to view the details of properties. This includes location, the age of the property, expected rent, capital value, surroundings, the distance of the property from important landmarks, etc. However, the internet has given MLS the same fate as others have faced. The information is scattered across multiple platforms, in turn making it inaccurate and misleading.
These platforms are often subscription-based demanding high fees from its users. There lacks a standardized platform integrating all the listings under one site.
Blockchain-enabled real estate sector can make the data more accessible and standardized by providing Multiple Search Listing (MLS) under one site. All the entities can use a single source in order to gain any kind of information related to any property. It also helps users make a clear concise decision based on all the information available at hand in one place.
The users can have more accessible data at lower costs. The data becomes more useful because the users can compare properties of the same localities.
Apart from gold, and stocks, the real estate market is considered to be one of the most prominent investment markets. However unlike the other two, in order to make an investment in real estate, you need to have a sizable chunk of money. This creates a barrier for a lot of people.
In the present scenario, the seller cannot sell fractions of property. Even if he wants to, the buyer needs to trust the seller to that he or she has the equity they claim to have. Hence such a financial model is unsustainable with the present tools at hand.
Blockchain driven real estate has the power to incorporate new business model such as this one: Property Tokens. Much like stocks on exchanges, one property can be divided into tokens among multiple stakeholders. Each of the buyers would get his/her share depending upon the investment that they have made.
This creates a win-win situation for buyers and sellers. Buyers don’t need to have a bulk chunk of money pooled, in order to make an investment in real estate. So this lowers the barrier to entry for real estate investments with blockchain use cases. Additionally, the property shares can be used as securities against which they can get a loan (just like stocks). Sellers can sell the shares that they are comfortable with. This allows them to create an additional source of income as well as not give up the whole piece of land.
The idea is to tokenize the real estate shares creating a new business model which is more open, accessible and easy.
Blockchain Use Cases: Smart Contracts
It is a granted fact that real estate sector hosts a lot of intermediaries. There are entities for due diligence, lawyers to verify the promises on both ends, brokers to communicate the issues, etc. There is a lot of documentation, verification, and monitoring that is needed in order to make a partnership work.
And yet, despite proofing the process with the best measures, the industry still has a myriad of problems.
Smart contracts can bring the most visible and immediate change in the real estate industry. Implementing smart contracts can automate the most tedious and complex procedures. Introduction of smart contracts on blockchain can streamline and completely change the real estate process
Smart contracts can be converted into rental contracts. A smart contract will have all the agreements made between two parties, the rent terms decided, the monthly rental amount, security amount, etc. This blockchain use cases of the smart contract which has digital signatures of both the parties are stored onto the blockchain. This automates the rental process between the two parties. A rental amount is automatically deducted from the tenant’s account to the landlord’s account. Similarly, upon the termination of the lease, the rental terms expire and the security amount is transferred back to the tenant’s account.
Smart contracts automate the lease agreement such that little or no monitoring is required by either of the parties.
Not only rental agreements, but various kind of smart contracts can also be drawn among different parties. For example, a smart contract drawn between a buyer, his bank and title clearing authority. The title of the land will automatically be transferred to the buyer, once the bank sanctions the approval for his loans. This kind of smart contract removes the much-needed work for verification, sanctioning and transferring of land title.
Would blockchain solve all the woes of the real estate industry? Well, no. There are many issues yet to be discovered and solved. However, blockchain technology does provide a much-needed platform for the real estate sector to thrive and segregate.
Would blockchain solve all the woes of the real estate industry? Well, no. There are many issues yet to be discovered and solved. However, blockchain technology does provide a much-needed platform for the real estate sector to thrive and integrate.
Blockchain Applications in Real Estate
In a mostly paper-record based industry, blockchain real estate allows for a significant gain in efficiency in how records are stored and recorded.
The real estate industry as a whole historically lags in adopting new technology, with many paper-based documents exchanged. Should the real estate industry choose to adopt blockchain technologies for essential functions such as payment, escrow, and title, this could create unprecedented efficiencies and cost savings. Furthermore, implementation of this technology can reduce fraud, increase financial privacy, speed up transactions, and internationalize markets.
Blockchain technology can play a particularly prominent role in property title management, providing improved property ownership record tracking, and improve efficiencies for title companies, title insurance companies and all manners of data-retrieval services with employees who trek to town, county, and state government offices to pull information from paper files.
Distributed Ledger Technology (DLT) has excellent potential to reduce friction in paper transactions, monetary exchanges, and can help to abbreviate intensive processes with automation. Real Estate interactions are third-party dependent making them costly and time-consuming. From rentals to larger commercial deals, smart contract technology can be deployed to make for smoother real estate transactions.
This guide to blockchain applications in real estate will review the current industry pain-points, the benefits of decentralization, and discuss specific use cases for this new technology.
Problems the Centralized Real Estate Industry Faces
Real Estate is a $217 trillion global industry that is more than fifty percent residential properties. We all have to live somewhere, and the population continues to increase, and we live in a more borderless world, the industry will involve more and more transactions annually.
As the real estate industry exists today faces a cornucopia of problems with its tangled processes. Here are some of the main issues that hamper the real estate industry from functioning optimally:
Both low-level petty renter fraud and high-level wire fraud are prevalent in the real estate industry. Fraud is responsible for millions lost annually. Centralized electronic fund transferring is not secure. Cybercriminals steal millions from purchase transactions. Additionally, pen-and-paper tenant screening creates a spotted and selective paper trail created by tenants themselves. Tenants choose their references and what rental history they share with landlords.
- Inaccurate market data
Even popular platforms like Zillow fail to provide real-time data to investors and renters. There is no reliable hub with consistently updated listings for real estate professionals and buyers to rely on. This can result in time down the tubes as people tend to inquire about properties that have been long removed from the market. Data about a home that someone is buying can also be faulty.
- Time intensive processes
To close a deal in the real estate industry, there are many moving pieces that all rely on paper processes. As technology evolves firms and agents struggle to keep up with the latest tech solutions. Between inspections, releasing contingencies, loan approval, unexpected repairs, completing cash transactions for closing, and completing all the necessary paperwork—closing a deal is an incredibly time intensive headache for both buyer, seller, and third-parties. Anyone who has bought or sold property can agree that it is a bureaucratic nightmare and complex event to orchestrate.
- No means to protect client data
Cybersecurity risks plague real estate brokerages. They are unable to guarantee the security of client data, in addition to their own. Hoping for the best is never a excellent security strategy, but many real estate companies are doing just that. To purchase property, clients need to disclose an alarming amount of personal information to various parties, leaving them vulnerable to identity theft.
- Financing difficulties
Securing a home loan can be incredibly difficult, especially for those with bad credit scores. Interest rates on home loans are often out of the buyer’s control and depend on the current market. The centralized loan and financial services system is highly bureaucratic and is likely to slow down the entire transaction. Relying on a centralized bank to say ‘yay’ or ‘nay’ to your dream of becoming a homeowner can be discouraging and can even prevent some from buying altogether.