The initiation of smart contracts in blockchain platforms now permits assets like real estate to be tokenized and traded like cryptocurrencies such as bitcoin and ether.
FREMONT, CA: Given blockchain’s disturbance of financial services and widespread application across industries, it’s hard to find a segment that the technology has not influenced.
Cryptocurrencies have strongly impacted payments, remittances, and foreign exchange. In addition, initial coin offerings (ICOs) have disputed stock investing, startup loans, and venture capital. Also, the food supply chain industry has been overturned by blockchain.
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Real estate hasn’t escaped blockchain disturbance either. Previously, transacting high-value assets such as real estate exclusively through digital channels has never been the norm. Instead, real estate transactions are often conducted offline, involving face-to-face engagements with various entities. Blockchain still opened up ways to change this. The initiation of smart contracts in blockchain platforms now permits assets like real estate to be tokenized and traded like cryptocurrencies such as bitcoin and ether.
Trading real estate this way differs. Here are six ways blockchain has transformed the real estate game.
1. Platforms and Marketplaces
Real estate technology has been primarily concerned with listings and connecting buyers and sellers. Still, blockchain introduces new ways to trade real estate and can enable trading platforms and online marketplaces to support real estate transactions more comprehensively.
For instance, ATLANT has developed a platform that employs blockchain technology to promote real estate and rental property transactions. Through tokenizing real property, assets can then be marketed much like stocks on an exchange, and transactions can be made online.
ATLANT enables sellers to tokenize assets, effectively handling them like a stock sale and liquidating that asset through a token sale using the platform. The gathered tokens can be swapped for fiat currency, with buyers owning a percentage stake of the property.
2. No Intermediaries
Brokers, lawyers, and banks are part of the real estate ecosystem. Though, blockchain may soon usher in a shift in their roles and participation in real estate transactions, according to a report by Deloitte.1 New platform can eventually assume functions such as listings, payments, and legal documentation. Cutting down the intermediaries will result in buyers and sellers getting more out of their money as they save on commissions and fees charged by these intermediaries. This also causes the process much quicker as the back-and-forth among these middlemen gets cut.
KEY TAKEAWAYS
Blockchain technology has influenced the real estate industry in different ways, including offering a new means for buyers and sellers to connect.
Blockchain could be employed to cut intermediaries out of the real estate transaction process, thereby reducing costs.
This technology could also help codify the practice of fractional real estate ownership.
3. Liquidity
Real estate is an illiquid asset that takes time for sales to complete. This isn’t the matter with cryptocurrencies and tokens because they can, in theory, be smoothly traded for fiat currencies through exchanges. Still, as tokens, real estate can be easily traced. A seller doesn’t have to stay for a buyer who can afford the entire property to get some value out of their property.
4. Fractional Ownership
Blockchain allows fractional ownership and lowers the barriers to real estate investing. Typically, investments would require significant money upfront to acquire property. Alternatively, investors could also pool their money to acquire bigger ticket properties. Through blockchain, investors simply have to access a trading app to buy and sell even fractions of tokens as they see fit. In addition, fractional ownership would help them avoid managing the properties themselves, such as maintenance and leasing.
Upkeep alone can add up to high costs, and dealing with tenants may be troublesome. This also influences related activities such as lending, where property owners often have to put their properties as collateral for loans to get quick access to cash. However, depending on the terms, property owners may also continue enjoying the use of their property.
5. Decentralization
Blockchain commands faith and security as a decentralized technology. Information kept in the blockchain is available to all peers on the network, making data transparent and immutable. One just has to go back to the housing bubble crash in 2008 to see how greed and the lack of transparency on the part of institutions can have catastrophic consequences. A devolved exchange has trust built into the system.
As information can be verifiable to peers, buyers and sellers can have more confidence in conducting transactions. Fraud efforts would also be lessened. Smart contracts are progressively becoming admissible records, with Vermont and Arizona passing such legislation. By themselves, smart contracts would have more enforceability than the technology itself.
6. Costs
The transparency of a decentralized network can also cut down costs along with real estate transactions. Beyond the savings made by extirpation intermediaries’ professional fees and commissions, there are different costs such as inspection, registration, loan, and taxes associated with real estate. These costs also differ depending on the territory that has jurisdiction. Like intermediaries, these can be decreased or even removed from the equation as platforms automate these processes and make them part of the system.
Global real estate is valued at hundreds of dollars but is dominated by the wealthy and large corporations. Through blockchain technology, more people may be able to access the market where transactions can be made more transparent, secure, and equitable. Real estate transactions may eventually become peer-to-peer activities with blockchain-powered platforms doing most of the work.
