Blockchain in real estate is poised to be the next big thing. The core properties of blockchain can enable more efficient ways to structure workflows in real estate. In this article will discuss a four major use-cases of blockchain technology in real estate.
Settling Land Conflicts
Damaged documents, wrong records, and corruption cause conflicts over ownership and keep productive land unused. For instance, after the 2016 hurricane in Haiti so many records were destroyed. This lead to a lot of land being unallocated there. In a lot of countries, the management of land registration is done offline. Hence, is subject to fraud and errors.
Blockchain and smart contracts provide a strong platform to record land titles. Using a decentralized ledger could be a more streamlined and effective way to:
- manage ownership of the land
- help avoid disputes
- Ensure that records are not manipulated or lost.
Data Collection and Due Diligence
Real estate companies need the verification of property details before lease or purchase. But, it is expensive and difficult to do so. According to one of the surveys, real estate markets are slowly improving in transparency. Still, there are many efficiencies to be gained.
By storing all property data such as floor plans or repairment logs in a secure, unalterable place – blockchain can make it much easier for investors to verify real estate details and do their due diligence. The technology could also be used to trace the journey of construction materials from the factory till demolition of parts, and recycling of the same. This would make it easier to track the quality and age of every part.
Real estate as an asset has a major disadvantage: low liquidity. Even REITs and SPVs that seem liquid don’t offer the same ease of sale of other assets. This is because they lock up funds for a considerable length of time.
Transferring properties on blockchain, converting it into small fractions – and turning it into tokens (tokenization) creates a new path to real estate investing. It can allow owners to sell their stakes in open market without ‘selling’ the property. Tokenization can also remove high barriers of investments for smaller investors. Real estate tokenization based on blockchain can enable fractional ownership of a property, which will increase market participation and unlock newer financing methods.
Codifying real estate agreements and putting them on blockchain using smart contracts is not a new concept. There have been several POCs by various organizations for putting agreements of ownership and land transfer on blockchain. However, it is possible for complex real estate processes such as project management to be handled using blockchain.
To understand this, a project can be treated as a long list of transactions between multiple parties. These transactions can represent any type of agreement regarding payments, goals or milestones. So, project transactions could be converted into a series of smart contracts that could be automatically executed once each individual contract is fulfilled. Managing a project like this could make all parties more accountable and create a point of information for everyone involved.
There are still a few barriers to adoption of blockchain technology in real estate. But, it will slowly and significantly improve processes which are paper-based, and inefficient today.