- Blockchain technology addresses a lot of the pain points in real estate transactions such as tedious paperwork, complex legal procedures, long turnaround time and costly middlemen services.
- This is because a decentralized, immutable ledger provides a single source of truth for ownership records, without the involvement of third parties.
- Blockchain also holds the promise of disrupting the real estate investment market through tokenization.
How is blockchain used in real estate?
The pain points are obvious. Huge amounts of paperwork. Months of wait time. High transaction costs–lawyer fees, bank charges, and the list goes on. And it’s understandable. Real estate is a high value purchase, necessitating a lot of safeguards and documentation to prevent fraud and loss.
Blockchains have the potential to revolutionize the real estate industry by making it more transparent, efficient, and secure. By creating a decentralized ledger of all property transactions, blockchain could provide a single source of truth for ownership records, without the involvement of third parties.
This would not only make it easier, cheaper and faster to buy and sell property, but also help to prevent fraud and scams. In addition, smart contracts could be used to automate many of the processes involved in buying and selling property, such as title searches and escrow payments.
This is how buying a house without third parties would look like (Source: CB Insights)
The case for real estate smart contracts
Contracts are among the most important aspects of a real estate transaction. After all, this is where all parties involved agree to the terms and conditions of the deal. But it’s also where things get tricky, as even a single contract can involve several people and organizations.
Blockchain offers a smart, game-changing solution to this–smart contracts. Rather than a thick stack of papers, this solution is a code that exists on a blockchain. It facilitates and verifies the terms of a contract automatically and monitors compliance. In addition, smart contracts are unchangeable and available to all parties 24/7. This is a much-needed guarantee for the transparency of any deal.
The contract is executed automatically if all the conditions are met, with funds being transferred between parties. A smart contract can be used in real estate to verify the identities of all parties and ensure that everything around the contractual relationship is in order. It can even automatically handle transactions between all stakeholders, including lawyers, inspectors, brokers, etc.
How to tokenize real estate
Tokenizing real estate is a process of converting ownership of a property into digital tokens that can be traded on a blockchain. This process can offer a number of benefits to both buyers and sellers of property.
For sellers, tokenization can provide greater liquidity and a wider pool of potential buyers. For buyers, tokenization can offer the ability to fractionalize ownership, potentially allowing for a lower cost of entry.
In order to tokenize real estate, the first step is to establish a smart contract on a blockchain platform. This contract will define the terms of the sale and transfer of ownership. Once the contract is in place, the property can be listed for sale on a digital exchange. When someone purchases the property, the ownership tokens will be transferred to their digital wallet.
An example of how a real estate tokenization process would look like (Source: RealT)
Tokenizing real estate is a new and innovative way to buy and sell property. By leveraging the power of blockchain technology, it can offer greater efficiency and security than traditional methods.
How can blockchain help in home buying?
Owning a home is one of the biggest investments a person can make. However, buying a house can be long and tedious, with plenty of paperwork and legal procedures. Buyers also need to check the legitimacy of the deal and the seller, as well as the condition of the property.
The good news is that blockchain can help the transacting parties overcome all these obstacles. One possible use of blockchain is verifying the seller’s identity and ensuring that the person selling the property actually has the right to sell it. This means buyers have one less concern on their minds: limiting the potential of engaging in a fraudulent sale.
Buyers can also use blockchain to verify that the property is in good condition, without any liens or other problems. Blockchain can further handle the transaction itself, making the process faster, cheaper, and more transparent.
Can you buy a house with crypto?
We all know about the value of crypto as an investment product. On the other hand, not enough attention seems to be paid to using digital assets as a payment instrument. And the fact is, yes, buying and selling real estate with crypto is entirely possible.
Not only is it possible, but there are already many such cases. For example, a penthouse in Miami was sold for $22.5 million in cryptocurrency last year. This became the largest such deal for the US market. However, according to the transaction’s parameters, the buyer and the digital currency are not named.
The living room of the luxury penthouse in Miami bought for $22.5 million using cryptocurrency (Source: Arte Surfside)
Agencies specializing in crypto real estate now exist as proof of the viability of this market. Dubai’s DAMAC Properties, for example, has completed $50 million worth of crypto real estate transactions since the beginning of this year alone.
Blockchain real estate companies
While some of the valuable features of blockchain and crypto in real estate are yet to come, others already exist. A number of interesting options for every taste have been popping up in the space. Here are three examples of innovative blockchain real estate companies.
Crypto Real Estate
We have already mentioned the existence of real estate agencies that specialize in crypto transactions.
One such agency is conveniently called Crypto Real Estate, and as the name suggests, it offers real estate deals with crypto payments.
Finding properties and connecting buyers and sellers is only one part of the process. Another important point is how the transaction itself will be carried out. The answer is again, smart contracts. beNEXT offers such a service focused on real estate.
In fact, the company’s ambition is to grow enough to offer its services in other industries, including finance, construction, and transportation.
Investing in real estate may be attractive to many, but affordability is another matter. Investments in quality projects are expensive and can be accompanied by bureaucratic headaches.
Thanks to RealT, those who want access to the American real estate investment market can get in with fractional investments. The company uses tokenized assets to enable extremely affordable real estate investments.
What challenges does blockchain adoption face in real estate?
Despite all of its benefits, several challenges could hinder blockchain expansion in this industry.
1 Cost for real estate organizations
There are some costs associated with the use of blockchain in real estate. For example, one cost is the initial investment in the technology. Depending on the size of its operations, a company may need to spend money on data storage and processing power if it wants to implement its in-house blockchain operations.
Blockchain can also be risky for some businesses. In the case of fraudulent transactions, it can be difficult to prove that something has been incorrectly recorded on the ledger.
These challenges are not permanent. However, their solving will require enterprises to work closely with technology providers.
2 Standardization in real estate blockchain standards
The lack of standardization of blockchain technology in the real estate industry is one of the biggest challenges in implementing it at an industry scale.
Yes, blockchain is ideal for recording property transactions, such as sales, mortgages, and leases. The problem is that there are no established standards for how the process of storing and using this data should go. This makes it difficult to integrate a blockchain into existing systems. Without standardized protocols, interoperable products bring significant challenges for developers and organizations.
In addition to standardizing blockchain use in real estate, another key area that needs attention is privacy and security. By themselves, blockchains are considered very secure.
But the high-profile crypto hacks that have occurred recently have shown that, as usual, the security chain is only as strong as its weakest link. Thus, blockchain solutions for the real estate industry must have reliable protection along their entire line of use.
3 Blockchain and real estate regulation
Finally, another obstacle to blockchain’s wider adoption in real estate is the uncertainty around regulations.
For years this technology was a niche phenomenon. Therefore its consideration in the context of state and international policies is only now entering agendas. The lack of regulation will make it difficult for enterprises to adopt blockchain in a meaningful compliance-ready manner.
Another challenge is transparency. Blockchain is often used in industries with high levels of confidentiality, such as finance and healthcare. Still, there is no standard way for users to know what data they share and how it will be used. This means that providers must offer guarantees to users about how their personal information is handled. As more people use blockchain technology, there will need to be more transparency about data usage and storage.
Finally, privacy concerns are another challenge that needs to be addressed before blockchain can go mainstream. Users should be able to control who has access to their data and what they can do with it. The issue is that once data (for example, personal information) is recorded on a blockchain, the process is irreversible.
Real estate is an industry that’s ripe for change and transformation. Blockchain, with its decentralized and transparent nature, offers a secure and reliable way of managing real estate transactions. The technology can help investors buy and sell property, verify identities, manage contracts, and even track the progress of construction processes.
With all these benefits, it seems like real estate is on the path to an overhaul that last happened with the global adoption of the internet. It is high time for another one.