Blockchain has become increasingly popular in financial services, leading to a major disruption in other industries.
Cryptocurrencies have become a major disruptor in payment systems, affecting almost every part of the economy including the real estate industry. Considering that commercial real estate contributes significantly to the global economy, blockchain technology is critical to the future of the industry.
One of the applications of blockchain in the industry is the tokenization of real estate such that properties can be sold as digital tokens through smart contract platforms. A significant portion of the blockchain real estate relationship is also built on cryptocurrencies, as some properties are now valued in Bitcoin. With the use of blockchain in real estate, some of the benefits include reduced cost of operation by cutting out some of the intermediaries. In addition, there is access to a global market.
The concept of blockchain-powered real estate is relatively novel, however, blockchain companies such as ATLANT and RealT have been at the forefront of the tokenization of real estate using blockchain technology. These companies are crafting the template for the integration of smart contracts into real estate investing.
Can You Buy a House Through Blockchain?
Yes, you can buy a house using blockchain technology. With the tokenization of real estate through blockchain technology, a real estate asset is fragmented into pieces that are sold as digital tokens. Each token has its own monetary value, and the summation of all the pieces gives the actual value of the property.
If you are able to buy out the total supply of the tokens, you have successfully acquired such property. Additionally, blockchain technology allows you to invest in real estate properties without owning them since you can purchase tokens of properties and then collateralize them with cash. Some of the platforms that allow you to purchase houses through blockchain technology include Meridio, RealT, and Harbor.
Other platforms like Bee Token run a DApp on the Ethereum blockchain which offers services very similar to Airbnb.
The use of blockchain technology in real estate offers a couple of benefits, such as:
- Improved efficiency in the real estate industry
- Access to a wider pool of investors
- Access to secondary markets
- Increased transparency and accessibility to data
In this post, we will explore some of the benefits of blockchain in real estate.
Related: Non Traditional Mortgage Options
Practical Benefits of Blockchain for Real Estate
In general, real estate platforms connect buyers and sellers of properties. Hence they involve quite a lot of physical interactions since these properties are physical assets. The real estate industry also involves a lot of intermediaries such as lawyers, bankers, and brokers, and sometimes, these intermediaries can make the entire process cumbersome.
Another problem that troubles the real estate industry is fraud and scams. Real estate scams such as fraudulent credit reports, credit ratings, overvaluation, and fake documents are significant problems in the real estate industry. It is clear from the financial crisis of 2008 that a bloated real estate industry leads to tragic consequences. The crisis can be traced to a period when there was an unsustainable increase in the valuation of real estate assets.
Below, we will examine some of the practical benefits of blockchain in solving some of the underlying issues in real estate. We will also highlight some blockchain real estate use cases as well as a couple of blockchain real estate companies leading the charge.
1. Tokenization of Real Estate
Tokenization of real estate involves converting real estate assets into digital tokens that can be traded on smart contract platforms. A smart contract captures all the details of a property as digital tokens with contract-specific conditions. Upon meeting the conditions, the property is transferred. With tokenized real estate, human interaction is reduced to the barest minimum.
Some of the blockchain companies that offer tokenized real estate as part of their investment portfolio include ATLANT through their UVAS platform and RealT. RealT issues ARMMToken to investors, and these tokens are used to represent different real estate assets contained in their portfolios. Another platform that offers tokenized real estate as part of their investment portfolio is SolidBlock.
Tokenization of real estate can be advantageous due to fractional ownership, which allows multiple investors to invest in one property. Due to smart contracts, tokenized real estate also has the advantage of lower transaction fees.
What Are Smart Contracts?
Smart contracts are sets of lines of code containing the terms and conditions of an agreement between two parties, usually buyers and sellers. When the conditions of the agreement are met, the code executes itself. A smart contract is usually stored on a decentralized blockchain. The network facilitates anonymous transactions and agreements between parties without the need for third parties.
2. No Intermediaries
With the use of smart contracts, property agreements can now be contained within lines of code, making the process more efficient.
The real estate ecosystem is laden with lawyers, financial institutions, advisors, realtors, etc. In some cases, this impedes the process flow from buyers to sellers. With the integration of blockchain into the real estate ecosystem, these intermediaries can be cut out and the process made more seamless for interested parties. The listings, legal documents, and the payment system can be contained within the smart contract.
With the use of blockchain technology in real estate, the absence of so many middlemen makes the entire process swifter and more efficient. It also helps to reduce the cost of transactions.
Related: Should Investors Work With Real Estate Agents?
3. Facilitation of Fractional Ownership
With the tokenization of real estate, people with small budgets can now invest in real estate assets. Now, people can pool resources together and invest in real estate assets as a group with the aid of blockchain technology. With blockchain, individuals can now fractionally own real estate assets as digital tokens, and it can be done simply through trading apps.
Through fractional ownership, investors can avoid additional costs such as upkeep costs, maintenance fees, and other additional costs. With fractional ownership, you can own a piece of prized real estate without breaking the bank. It makes real estate investment affordable.
4. Process Automation Will Lead to Reduced Costs
The major benefit of blockchain technology in real estate is process automation. Real estate investing involves a lot of paperwork, which makes the process cumbersome and inefficient. With the use of smart contracts, most of these processes can be automated.
Through the automation of the process, there is a significant reduction in transaction fees and processing costs.
5. Data Accessibility and Transparency
A lack of transparency in the real estate industry leads to fraud and scams. The effects of this problem were clearly seen during the 2008 financial crisis as the financial industry couldn’t survive the effect of bloated valuations of housing properties. The decentralized blockchain network enables transparency and data accessibility in real estate transactions. With blockchain technology, information about properties is accessible and verifiable by anyone on the network.
One company at the forefront of offering document management services with the use of blockchain is Shelter Zoom. They offer services such as blockchain signatures, document tracking, and blockchain-based document management.
Due to the high level of transparency that blockchain facilitates, there is a level of trust that it generates for investors. Hence, blockchain-powered real estate investments are more secure than regular real estate investments. In the financial industry, experts say smart contracts could be one of the most powerful barriers to fraud. In the real estate industry, they will have the same effect.
Related: 8 Ways to Avoid Real Estate Investment Scams
Is Crypto the Future of Real Estate?
Cryptocurrencies are fast becoming the future of payment in the world, as they are also becoming a popular investment vehicle. In this Bitcoin.com news report, an apartment was bought in Braga, Portugal for 3 BTC. This crypto real estate transaction was facilitated by the fact that Portugal has the reputation of being a “crypto paradise”. However, isolated cases like this do not give credence to the fact that crypto may be the future of the real estate industry.
While cryptocurrencies are now increasingly used in payment for real estate, there are pros and cons. Swift, efficient, and tax-free property transfers, especially in countries without crypto regulations, are some of the pros. Some of the cons of cryptocurrencies in real estate include the volatility of cryptocurrencies. As governments across the world pay attention to cryptocurrencies, regulations are being made that may negatively impact the crypto ecosystem.
With the introduction of Non-Fungible Tokens (NFTs) and the metaverse, the concept of digital real estate investing has taken a revolutionary turn. Investors can now purchase digital real estate on the metaverse. These transactions are facilitated by blockchain technology and the exchange happens with cryptocurrencies. However, as long as humanity exists, there will always be a need for physical real estate assets. Due to the volatility of cryptocurrencies, the future of cryptocurrency in real estate remains to be seen.
Spending on blockchain technology is expected to hit $11.7 billion in 2022. Experts predict that some of this spending will be reflected in the real estate market.