Blockchain Technology and its Impact on Real Estate

The evolution of the world is marked by new technological discoveries that give a new meaning to the way we do and the way we perceive things. This phenomenon is experienced by everyone either directly or indirectly. Similarly, ‘Blockchain’ is among the disruptive technologies whose complete and vast scope has yet to be gauged, however, it is being perceived that blockchain technology will become a concrete reason behind the transformation of many enterprises, industries, and business transactions. The cognisance of companies about the application of blockchain technology in real estate is very limited however, on the brighter side companies have started to discuss the applications of this concept.

Graana.com through this blog discusses the impact of blockchain technology and its impact on the real estate sector. Blockchain technology on its basic level has started to be employed by different real estate companies around the world for the sake of convenience and bringing efficiency in the conduct of daily business.

 

What is Blockchain?

Blockchain technology can be defined as a structure of data in which the information is stored on the blocks which are digitally connected to the other blocks of information thus forming a huge chain of blocks.  Further, the data recorded in this technology is governed by an append-only structure and once a block has been added to a chain it cannot be deleted. Similarly, the data once entered on the blocks cannot be amended. Therefore, making it an efficient medium of keeping records, business, and legal transactions.

What makes this technology unique from other databases is the Distributed Ledger Technology (DLT), which means that the data can be accessed in a decentralised manner and various entities from various locations have the authority to access, validate and update the records in an immutable manner. Furthermore, the data in the blockchain is secured through cryptography.

According to the survey of the World Economic Forum (WEF), it is estimated that by 2025 almost 10pc of the global GDP information will be secured on blockchain technology. Furthermore, it is being expected that the global market of blockchain technology will jump over $39bn by 2025. The real estate sector is also among the beneficiaries of blockchain technology and it is being transformed in a numerous manner.

 

Smart Contracts

One of the likely impacts of blockchain technology on the real estate sector will be the completion of deals through smart contracts. Smart contracts can be defined as contracts that are developed through computer coding or computer language, in other words, the terms of agreement written in computer codes. Smart contracts are likely to become a permanent part of real estate transactions and they will eliminate the malpractices in the form of hidden clauses. One of the major aspects of smart contracts is that it eliminates third-party intervention in the form of legal or administrative authority.

 

Managing Land Records

Although blockchain technology is in its earliest stages and its horizon and its applications are applicable in financial sectors, the immutable feature of data storage in blockchain technology can also prove useful for maintaining land records. In continuation of this aspect, different developed and developing nations are piloting the projects for maintaining land records, some prominent examples across the world are Brazil, Canada, Georgia, Dubai, and Ukraine.

Dubai and Brazil have developed a blockchain structure for efficient land administration moreover, in the United States of America (USA) the record of ownership of titles of real estate is also being maintained through blockchain technology. Similarly in Kenya, blockchain technology is being used to develop land ownership records.

 

Concept of Fractional Ownership

It has been a usual practice in the real estate sector that if a person wants to do an investment in the real estate sector he or she has to wait for a long time to arrange the money to buy the whole asset. One of the advantages of blockchain technology is that it is introducing the concept of fractional ownership. In other words, an individual can be an owner of an asset in real estate by owning a fraction of the property. An owner divides his or her asset into different tokens or fractions using blockchain technology, the tokens are bought by the interested individuals either through cryptocurrency or fiat money.

 

Increasing Liquidity

Liquidity in the real estate sector is one of the major concerns which has compelled the various stakeholders from the financial and real estate realm to chalk out the framework for addressing the liquidity issues. As a panacea, blockchain technology can address the issue of liquidity in the real estate sector. On a theoretical front, the concept has a concrete basis of application however, in practical terms resolving the liquidity issues through blockchain is in nascent stages.

As mentioned earlier, ‘tokenisation’ is one of the features of blockchain that is addressing the liquidity issues in the real estate sector. The concept of tokenisation is based on dividing an asset into digital tokens. In this concept, an owner divides his assets into different digital shares or tokens which he floats in the market. In comparison to the conventional method of selling where the whole asset is purchased by a single buyer, this concept is resolving the issues of liquidity.

 

Blockchain and Smart Cities

Blockchain-led evolution can also lead to the concept of smart cities. It is being envisioned that blockchain will particularly help in urban management. ‘Blockchain4cities’ is an initiative that is being adopted to measure the impact of blockchain in urban management and the creation of smart cities. The rationale behind this concept is that the cities governed through blockchain technology will be more inclusive, sustainable, and efficient.

A UN working group has released a report on ‘blockchain for smart sustainable cities in which different applications of blockchain have been highlighted in the development of smart sustainable cities.

 

Harbinger of Efficiency

Blockchain technology will also bring efficiency in the real estate sector by digitalising many components of the real estate sector. For example, this aspect will prove beneficial in Commercial Real Estate (CRE) transactions where most of the time is consumed in paperwork, legal reviews, and financial assessments. With the entrance of blockchain in the real estate sector, all of these administrative hindrances will be overcome by the inclusion of the concept of ‘digital identity.