There are many ways that blockchain in real estate can change the industry. From reducing the risk of fraud and eliminating the middlemen to improving cash flow management, blockchain technology is definitely no longer limited to cryptocurrency.
So far, however, commercial real estate has been a slow adopter of new technologies. But as more investors, contractors, and managers see the opportunities for blockchain in real estate, the whole industry could be disrupted. Here are five key ways.
1) Reshaping property search
Commercial real estate still relies on multiple listing services (MLS) for establishing contractual offers and property research. Brokers, managers, owners, potential buyers, and tenants use MLS to find relevant information. This includes property features, location, price range, and other data that leads to an educated buying or selling decision.
To get accurate information, people need to gather data from multiple sources, which requires time and energy. It’s an inefficient process that slows down property research, causing delays in decision-making.
Several blockchain start-ups have seen the opportunity to use blockchain in real estate for managing data. In 2017, the industry saw a first attempt to create a blockchain-based MLS.
Imbrex lost $1.3 million in Ethereum after a failed ICO due to a coding error. But the company continues to promote its idea, providing what they call “the first blockchain-based multiple-listing service”.
The system still has to overcome many challenges, such as cross-chain interoperability, scaling, and regulation, according to founder Stephen King. However, the potential benefits can’t be ignored. Listings become more accessible, and brokers get increased control over their data.
Professionals in the commercial real estate industry can even use predictive analytics to glean smart insights in almost real time. This leads to data-driven decision-making.
2) Making cash flow management more efficient
Commercial real estate properties are hard to manage, mostly because there are many players involved including property managers, landlords, vendors, and tenants. They all generate multiple payment and service transactions to record regularly.
Checking and keeping track of all the data connected to cash flows includes working with banks, financial institutions, auditors, and fiscal authorities.
Real estate companies can’t afford any errors in accounting or compliance, as they could lead to costly fines. Blockchain in real estate uses protocols that would enable greater transparency for transactions and more control over funds.
3) Using smart contracts
Digital or smart contracts can generate a revolution in commercial real estate, as they enable specific terms and conditions to be stored and executed through blockchain technology.
Think about the status of a deal, like your mortgage, for example. A smart contract can instantly transfer the deed of ownership right when you finish paying the debt, as all funds and conditions were met according to the agreement between all parties.
Smart contracts could also counter one of real estate’s older problems – lack of transparency in the rental agreement – as they reduce risk and increase trust between parties.
A smart contract also eliminates loads of paperwork and the need for intermediaries, such as notaries and brokers. Commercial real estate players could then cut down costs and increase the efficiency of each deal.
4) Tokenising properties
Property tokenisation provides liquidity to owners and easy access to investment opportunities for anyone interested.
It can potentially be disrupting for commercial real estate, but many people see tokenisation of real-world assets such as real estate as the future. And more people plan to invest in start-ups looking for funding in this industry.
By tokenising an asset on the blockchain, investors can buy a stake in a property or asset rather than having to purchase the whole thing. This means that they can gain access to property, private equity, and other investments that were previously only in the domain of the ultra-rich.
Tokenisation of assets looks set to be big in 2019, with start-ups like Polybird, SMART VALOR, and plenty of others looking to fill the gap in this niche. The first STO for a real estate property, part of a resort in Colorado, closed for $18 million in October 2018.
5) Reducing the risk of fraud
One of the biggest benefits of blockchain in real estate is its ability to eliminate fraud in the industry. In 2018, Action Fraud estimated the annual cost of private rental property fraud was £918 million.
Blockchain technology would make scams impossible since everybody has access to the data and can verify ownership of both properties and funds. Furthermore, the transparency that comes with blockchain in real estate ensures there’s a record of each transaction.
Blockchain in real estate provides many opportunities
Blockchain technology has the potential to disrupt commercial real estate, just as many other domains. It’s already proven how it can make transactions easier, cut down fees, and increase security.
However, authorities still have to agree upon clear regulations and procedures to regulate the market. If regulators fail to provide support, investors may lose their money in an area that’s been considered a safe investment for a very long time.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.