Blockchain technology has been one of the most path-breaking innovations in modern times, radically changing how businesses and industries conduct their operations. Today, more and more sectors are realising the benefits of taking their core activities to the Blockchain platform. It is not the financial sector or real estate sector or any other private business alone that is imbibing this technology; even Governments have begun to acknowledge that incorporating Blockchain technologies in their work can increase productivity and efficiencies.
Before analysing how Blockchain will revolutionise the real estate sector, it will be relevant to have a snapshot of Blockchain technology per se.
What is the Blockchain technology?
In its primary and rudimentary form, Blockchain is a distributed database that maintains a constantly-growing list of data records with blocks in the chain holding individual transactions. Every block has a timestamp that links it to the previous block and once done, the record cannot be altered, changed or modified in any way. In effect, that means that the role and need of a central administer to guarantee the integrity of a transaction is eliminated.
How does Blockchain technology work?
Blockchain development is based on three core segments.
- The Block – A Block stores the records of all transactions in a given time period and its size and data differs from all other blocks in the chain. Originating as a means to record the movement of crypto-currency, it has today touched most industries and sectors including real estate.
- The Chain – A hash links one block to another and can be likened to mathematically chaining the blocks together. Hash is a concept that is unique to Blockchain and is created from data that is present in the previous block. Hence, hash links block in the specific order and time that they were created.
- The Network – A network is made up of “full nodes” and is comparable to a computer that is securing a network with a particular algorithm. Nodes can be located anywhere in the world and each has a complete record of all transactions made in that Blockchain. This is a costly and time-consuming operation, and not everybody can take it up.
Real Estate – The Existing scenario
In real estate, the critical point is to identify the current owner and establish proof of ownership through relevant records. Documents help the owner to resolve disputes, ensure that ownership is correctly transferred to a new owner in the event of a sale, and to avoid fraudulent transactions.
The current conventional sale procedure for both residential and commercial real estate is a rather complex web. Titles must be transferred while a third-party holds the agreed-upon sales amount from the buyer in an escrow account. This third-party may be a broker, an escrow agent, or a title company. Once the deal is closed, the cash is given to the seller, the title of the real estate to the buyer and documents filed with the Government, for changing existing records and transferring title to the buyer. In most countries, a notary has to certify the documents.
The main drawback of this method that is faced by real estate companies is that the whole process takes a lot of time. Tedious manual work is involved in compiling the necessary documents apart from the expenses for carrying out this interaction. Importantly, the procedure lacks transparency.
Real Estate – The Future Blockchain-based scenario
Blockchain technology because of its inherent structure has the potential to revolutionise real estate transactions, offering solutions to such issues as time and contractual bottlenecks, transparency, and security.
- Saving time and Costs – With Blockchain, registration can be made in real time and hence the time that is taken to make an entry in the Land Registration is drastically reduced. Additionally, multiple checking of the same data at different points is not necessary as verification of ownership, rights and transfers of titles can be made from a single uniform source of real estate information for all the stakeholders. It is assumed that in the future, Blockchain will also assist in listings, payments, and legal documentation, thereby eliminating the back and forth movement of documents between intermediaries.
Once these middle-level processes are eliminated, there is a saving in costs too. By placing the transactions on Blockchain, contractual costs will be minimised along with loan fees and taxes, inspection costs, labour costs, and registration fees.
- Security – This is probably the most significant attribute of Blockchain technology. Any Blockchain certificates can be checked and verified from anyone in any corner of the world at any time without the intervention of third parties or Government and central authorities like land registries or notaries. The decentralised nature of Blockchain makes it impossible for one person to hack into the system and change or control any record. Any information altered retroactively would trigger off a chain reaction amongst all subsequent blocks in the chain.
- Transparency – Records stored in the Blockchain is immutable and can be accessed by all persons operating a node in the Blockchain network. Hence, specifics about property ownership are fully transparent, thereby eliminating the possibility of fraud.
- Peer-to-Peer activity – Currently, the real estate global worth is estimated to be about $217 trillion, dominated mainly by big and wealthy corporations. Once this Blockchain technology is widely implemented, more and more people would feel comfortable to deal with real estate owing to increased transparency, security, and lower costs. Blockchain-powered platforms would be doing most of the work. Specialised companies like Blockchain Australia Pty Ltd are already offering quality services that can further help those keen to transact in real estate through the revolutionary Blockchain technology.
What are Smart Contracts
Smart contracts are self-executing contracts where the terms agreed upon by the buyer and seller of real estate are directly written into lines of code that are present in a distributed and decentralised Blockchain network. Smart contracts enable different and anonymous parties to carry out reliable agreements and transactions without intervention by central statutory authorities and other external enforcement agents. Hence, smart contracts provide optimised solutions for the management of real estate transactions through a distributed database that does not require trust in a single third-party.
How do smart contracts work?
Smart contracts work like a machine that automatically executes any instruction given to it. Once assets and contract terms are coded and put on the Blockchain, these are distributed and copied multiple times on the nodes of a platform. After the trigger takes place, the contract is performed and drawn up as per the terms agreed upon. Later a program checks the implementation of the commitments automatically.
Smart contracts in real estate
Smart contracts and cryptocurrency powered by Blockchain technology can facilitate real estate transactions by eliminating the need for trusted third parties. Contracts can be verified and enforced automatically without any third-party intervention. All layers of intermediaries as in traditional real estate deals like lenders, inspectors, agents, and title insurance providers will no longer be required.
It is expected that in a few years down the line, Blockchain technology will open up the doors to real estate crowdfunding to raise capital. Investors from anywhere in the world can invest in real estate assets through crypto-currency and generate profits likewise in Ether or Bitcoin.
It is exciting times ahead for the real estate sector once it fully gears up to implement the benefits of Blockchain technology.