How Blockchain will disrupt the real estate industry
The real estate industry has never been regarded as a trailblazing force when it comes to the adoption of new technologies.
Traditionally, the sector has remained conservatively risk averse, staying cautiously skeptical of new innovations. A recent survey by PWC found that only 10% of global real estate CEOs were concerned about the pace of technological change, compared to 38% in all other industries.
The slow nature of real estate transactions have made the industry a technological laggard when compared to many other sectors.
However, it will be difficult for the industry to pass up the distinct advantages of using blockchain for real estate transactions that will become evident in the coming years.
What is Blockchain?
Blockchain is broadly defined as “a decentralized ledger of all transactions through a peer-to-peer network”.
In layman’s terms, blockchain is a system that uses isolated but linked elements of data. These chains are more secure because each element is separate from one another, while being able to verify previous blocks of data within the chain. Industries with high security requirements, such as finance, have begun to use blockchain as a method of maintaining data integrity.
How Blockchain is Used in Real Estate
Given these distinct properties of blockchain, the real estate industry seems uniquely positioned to adopt and implement these technologies to improve the overall efficiency of many entrenched industry practices.
One of the main applications of blockchain in the real estate industry comes with the implementation of smart contracts.
While the traditional written contract process often involves long negotiation periods involving intermediaries and a seemingly endless number of physical documents, smart contracts simplify this entire process. The decentralized nature of blockchain helps to reduce lag time and consolidate processes.
Since blockchain links each block to the previous one and time stamps the records, they can serve as legally binding proof for a transfer of ownership of an asset. Property transactions therefore become much more liquid and auditable as they are represented by digitally generated tokens.
Additionally, blockchain solutions have also been implemented into land registries and commission structures, which have had the compound effect of both simplifying and creating more transparency to the entire purchasing process.
How will Blockchain Change Real Estate?
Using blockchain in real estate can create a process devoid of a lot of the impediments that plague the traditional contract processes.
Issues such as inability to liquidate assets, lack of buyer transparency, bloated transaction costs, fraud, and time delays can all be theoretically addressed through the implementation of smart contracts with blockchain. This allows for a much more streamlined and efficient contract system that also potentially democratizes the playing field for purchasers. Not only does the implementation of blockchain technology create a far more transparent record of sale, it also allows for fractional ownership, opening up the possibility for multiple buyers to purchase a property which could significantly lower the barriers of entry for prospective first-time home buyers.
Accordingly, several pioneers have emerged as frontrunners in attempting to cement blockchain technology as an industry standard. Propy has grown to become a formidable global leader in smart contract generation as well as providing a blockchain-enabled title registry and listing platform. Firms such as OpenLedger and Harbor have similarly amassed success in this realm by applying blockchain solutions to areas such as property management and capital funding.
While blockchain technologies offer unique solutions to many traditional issues inherent to the real estate industry, it is by no means a panacea. Regulatory and legal hurdles are still some of the largest obstacles facing blockchain technologies as governments update existing property laws in an effort to protect the consumer. While this is undoubtedly a good thing, bureaucratic initiatives are notoriously slow and can impede blockchain companies from growing as they wait for these legislative processes to conclude.
Moreover, there are still some questions over the legality of applying blockchain products to execute real estate transactions. All parties in a smart contract are essentially assigning all contractual obligation to a digitized process that, once executed, is completely automated and therefore cannot be influenced. Due to the anonymous nature of these contracts, all the involved parties are unidentified, making it difficult for an independent third-party to assess a purchaser’s level of intent to enter a legally-binding agreement.
Is Blockchain the way forward in real estate?
While several unanswered questions prevent an industry-wide shift to the full implementation of smart contracts using blockchain, market forces will eventually push the sector to standardize this practice. As with all new technologies, early adopters will represent a testing ground for the viability of using blockchain at an industry level, and eventually, globally.
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