Blockchain Techology Will Transform Real Estate

Digitizing Land Title Records, Transactions And Property Management

A real estate transaction is invariable a big ticket item. Add the tremendous paperwork trial, bureaucracy and role of multiple parties needed for compliance to bring such a transaction to conclusion, it is no wonder that real estate is considered illiquid. However, blockchain technology adoption will herald a sea change in the real estate sector.

Various blockchain-integrated projects implemented globally have shown that transaction processes for the real estate sector stand to benefit from improvements in efficiency, transparency and trust.

Smart contracts used in blockchain ecosystem automate many of the tasks involved in a real estate transaction. With ‘smart contracts’ that will execute when conditions are met, it will result in a reduction in the need for legal and financial intermediaries and consequently lower transaction costs.

While traditional real estate ownership registration is susceptible to errors or fraud, blockchain offers a digital-based alternative that is tamper-proof storage of records with multiple copies in many nodes within its ecosystem.?

?Tokenization: Fractional Ownership

Land and property ownership will be turned on its head as blockchain introduces a disruptive feature known as tokenization. Tokenization is the process that converts real estate assets into digital assets where a security token represents ownership of a portion of a property or land. Each token has an assigned value determined at its launch that represents a fraction of the total value of a property.

If one wants to take possession of a property, then one buys sufficient security tokens equivalent to its full value. This lowers the barrier as a token cost much less than having to buy a property in its entirety, if done the traditional way. It democratizes the journey opening investments opportunities for individuals that would not have been available in the past.

Liquidity is the other important aspect of investing in such tokens that can be traded within minutes, unlike traditional property investment requiring paperwork that can take months to complete.

Many business models

Taking the real estate security token route, blockchain experts and real estate developers working together are offering new investment opportunities globally, based on many different business models. ?It is relevant to point out that fractional ownership can be applied to any real asset, be it a property, a vehicle, a ship or an artwork.

Kasa Korea is a real estate securities trading platform that enables investors to buy and trade fractional ownership of buildings through digital asset-backed securities dubbed DABS, priced at 5,000 Korean won (S$5.60) per unit.

Another example is San Francisco-based fintech Haus which recently offered home buyers the opportunity to own property for US$1000 in a home equity partnership powered by blockchain. Prospective buyers pay a minimum of 10% on the value of the property and the developer buys the rest in a 10-year partnership. The homeowner can also trade its property’s equity through the HausCoin cryptocurrency.

In Singapore, RealVantage, a property fintech and online real estate platform is providing opportunities for fractional ownership. This innovative investment platform enables investors to get exposure to property investments in United Kingdom, United States and Australia markets without requiring huge capital outlay.

Digital Land Registry

A basic tenet of any country is the credibility of its land registration records which is not to be taken for granted in some developing countries. The current paper-based system is subject to abuse and corruption or lost records. ?

Blockchain technology has capability to totally transform land registration records. A non-profit organization, Bitland is involved in helping countries in Africa towards this end. It combines transaction records with other digital technology such as GPS data and satellite photography to accurately document land borders and ownership. The organization utilizes blockchain technology to address land registry issues because of its low operational cost and high levels of transparency.

Colombia is another country that has started on this journey for a digital land registry. The country has been caught up in a civil war that ended in 2016 which was rooted in the unequal distribution of land. An expert involved in the project has been quoted as saying with the public blockchain “once the transaction is recorded, it can never be deleted”.

Commercial Real Estate

A Deloitte report highlighted the case for commercial real estate owners to leverage on blockchain to drive transparency, efficiency and cost savings. Touching on the importance in removing inefficiencies of traditional paper-based system, it reiterated that use cases have demonstrated the advantages of blockchain in bringing value to the industry.

Not counting the improved market reach and smart contract benefits from fully digitized information, blockchain innovations also introduce a near real-time trustless eco-system. As higher turnover and shorter leases are expected for this sector, blockchain will fulfil a significant role in managing tenancy history, expediting property transactions and payment evaluations to better streamline cash flow management. ?