Next is Now: Blockchain is disrupting the way we understand real estate

The advent of technology and its impact on business life cycles across industries have never been more pronounced than now. In a fast-changing environment, keeping pace with the rapidly changing dynamics is imperative for businesses to step in to the new age. While on side, technology bridges the gap between the buyer and the seller, on the other side it helps evening out the overall information asymmetry in the market. This could be said for the game changing transformation in the retail and consumer durable industries, once e-commerce came into picture. It’s also true for various BFSI players that now rely heavily on “FinTech” platforms.

However, the real estate fraternity, just like many other infrastructure industries, continues to rely heavily on the relationships and prevailing trusts among various stakeholders. The very criticality of this reliance is ironical since the nature of work involves high risks and administrative challenges arising from large values of deals and the unorganized nature of the work, especially in India.

While the government is taking steps towards institutionalizing and establishing accountability by introducing RERA and REITs in the market, an independent transformation already knocking our doors is blockchain. It is worthwhile to add here that Indian Government has been frequently vocal about its interest in blockchain technology and its use cases in moving towards a digital economy, as conveyed by Arun Jaitley on repeated occasions during Budget announcements.

So, what is blockchain all about?

It is a digital peer-to-peer ledger framework that works on a consensus protocol to keep track of ownership changes & due diligence efforts among a group of stakeholders, irrespective of the nature of business involved. Every step in the transaction is linked back and forth with its chronological neighbors. In essence, its user interface serves as a glorified excel model with information on past efforts and future timelines for all milestones guarded (if need be) by multiple levels of access.

A blockchain network effectively reduces the need for third parties by implementing transparency and decentralization throughout the entire chain of records. Each block contains data in a non-editable fashion, secured with cryptography while also containing the timestamp. This helps all concerned parties to individually track data additions in the network and thus removes the need for mutual trust altogether. Therefore, one of the first and most prominent use cases of blockchain turned out to be smart contracts. These help buyers and sellers streamline the complete transaction, especially useful in an industry like real estate.

Startups like Propy, ShelterZoom, and Harbor are doing just that in USA. These and many other startups have started in the last couple of years and have built blockchain frameworks to enable property investments and transactions across geographies by leveraging language translations, online compliance checks for cross-border trade and ensuring timely deal closures. They are removing two of the most fundamental issues in RE industry: information asymmetry and the attitude of risk aversion.

In fact, blockchain application doesn’t stop at just digitization of contracts, it can extend to the democratization of real estate assets themselves through tokenization of property value. This makes “micro-shares” of real estate available for purchase by the masses, wherein akin to REIT, individual investors can partake in owning and realizing returns on their RE token values in a transparent, low risk and seamless manner. This comes with concerns in the current climate however, especially as we’re unable to institutionalize the custody and security practices around digital tokens yet.

Nonetheless, blockchain networks have the potential to significantly reduce, if not do away, with the frequent delays, fallout and bad debts suffered by various stakeholders, especially in a country like India. It can significantly reduce the probability of human errors and frauds and tackle the sluggish bureaucratic elephant present in almost all marquee engagements. If widely adopted, the technology can even bring in a delightful ease, transparency and predictability in cross-country transactions. Potential buyers could access overseas supply, and verify the sanctity of the sellers through a due diligence step. Sellers could enjoy an unprecedented market expansion and offer customized solutions for every geography. 

Not only would the impact be realized across a company, with more accurate pipeline visibility and P&L allocations, but also at regional and national levels with increased volume of cross-border trade and information exchange.

An early jump on the blockchain wagon with arms high and holding the REIT tokens could make the real estate segment skip the long evolution trajectory.