Blockchain: The Untapped Goldmine to Revolutionize the Real Estate
The advent of ‘BLOCKCHAIN’ technology marks a significant development in the operations of the financial world. Blockchain is a uniquely developed ledger technology that records transactions digitally and optimizes contracts to prevent any probable frauds. In the past, many scandals had seen the light of the day with the major bursting of the U.S real estate bubble in 2008. One of the major reasons behind the U.S financial crisis was the breach of trust by lending loans to subprime buyers. This could have been avoided with the use of Blockchain Technology. And hence, ‘BLOCKCHAIN’ is here to stay and will change the future of investments and finance. Furthermore, Blockchain would significantly change the conventional way of investing in real estate. The results of these will increase investor confidence in real estate investments because they will be safer and more efficient.
What is Blockchain?
For understanding how blockchain works, let’s take a simple example of a real estate transaction done through blockchain.
X agrees with Y to buy his property in Delhi NCR. The stakeholders in this transaction are X (Buyer), Y (Seller), real estate brokers, Government officials, etc.
Traditionally executing such a transaction would take weeks of meetings between the stakeholders to complete the proper documentation process. But with Blockchain, this transaction can be processed in less than 10 minutes following the 6 steps as follows:
- Creation of a Block on a digital network of the above stakeholders.
- Entering the transaction data by one party (say ‘Y’ ) in the block, which is visible to the whole network.
- Now, every single stakeholder authorizes the above transaction data from their device connected to the network. So if any party ( say ‘Y’) provides false information of price, title or any other data; the other stakeholders will reject the transaction and the block will not be created.
- Thus, when all the above parties validate the transaction, then the block will be formed with a unique code assigned called ‘Hash’.
- Further, this newly created block will be connected to the previous blocks of transactions undertaken for the Delhi NCR property. Thus, a chain of blocks or transactions is created for the Delhi NCR property, giving access to all the previous details of the property which can be verified by the stakeholders on the network.
- Since, the new block is attached with the previous block’s unique code of ‘Hash’, the chain of blocks cannot be hacked by anyone to change any information. This is because, if the block is altered, its code changes but will not be updated in the blockchain. Thus the blockchain will become invalid unless the whole blockchain is altered manually which consumes a lot of time, making it practically impossible to hack.
Thus, with such security, Blockchain becomes the safest and efficient way of conducting transactions and is here to stay.
How will Blockchain change the future of real estate?
As we saw the applications of blockchain above, this technology will revolutionize the way real estate works. Real estate investments will become more secure and easy by eliminating the lengthy process. Let’s take a look at how blockchain revolutionizes the real estate sector!
- Smart Contracts in real estate – A smart contract is a normal contract but, in a digital format. This smart contract can be stored in the block and ensures efficient transfer of funds under the terms and conditions agreed upon in the contract. The most common complaint of real estate investors is the blockage of funds installed in real estate projects or the failure to obtain the described property in the contract, among other things. With the use of a smart contract, the funds are held in the block in the blockchain until the desired demands are met by the property developers while transferring the asset. If the asset or property fails to meet the contract specifications, then the funds are returned to the buyer. This system functions similarly to an escrow account, but without the need for banks or any other entity as an intermediary.
- Tokenized real estate properties – With blockchain technology, assets can be tokenized and customized to meet the desired requirements of free transferability of ownership, distributions, legal compliance, and so on. Tokenization of properties would enable real estate transactions to happen digitally, eliminating the need for buyers and sellers to meet in person. We can trade real estate assets using blockchain technology in the same way as we trade stocks on the stock exchange. Thus, expensive real estate properties can be traded in small units making them more affordable for common people. This innovation would be critical in changing our perception of real estate investments. Furthermore, this technology will eliminate intermediaries like property agents, professional enforceability of law on contracts, and Government officials for giving title clearance, and so on. As a result, the real estate transactions will be completed with the tip of your finger.
- Easy access to title records – As we previously discussed how blockchain technology maintains transaction ledgers, tracing property titles with the aid of previous transactions in the chain would become possible. For a transaction to be legitimate, blockchain establishes a distributed ledger that requires validation from all peers or stakeholders. Thus, title clearance from the government, owner’s details, completion certificate, occupation certificate, RERA, Registrar office, and all other details can be recorded against a property. Furthermore, these data will be available to anyone who connects to the blockchain network. Also, this data is immutable once it’s recorded on the blockchain. As a result, transparency in the transaction will eliminate all the loopholes for creating fraud by misrepresentation of title clearance.
- Faster processing – Imagine if a bank could process your loan application in minutes and offer you a loan on the property you want to invest in before anyone else. This is made possible by blockchain since all KYC/AML information of every investor would be readily available on the blockchain and accessible to banks who can then verify documents and process the application within minutes of the request. Thus, loan processing, as well as facilities like government verification and stamp duty registration, will become faster and efficient.
- Blockchain for fractional ownership – The concept of fractional ownership in real estate properties is already in force in some cities like Hyderabad, Bangalore, and so on. However, this process involves Asset Management Companies that overlook the pooling of investment, managing the property and returns, distribution of the same to the investors, etc. But with Blockchain coming into play, the role of such companies in fractional ownership will be eliminated. Investors themselves can be a part of the network investing in the specific property by purchasing their share in the property. The returns generated from the property will be distributed among the blockchain network by designing and automating the blockchain to perform the functions of Asset Managers. Thus, it becomes affordable for investors to invest in real estate properties through fractional ownership at a lower cost and be hassle-free. This process is made seemingly simple and the security of the transaction is enabled by blockchain technology.
- Builds distributed trust through decentralization – Owing to complicated and lengthy processes over the years, the stakeholders in the real estate industry have lost confidence amongst each other. This problem can be solved using Blockchain, which provides a transparent method of recording transactions with the assent and validation of all the parties involved. As a result, there is no single body in charge of developing and maintaining documents. This decentralization provides distribution of trust within the stakeholders. And the fear of trusting one authority having all the powers will be eliminated.
So, to conclude, the advent of blockchain technology will change the real estate sector for good. The shortcomings of real estate need to be addressed despite all the progress made over the years. And, thus, Blockchain is the answer for the establishment of a robust system in real estate investment. The Government of India is positive about the adoption of Blockchain in various aspects like Finance, Agriculture, Supply Chains, Real estate, and so on. The Niti Aayog had begun its discussions before the start of the pandemic and have also released case papers discussing the strategy of how blockchain can be adopted. Hopefully, the end of the pandemic in the country will put back the thought of blockchain technology on the Government’s radar. Till then, if you are more curious to find alternative ways to invest in real estate, Assetmonk is the right place for you. Assetmonk provides smart options for investing in real estate catering to the needs of the investors. For more information, visit www.assetmonk.com
Blockchain: The untapped goldmine to revolutionize the real estate FAQ's:
Blockchain is a decentralized way of recording real estate transactions that are immutable and provides distribution of trust amongst the peers of the network. Blockchain in real estate will provide a secure way of conducting real estate transactions with limited or no scope for fraud.
Blockchain technology uses a decentralized system of recording transactions that are accessible to all stakeholders, or “peers” or “nodes” (in blockchain terms), who then independently verify the transaction information. A block has three elements viz. data, ‘Hash’ and ‘Hash’ of the previous block. A transaction is recorded in a block and linked to previous blocks (transactions) in the chain through the unique code called ‘Hash’.
Blockchain provides multiple benefits like the immutable recording of transactions, decentralization of power in the hands of few stakeholders, distribution of trust amongst all stakeholders, and the ability to trace back the blocks or transactions which provide all the details connected.