Jitendra Rathod, newsletter contributing editor, provides insights into how blockchain is transforming the real estate industry and shares some real world use cases.
When Satoshi Nakamoto created bitcoin using the blockchain technology, little did he (she/it/they) imagine that a Pandora’s box was being opened. From the box came out tens of hundreds of cryptocurrencies (altcoins), dubious forms of fundraising, regulatory issues, heartbreaks and heartache, and a deep sense of mistrust between the crypto community and traditional finance.
But does the mayhem take away from blockchain technology the potential it has to positively and, at times, radically, affect every aspect of human endeavor? No. Even Satoshi couldn’t have imagined the far-reaching consequences of his invention’s underlying technology. In short, blockchain technology is not just about cryptocurrencies; they are just one application of blockchain technology.
Blockchain is more than Bitcoin
It is necessary to separate the technology from its application. Blockchain technology can decentralize systems by removing the need for a “trusted intermediary.” It creates, what is known as, a “trustless” environment which does not entirely dispense away with trust, but distributes trust amongst the participants of the network that are incentivized to authorize transactions. The transactions occur through automated enforcement of predefined rules. The programs that enforce are called “smart contracts.” And all of these transactions that occur within the ecosystem are recorded on the immutable, irreversible ledger, that is the blockchain.
It is now easy to imagine how blockchain technology can transform every aspect of human endeavor – payments, clearing & settlement, medicine, supply chain monitoring, governance, manufacturing, tax compliance and real estate, among others.
Challenges of the real estate industry
Macroeconomic indicators like interest rates, political stability, inflation, wages as well as factors like immigration, energy and water, and natural disasters and climate change affect the real estate industry in general, at a broader level. However, if we look closely, the industry is plagued by many issues at the grassroots level. These include an overdependence on archaic methods to record land deals, a siloed process of providing ownership details and a burdensome financing and payments system.
A title search is an extremely cumbersome and convoluted process to determine the ownership of a piece of property. It is often done by experts for the buyer. The expert has to go through a ton of documents to determine that the true owner of the property is the seller and there are no pending liens (taxes, mortgages, etc.) on the property. The expert also has to check if there are any co-holders of the property that can stake claim on the property in the future.
There have been innumerable cases where there have been title frauds, claims on the property even after a comprehensive title search has been done and identity thefts. All of these create extremely anxious and troublesome conditions for the stakeholders involved and usually, a long-winded legal battle ensues to resolve the matter.
The real estate industry has largely been a “pen and paper” industry and has been resistant to technological advancements. But an alarming increase in number of frauds and legal issues concerning establishment of an unambiguous chain of ownership data has put the onus of accepting technological solutions on the custodians and decision-makers of the real estate industry.
Many experts and decision-makers within the real estate industry are now advocating for the use of disruptive technologies, like blockchain, to address the challenges of title search and transactions of property. This includes the prominent voice of Joseph Nahas, Chair of the Counsellors of Real Estate, an advisory organization that monitors real estate.
How can blockchain help real estate?
There are many ways in which blockchain technology can benefit the real estate industry. The most basic way a blockchain-based platform could be utilized is for creating a decentralized listings portal that has near real-time and accurate information. Imbrex is an example of such a decentralized marketplace for property listings. The Imbrex platform is built on the Ethereum blockchain, where buyers, sellers and agents can use the services for free. They also stand to earn rewards for adding data and for helping the evolution of the decentralized marketplace.
Another way blockchain technology can benefit real estate is by creating a decentralized repository of all information related to titles and incumbrances on a piece of property. Every piece of property can be allotted a “digital identity” that can offer information regarding its ownership history, current status (vacant / occupied), financial and legal status, etc. A title search can be easily done by looking at the digital identity of the property, without having to go through the lengthy process to establish ownership and liens on a property. Brickbase is a platform that seeks to create a blockhain-secured title search and escrow service for real estate transactions to occur with higher efficiencies, lowered costs and enhanced data security.
Another digital blockchain-based solution is being developed by the Swedish land authority Lantmateriat, in collaboration with blockchain startup ChromaWay, Swedish telecom giant Telia Company and a few real estate companies. The solution aims to digitize contracts for sale and property mortgages which will be authenticated by the blockchain.
These platform will eliminate human errors that are at the base of many legal issues concerning property, build trust in the market and go a long way in reducing the incidences of illegal deeds, frauds and forgeries.
The requirement for extensive documentation and many intermediaries in the process makes the financing and payments system for real estate transactions painfully slow, taking from 30 to 60 days to complete. This process could be simplified to a great deal by the use of blockchain technology. ShelterZoom, for instance, is developing a platform on the Ethereum blockchain to streamline property transactions.
Challenges of adopting a new and nascent technology like blockchain – mass adoption, scalability, interoperability, regulation – to any industry will always remain. However, the potential of the technology to transform the real estate industry cannot be denied. Many companies are experimenting with blockchain-based solutions so that one of the oldest industries takes the bold leap into a decentralized digital world.