When you think ‘blockchain’ you don’t usually think of commercial spaces and property sales. Finance and investment majorly, but not blockchain in real estate!
Given the blockchain’s disruption of financial services, it is hard to find a segment that has not been influenced by technology. Cryptocurrencies have made a strong impact on payments, remittances, and foreign exchange. Initial coin offerings (ICOs) have challenged stock investing, startup loans, and venture capital.
Real estate has not escaped the blockchain maelstrom either. Previously, transacting high-value assets such as real estate dealings through digital channels has never been the norm. Real estate transactions are often done offline involving face-to-face engagements with various entities. Blockchain has changed this trend. The introduction of smart contracts in blockchain platforms now allows real estate dealings to be tokenized and traded like cryptocurrencies like Bitcoin and Etherium.
Yet Commercial Real Estate (CRE) transaction volumes currently stand at $341 billion globally. Even if a relatively small percentage of that is spent annually on informational data and due diligence, the business case for any technology that can reduce these costs becomes compelling.
Despite all the hype, blockchain technology is actually at its best in areas of showing transparency, for example in a supply chain. It is already in use to ensure the authenticity of medicines and luxury goods. Greater transparency will drive better and faster decisions, and ultimately, frictionless transactions.
Existing Blockchain Landscape
Real estate technology has mostly been concerned with listing and connecting buyers and sellers. In the current state of affairs, it takes unnecessary time and money just to rent an office. A series of middlemen have to search and verify and then negotiate with both parties on terms and penalties.
In this environment, it can take more than twelve months and hundreds of pages to lease a single floor. Landlords are unable to rent floors predictably and quickly, leaving them overexposed to vacancy risks and financially stretched. Meanwhile, tenants spend months shopping and negotiating via brokers and finally end up with long-term leases. However, blockchain introduces new ways to trade real estate and can enable trading platforms and online marketplaces to support real estate transactions more comprehensively.
ATLANT, a recently developed platform uses blockchain technology to facilitate real estate and rental property transactions. By tokenizing real property, assets can then be traded much like stocks on an exchange and transactions can be done online.
A proposed way of changing this situation is to decentralize the process and provide a large aggregate data source. The idea is to make every office property in every major market indexable and searchable. This begins with creating a distributed online ledger that simplifies the process by reducing paper trails.
Information stored in the blockchain is accessible to all peers on the network making data transparent and immutable. A decentralized exchange has trust built into the system.
Flexibility and Liquidity
While many players in the real estate industry recognize that technology has the potential to quickly improve data sharing, help with raising capital for real estate assets, and generally make the market far more liquid, blockchain is not a one-size-fits-all solution.
According to a report, five key instances in which blockchain should be considered for CRE processes are:
- Need for a common database – Critical for leasing and purchasing transactions such as the multiple listing service, which collates property-level information from brokers and agents’ private databases.
- Multiple entities editing the database – Transactions involving several entities such as owners, tenants, lenders, and investors who modify a variety of information.
- Lack of trust among entities – Often, participants in leasing and transactions are new to each other and could have concerns over due diligence and data integrity. Here, blockchain can help reduce the risk through digital identities and have more transparent record-keeping systems.
- Opportunity for disintermediation – Less need for intermediaries due to higher security and transparency in title management and auto-confirmation.
- Dependency on transactions – Many real estate transactions have conditional clauses and can be executed through smart contracts. For instance, the conclusion of a purchase-sale transaction could be dependent on loan approvals or title clearances.
New platforms can eventually assume functions such as listings, payments, and legal documentation. Cutting out intermediaries will result in buyers and sellers getting more money as they save on commissions from intermediaries. This approach could prove invaluable for brokerages, financial information companies, and tenants of all sizes globally.