The U.K. Government Office for Science mentioned the effect of blockchain and other distributed ledger technologies (DLTs) as significant in its Distributed Ledger Technology: Beyond Block Chain report published in 2016. The introduction of blockchain technology has made transactions more transparent, more efficient and more accessible in the real estate market. All types of real estate activities, including money transfers, property registration and the conclusion of agreements can be done using blockchain technology.
How could blockchain transform real estate industry?
Nowadays purchase of property using cryptocurrencies without the help of intermediaries is taking place. The blockchain might be used in future not only in terms of payment but also for transferring fiat money.
Property, Transaction and Title Ledgers
Data entered into distributed ledgers are accessible online and mobile apps which include real estate information, transactions, title registration, property encumbrances and their condition. Pilot projects have already launched by several countries to test such systems. Property appraisal becomes easier and quicker when every property is allotted a blockchain ID that contains its specified technical characteristics. In future, blockchain IDs will be there for properties of portals and MLS databases.
Blockchain technologies make smart contracts safer and more reliable. Smart contracts are transactions whose transfer of ownership is completely automated by computers. They also check the transaction possibility and legitimacy of the agreement to be concluded. This helps in property sales and rental transactions. To buy and lease real estate, escrow accounts are mostly used.
Voting system is used by owners of flats to decide regarding issues such as major repairs or works on common areas. Distributed ledger guarantees reliable remote voting and assure owners that their votes are casted appropriately. When real estate decisions are done by voting, blockchain technology becomes useful.
The Major Benefits of Distributed Ledgers
Lower Transaction Costs
In September 2016, the world’s first trade using blockchain technology took place, when Barclays, Israeli startup Wave and Irish dairy producer Ornua carried out a $100,000 credit transaction for exporting a parcel. This transaction was completed in less than four hours than days as it normally takes.
The time required for paperwork to close real estate transactions is reduced to hours or minutes. quicker and cheaper cross-border fund transfers, reduced technical operating costs for transfer of ownership, cheaper transactions, etc. are its key goals.
To adulterate a current distributed ledger entry, one would need to hack each PC on which a duplicate of the ledger is stored, and this number can be gigantic (e.g. the quantity of bitcoin users is assessed at a few million). The sections can’t be erased or changed post factum, which altogether diminishes the open doors for extortion and theft.
Transparency and Liquidity
Access to all documents related to a transaction can be gained by sellers and buyers using open block chain-based ledgers to check the accuracy and authenticity of the dealers. This leads to stronger capital inflow due to the transparency and liquidity of investments. Infinite opportunities for structuring property and investment project rights are provided by smart contracts that might trigger for collective investments. Similarly, absence of governmental restrictions on the withdrawal of funds, reduction of transaction costs, active development of collective cross-border investments, etc. also attracts investors.
Absence of Regulation
To regulate the implementation of blockchain technology, no legal framework has yet been created. There is a requirement for framework in court for the defense of smart contracts and other operations to materialize most of the advantages of distributed ledgers.
High Costs of Conversion
For transferring to Mastercard or Visa, the commission charge ranges between 0.5 percent to 5 percent. This is likely to be resolved soon by removing charges.
Know-Your-Customer (KYC) Requirements
Verification procedures are technically difficult to accomplish today for cryptocurrency owners. Risks of dishonest developers occur due to absence of bank regulation and obligations as they can collect money at a lower cost in the case of collective investments
The high volatility of cryptocurrencies increases the risk of investment in the real estate market. The constant rise in exchange rates lead to loss of stability of cryptocurrencies.
Regardless of the drawbacks, lower transaction costs and regulatory barriers will tempt private investors to invest for cross-border real estate transactions and hence gain profits. Startup companies can exploit this for real estate funds.
“It is already clear that, within this revolution, the advent of distributed ledger technologies is starting to disrupt many of the existing ways of doing business”
the company said in its report for the UK Government Office for Science.