Blockchain has been hailed ‘the great disruptor’ of the decade for more reasons than one. Not only will it purportedly revolutionise the music, finance, healthcare, insurance, education, security, and government industries, but it is also set to upend the real estate industry by improving the leasing and purchase and sale process, among countless other things.
Blockchain, the world’s most transparent distributed ledger, is revolutionary in its ability to fully encrypt personal data on the internet, enabling the global digital translation of assets and meaning there is no longer a need for a transparent, protective middle man. Essentially, this means the transferral of funds and other transactions can be conducted with zero risk of a hack from outsiders – something people have sought since the beginning of the digital age.
What this means for the real estate industry is only just beginning to be realised.
From blockchain-based smart contracts that could revolutionise the leasing and purchase process, to eliminating the need for a trusted (and expensive) third party to facilitate digital transactions, to the less considered elements of property management, like the management of land title records, blockchain as a technology has the power to change everything we have come to accept about the real estate industry and its many convoluted processes. And it’s about time, to be honest.
From absurdly expensive agent fees to outdated advertising and sales processes, real estate presents itself as an industry in urgent need of transformation. It would appear that the industry hasn’t evolved or adapted to modernity in years, despite the array of brilliant new technologies that have been developed in recent decades. According to popular belief, however, it should evolve: a whopping 66 percent of professionals surveyed globally believe that innovation will be the biggest factor influencing economic growth over the next 30 years.
Thankfully, blockchain is capable of fulfilling that demand for innovation within the real estate industry.
Perhaps the most impactful way it can do so is through allowing secure international financial transactions so that international buyers can avoid wire fraud and know they are operating in a transparent environment, since it is especially essential to establish digital trust in these types of transactions. Between 2009 and 2015, cross-border real estate investments and transactions grew by an impressive 334 percent, representing $217 billion in sales. As a result, the potential for buyers being scammed or defrauded by criminals posing as real estate agents or homeowners has become significant. In 2018 alone, Americans lost $150 million to real estate fraud. By exchanging blockchain-based smart contracts on transaction platforms designed specifically to exchange real estate documents and funds without the need of a third party agent, buyers can theoretically not only save on expensive international transferral and agent fees but also ensure their payments are traceable and all associated parties are legitimate actors. The increased security and transparency that blockchain can offer these types of transactions is invaluable, and not to be underestimated. Taking this a step further, those real estate listings that advertise they accept cryptocurrency make the deal especially attractive to buyers, According to one London Block Exchange study, the next generation of buyers are keen on crypto as a currency: 5 percent already invest cash in cryptocurrency and another 17 percent are “seriously considering” a digital currency investment by the end of this year.
By speeding up the monotonous processes typically associated with buying a house, blockchain can also make the entire transaction quicker, easier and far less cumbersome. Most pertinently, it can be a powerful tool for financial verification, saving not only time but also money, since this verification process typically costs around 1 or 2 percent of the property’s total value.
According to an article by TechCrunch, “At current, most buyers and sellers make use of escrow and title companies for third-party verification—a safety net to make sure both parties keep their end of the deal, as well as to reduce the risk of fraud.”
With blockchain, however, TechnCrunch argues that the middleman could “effectively be cut out” thanks to blockchain. “By using a blockchain distributed database to prove authenticity, homeowners could legitimately transfer ownership immediately without the need to pay for third-party verification,” it argues.
The renting experience could also be greatly improved by blockchain. One example of this in action is Rentberry – a blockchain-based online home rental platform that allows potential renters to bid on the rental fee, instead of landlords stating the price. It also uses smart contracts which automatically withdraw regular rental payments from tenants’ accounts, as well as any anticipated property management fees that can be calculated using data from IoT and utility bills. Already, Rentberry has raised $30 million in the largest real estate ICO to date.
The potential for real estate industry disruption by blockchain is enormous, and we are only seeing a glimpse of what lies ahead.