Blockchain in Real Estate: Key Benefits and Use Cases

1. Understanding Blockchain Technology

Before we delve into the uses of blockchain in real estate and its benefits, it is better to have a clear understanding of what this technology is and how it works.

1.1 What is Blockchain?

Blockchain can be defined as a decentralized ledger system that keeps records of transactions and digital assets. These assets can be physical such as land, cars, and buildings, or intangible like copyrights, patents, and intellectual property.

Every transaction is registered digitally in the form of a ‘block’ and every block is connected to the previous and next one in the form of a ‘chain’. This creates an unalterable sequence of documentation that can be accessed by all members of the blockchain.

Businesses around the globe are seeking help from blockchain development companies to integrate this technical marvel into their working processes to make their operations more efficient and secure.

1.2 How Does Blockchain Work?

In simple terms, digital transactions in the form of cryptocurrencies, non-fungible tokens (NFTs), financial records, etc. are recorded and stored in blocks. The information recorded in each block gets verified by other users in the system. Once verified, the block cannot be altered and is added to a chain of already-verified blocks.

A blockchain is a gigantic shared ledger of transactions that can be kept track of and accessed by all its users. Let us illustrate blockchains with an example.

Suppose two friends Mark and Linda are both Bitcoin users and therefore are two ‘nodes’ in the Bitcoin blockchain. If Mark and Linda want to make a Bitcoin transaction between them, the following sequence of processes will be set into motion.

 

Step 1: A Transaction is Initiated – Let’s say, Mark wants to send 10 BTC to Linda. A new transaction enters the blockchain network and is encrypted using public and private keys.

Step 2: Verification of the Transaction – The message for verification is sent to all nodes on the network. The other users will verify the transaction based on factors like – ‘Are both Mark and Linda registered nodes?’, and ‘Does Mark have at least 10 BTC to execute the transaction?’, etc.

Step 3: Creation or Mining of a New Block – A set of verified transactions are clustered together and stored in a block.

Step 4: Consensus Algorithm – The Proof-of-Work consensus algorithm for Bitcoin is used to verify the block. The system assigns a target hash value to a node and accordingly, the node has to provide a hash for the new block.

Step 5: Adding the New Block to the Chain – Only after the new block gets the hash value and is authenticated through the consensus algorithm, it will be added to the network and the transaction will be completed – i.e. 10 BTC will be transferred from Mark’s wallet to Linda’s. All details of the transaction will be permanently and unalterably stored on the blockchain.

 

2. Real Estate and Blockchain

Real estate is one of the largest industries that continues growing over the years. Recent surveys reveal that the worldwide real estate market has leaped to $10.5 trillion despite the challenges of the COVID-19 pandemic.

However, the industry still has its pain points and uncertainties. People continue to need clarification as to whether conducting property-related transactions is transparent and secure.

For instance, when a person pays for property and construction activities, they can still be unsure of whether they will be able to move into their new property on time or if they will have the promised real estate built at all.

Having a blockchain-based real estate application for such purposes helps to eliminate such doubts and apprehensions. It helps to establish mutual trust between the stakeholders by offering complete openness and clarity for all transactions.

Apart from ensuring transparency, blockchain also helps to save time and money as it automates a lot of tasks like scrutinizing tenant backgrounds, signing contracts, tax payments, and the like.

According to the Houston Business Journal, the worldwide tokenization market is projected to reach $4.8 billion by 2025, and real estate is one of the most prominent industries that can be revolutionized by blockchain technology.

Property dealers are looking to hire blockchain development services as integration of this technology is bound to be the future of real estate operations. Its key applications in the real estate sector are:

• Tokenization of real estate assets
• Increased process efficiency
• Reduced operational costs
• Amplified partner and customer base, and
• Access to wider pools of investors.

 

3. Challenges in Traditional Real Estate Transactions

Evolving trends and constant fluctuations in the economy pose new challenges to the real industry with time. Various factors such as property listings, management of contact information, dealing with stakeholders, etc. have an impact on the revenue in real estate. Some of the common concerns faced by modern-day realtors include:

3.1 Huge Amount of Paperwork

The real estate market is notorious for its requirements of large volumes of paperwork, even for the smallest transactions. The transfer of property from owner to buyer and vice versa is a complex and time-consuming process that even software tools cannot speed up.

Because of this, real estate agencies tend to lose money and potential customers as they have to diverge from their key objectives to fill out the lengthy documentation processes.

3.2 Lack of Transparency

The real estate industry is not easily accessible to the general public due to a range of factors such as cash demand, credit scores, citizenships, accreditation, and so on. There is no credible database that contains all the info needed to buy or sell a property.

Traditional methods lack clarity on many levels and adversely affect buying and selling decisions. With blockchain, real estate businesses can offer more transparency by keeping all recorded data in one place.

[ Also Read: How Is Blockchain Revolutionizing the Future of the Mobile App World ]

3.3 Dependence on Intermediaries

It is common knowledge that the real estate sector requires a lot of intermediaries as business owners and property dealers need to deal with several daily tasks and objectives. This hampers the entire process by making it longer and compromising the quality.

For instance, if two parties are participating in a real estate transaction, they often employ several third parties to mediate the working processes. But with blockchain, all these tasks can be automated, eliminating the need for intermediaries.

3.4 Reduced Speed of Transactions

Owing to the dependence on third parties at most steps of transactions, the real estate market constantly needs help to keep up with the time constraints. Recent studies reveal that 44% of travelers and cross-country job-seekers schedule an appointment with real estate agents before going abroad.

This brings down the speed of the process and hinders the transaction rates in the process. The use of blockchain can help these processes to be completed flawlessly in a fraction of the time.

 

4. Benefits of Blockchain in Real Estate

Considering that blockchain’s primary aim was to offer a better alternative to the existing payments and transaction systems, it is no surprise that the biggest impact of the technology has been in the financial sector.

While the financial applications of blockchain have deservedly taken the spotlight, the technology is also providing effective solutions to major concerns in the real estate industry.

Housing and landholding companies are investing heavily in blockchain-based mobile app development services to take their business and sales processes to new levels of efficiency and productivity. The major benefits of blockchain in real estate include:

4.1 Tokenization of Assets

Tokenization of real estate assets is perhaps the single most important advantage of blockchain in the industry. Tokens stand for a specific number of shares for a particular real estate asset that can be issued, purchased, and sold via blockchain platforms with cryptocurrencies.

This process speeds up property sales to a great extent and lowers the hurdles to crowdfunding. With the help of blockchain, the investment barrier is lowered for ordinary property investors.

It also eases the management of overseas investments in commercial real estate. To put it simply, properties can now be traded like stock through cryptocurrencies. Blockchain can remodel the entire commercial real estate market because of its ability to increase real estate liquidity.

 

[Also Read: How To Develop A Great Mobile App: An Ultimate Starter Guide]

 

4.2 Improved Security of Transactions

Since the value of a property can be liquidated in blockchain-based systems, investors can buy and sell their tokens of investment anywhere and anytime, following legal regulations.

The smart contracts in blockchain shun the risk of transactions being tampered with or data being manipulated. Property buyers and owners can rest assured that their blockchain real estate investments are secure and in compliance with domestic and international laws.

Real estate blockchain app development also reduces the risk of fraud and unlawful activities. You might be looking to buy property from someone or to sell it to someone, and you can’t trust them as you don’t know them.

With blockchain, you don’t have to! Property transfers need not go through third parties as blockchain eliminates the requirement and presence of any intermediary or underhand measure.

Since blockchain is a distributed framework, no user can tamper with or misuse any piece of transaction or data related to it as even the slightest alteration requires the approval of all users within the system.

4.3 Cost Efficiency

The real estate ecosystem has always involved several intermediaries or third parties such as brokers, banks, and attorneys. They not only make property transactions more tedious and time-consuming, but they also increase the overall cost manifold.

According to a recent study by Deloitte, blockchain technology may soon replace these third parties with automated real estate transactions. Payments, listings, and legal documentation are all projected to be taken over by automated blockchain-driven systems.

By cutting down on middlemen, both the buyers and sellers of property can be assured of greater value for money as they will be able to save on the commissions and ‘extra-legal’ expenses to be paid to these third parties.

Besides intermediary charges, there are other expenditures such as inspection costs, loan fees, registration fees, and taxes that come with real estate operations. These costs vary according to the territories and governing bodies that have jurisdiction.

Global real estate is worth trillions of dollars but is controlled mostly by a handful of wealthy corporations. Blockchain is making it possible for more common people to access the market where transactions will be decentralized, transparent, secure, and legitimate.

4.4 Extended Customer Base and Investor Pools

Using blockchain, it is possible to create automated features that restrict all actions that are not compliant with the laws and regulations of the real estate industry. In this way, you can drive in more overseas partners and customers who need not be concerned about local policies regarding property. They can carry out transactions just like local clients.

Blockchain makes property investments more accessible to middle and low-income group buyers. A real estate asset can be divided into multiple pieces using the property-shares system that enables fractional ownership.

Tokenization of property provides further opportunities by offering access to the secondary market. It can be put into practice by reproducing assets digitally, lowering the transaction costs, and making them accessible globally.

Blockchain real estate systems enable you to convert illiquid assets into liquid ones and drive in more investors. As a consequence, anyone can acquire assets in digital form or shares of them and sell them in the secondary market.

 

5. Blockchain in Real Estate – Use Cases

Considering its growing list of advantages, blockchain is continuously finding new applications in the real estate industry. From automated property management to deed settlements, the technology is reshaping how property is marketed, bought, and sold around the globe.

Integrating such systems requires extensive technical skills. Hence, investing in a blockchain development company is imperative if you do not possess the required expertise. Discussed below are some of the ways blockchain is being used to modernize the real estate landscape.

5.1 Automation With Smart Contracts

Smart contracts or crypto contracts are programs within a blockchain that run automatically when a predefined condition or set of conditions are met. They can directly and intuitively control the transfer of digital assets between users (or nodes) under certain conditions.

They work similarly to normal contracts in physical form while automatically enforcing the terms of the contract. Just as a legal contract is enforceable by the law, a smart contract is enforceable by the code.

With smart contracts in real estate, a property transaction that would involve large volumes of paperwork to conduct physically can now be carried out digitally and directly between the seller and the buyer. This process also ensures increased levels of transparency and security than what was previously possible.

Most real estate transactions can be fully automated, hardly requiring any human intervention. With the help of smart contracts, everything programmed into the blockchain becomes self-executive when the code is run. This reduces not only the amount of human hours but also brings down operational costs and risks of fraud.

5.2 Property Management

As a direct result of smart contracts, the elaborate and rather complicated operation of property management can be conducted automatically with blockchain. Almost all of the manual paperwork can be replaced by a set of software programs that can continuously be upgraded and improved.

Moreover, the tokenization of digital assets can help to reduce costs and boost the speed of formulating, issuing, and transferring real estate assets, implementing new features, monitoring dividends, and other such activities.

Detailed customization and rapid distribution enable issuers to optimize digital assets according to the preferences of investors, lessening counterparty risks to a great extent. The reduction in costs allows real estate providers to decrease the minimum investment amounts and widens the pool of investors.

5.3 Fractional Ownership and Home Sharing

By dividing a property into several parts, blockchain enables fractional ownership and lowers the barrier to investing in real estate. In the traditional process, a hefty capital investment is necessary to acquire property.

Using blockchain, investors can pool their resources to acquire larger assets with higher ticket prices. They simply need to have access to a trading app to buy and sell even parts of tokens as they prefer. This type of ownership also does not require investors to manage the property and take care of tasks such as maintenance and leasing.

Apart from fractional ownership, blockchain also provides more efficient and advanced options for home sharing. In simple terms, you can develop a home-sharing application like Airbnb where users are charged with cryptocurrency instead of actual money.

Dtravel is an apt example of a blockchain-based property renting marketplace. It lets users rent apartments directly from the owner. The platform charges a fee for every transaction made by a renter and a property owner.

 

 

Since Dtravel is a decentralized P2P (peer-to-peer) platform for property owners, it lets them earn extra money by taking part in the development and support of the startup. It also provides credentials and rewards to renters in the form of NFTs each time they cross a certain valuation of transactions.

5.4 Property Construction and Development

Large construction projects often have issues regarding transparency, imposing risks of budget overheads, fraudulent operations, and delays within a supply chain.

Blockchain can simplify the procuring of raw materials and supply chain management by tokenizing each unit of resource required for the project. Since blockchain is an immutable ledger, it is impossible to manipulate the quantity or price of materials for unlawful purposes.

For instance, a subcontractor cannot alter the number of drainage pipes needed for the construction of a building without convincing all stakeholders of the necessity of the change. Similarly, project managers can observe the progress of a project in real time and share updates with the stakeholders openly.

5.5 Property Search

Property owners, tenants, and brokers generally have to turn to listing platforms to search for property information. These platforms require users to get a subscription and charge high fees. Moreover, the property info provided by them is often incorrect, outdated, or distorted. This leads to inefficiencies and even legal disputes.

A blockchain-powered app can decentralize the data among all stakeholders and enable everyone to share information in a P2P network. It also gives brokers more opportunities to receive additional data tracking options and helps them bring down the associated expenses.

RealT is a real estate investment platform that allows global investors to buy property in the U.S. through a fully automated and token-based blockchain network. The platform enables investors to purchase tokenized real estate properties with permissionless Ethereum.

 

 

RealT also allows investors to maintain and access cash flows and have low maintenance ownership through ‘RealTokens’.It lets property owners access rent payments weekly or monthly through US-Dollar stable coin, Ethereum, or xDai.

5.6 Deed Management

Yet another use case of blockchain in real estate is automated deed management. As of now, property titles are paper-based. This increases the risk of errors and cases of fraud.

The presence of any defect or error makes it illegal to go ahead with the deed management process unless the issue has been taken care of. This makes it mandatory for property owners to pay huge amounts to law firms to ensure authentic and accurate property titles.

This entire process and the expenses undertaken to complete it can be done away with by using smart contracts to screen out any irregularity or error in property titles. As the records are unalterable, both the owners and the buyers can rest assured that the processes of making and transferring deeds are transparent and secure.