Advances in blockchain innovation mean that the real estate sector no longer needs to rely on dusty documents and traditional sales processes, because property titles, insurance, ownership transfer and escrow processes are all moving onto the blockchain. While buying a property will not be as quick and easy as buying a book from Amazon, for now at least, the world of real estate from home buying to property investment is about to be transformed.
Why change traditional house buying?
An EY report published earlier this year pointed out that residential real estate markets with their agents, brokers, attorneys, mortgage lenders, appraisers, title companies and more, form an expensive, time-consuming web. Current due diligence processes, looking into property titles, for example, can take weeks and, in some cases, months.
The constraints of the traditional real estate processes often include mistakes in land registry records, disjointed and inefficient systems of tracking within the sales process, lack of transparency, high and sometimes unnecessary fees, and even fraud. For both home buyers and property investors, money is wasted, and profits squeezed. Sometimes at the end of it all the sale falls through.
The current systems are operating at almost curmudgeonly levels, so it is not surprising that this industry is ripe for change.
Blockchain, the irresistible force
Enter blockchain. Blockchain is an encrypted electronic record of data on a distributed ledger where information is shared simultaneously and stored over a vast number of computers. The technology has the ability and flexibility to streamline business processes within the real-estate sector and much more.
One aspect with massive scope for change in this sector is the legal process. With its many third parties, time delays and lack of transparency, the legalities involved in buying property will be drastically simplified with blockchain.
For example, in the verification of property titles; a title record for a property could be used on the blockchain in the form of a smart contract. Smart contracts do not require a trusted third party and, when a property is bought and sold, the details are encrypted and added to the record. This means that there is a clear, accurate and immutable history of property titles over time which can be accessed instantly.
Innovation creates new approaches to real estate
This is not just hype. Some national land registries are starting to use blockchain, including the Swedish Land Registry, which is piloting a scheme and has reported positive feedback. Now in its second year, Digital Street, a UK Land Registry project, is exploring the use of blockchain technology and smart contracts.
The aim, of course, is to bring greater transparency, speed and trust to property transactions, which will improve the system and bring much-needed liquidity to the market.
But blockchain will also contribute to increased liquidity in other ways too; such as fractionalization of property. This is a radical new approach which is gaining momentum — being able to own units or tokens in residential real estate – and it opens up the market to people who would otherwise not be able to invest in this sector.
This form of tokenization will have a huge and far-reaching impact on the market. Property could be bought and sold at the touch of a button. But where does all this change leave the real-estate agents? Undoubtedly, their roles will change, but there is no sign of them disappearing any time soon.
With so many new concepts being developed, real-estate agents will have a broader range of roles and will be more productive in helping homebuyers through the process and offering investors sophisticated and tailored advice on their fractionalization investment options. There will still be a vital role for them to play.
Blockchain not only will improve the current processes of buying and selling property, but it will also revolutionize our traditional attitudes towards real estate. How we live, how we choose and pay for our accommodation and how we invest in real estate are all up for grabs.
Written by Matthew Sullivan