5 ways blockchain will disrupt the real estate industry

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Blockchain offers an open source, universal protocol for property buying, conveyancing, recording, escrow, crowdfunding, and more. It can reduce costs, stamp out fraud, speed up transactions, increase financial privacy, internationalize markets, and make real estate a liquid asset. It is only a matter of time until we see blockchain become a prominent part of the industry, which will bring about it massive changes.

No more physical titles

Because of the way that the Blockchain works, it can turn a physical title into a digital representation of the title for that particular property, thus making the old paper title irrelevant. Many countries around the world still see the possession of the paper deed as being the legal owner and therefore by moving the deed to a secured digital platform it will reduce the risk of having your house or land from literally being stolen out from underneath you — a problem that exists in many third world countries today.

Also, because the title is now a simple digital asset, it can change ownership quickly, removing the need to go through multiple different channels. What’s more, this system will actually make it easier for mortgages to be registered against it, due to smart contacts as discussed previously. A simply digital title with pre-programmed rules that the title cannot change hands until the mortgage has been repaid back to the appropriate lender could easily be written. This then eliminates the need for lawyers to perform these tasks.

Ownership vs possession

Blockchain will disrupt the ownership of property. Traditionally when a buyer wants to purchase a property they will need a deposit and raise a mortgage from a financial provider. Blockchain will make it possible to raise the finance from other people, and then give them an ownership stake in the property in order to receive a return for their money. The buyer would then pay a lease, or mortgage to the other owners of their property. Although other people own the property with them, the buyer would have full possession rights with a smart contract drawn up and the ‘mortgage’ being paid out automatically to the other owners.

This will give people the ability to start investing in property from a much earlier point (imagine saving up for your deposit, simply by putting your savings into a house you one day hope to buy and receiving a return on that money, rather than simply putting it into the bank.)

This concept is already in place in forms in the crowdfunding industry — many of which have incorporated blockchain — at which the asset is bought with the pooled funds of multiple investors, a tenant is then found and rent profits are distributed. So it is not a far cry to move from this model to one that allows possession.

Removes the middlemen

According to “realcomm.com” Blockchain will remove the middlemen from real estate.

“Transacting real estate is cumbersome, opaque and expensive because of middlemen:

1. Brokers
2. Government property databases
3. Title companies: Insurance and property databases
4. Escrow companies
5. Inspectors and appraisers
6. Notary publics

Currently, these middlemen exist because they hold information that you can’t access or have skills/ licenses you don’t have that needed are needed to operate in the existing property transaction ecosystem. Public blockchains are a distributed database where anyone can record information, without it being censored, and without needing permission. Equally, anyone can access that information.”

Smart Contracts

Realcomm also goes on to say that Blockchain protocols such as Bitcoin and Ethereum have the ability to perform “Smart contracts.” This concept started with Nick Szabo. He gave the example of a vending machine which releases an item after a selection is made and the correct value is deposited. The goal of a smart contract is to reduce the need for humans to process and verify an agreement. A software protocol automates and self-executes an action when certain conditions are met.

Structuring this transaction as a smart contract ensures that the transfer occurs as soon as funds are received, and results in a publically available, verifiable record of the transfer. Because the contract automatically performs based upon the predetermined rules agreed to by the parties to the contract, there is little risk of fraud, and virtually no need for external measures to enforce performance of the agreement. Thus, no specific performance action would ever be necessary to compel the transfer after payment is made because the coin, which represents title to the condominium, is automatically transferred, and the transfer is automatically published, to third parties on the blockchain.

The stock market for real estate

In the future shares in properties as well as ownership of property will be traded as easily as shares on the stock market. Current crowdfunding platforms are already providing a similar service, but once all real estate is entered onto the blockchain the process of buying and selling real estate will dramatically change. People wishing to sell their ownership of a property will simply need to put it out to the market as per the current stock market works.

Blockchain is here to stay and is seriously going to make an impact on how we transact real estate. If there is one thing you should do to prepare for the convergence, then it is to study blockchain.

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