Blockchain and real estate aren't quite the unlikely pair, as blockchain in real estate is becoming more apparent.
Plenty of web3 real estate projects are taking advantage of blockchain technology's innovation, such as transparency and cheap real estate transactions, among many other major benefits.
Considering it's now been 15 years since the conception of Blockchain technology and many years of disrupting the banking industry, it's now time for the same to happen with the real estate industry.
The real estate industry is historically a slow-mover when adopting new technology. But, as the world upgrades from web2 to a more inclusive web3, can the real estate industry afford to be stubborn and adapt at a snail's pace yet again?
This leaves you wondering, what does blockchain in real estate look like? And what benefits would investors, homeowners, and other stakeholders see?
Check out the six benefits of blockchain in real estate below.
Real estate transactions are incredibly expensive; the closing fees can reach $10k+ with all the lawyers, brokers, and over a dozen other individuals involved in the deal.
Blockchain and technology like smart contracts will remove the need for dozens of people to be involved in the process.
Automating things like document verification and mortgage approvals to a piece of code will, in turn, reduce the lengthy and tedious process of buying a property. Blockchain technology can enact a major reshuffling of these traditional roles.
An example would be creating smart mortgage contracts rather than waiting months for mortgage approval and the constant back and forth.
A mortgage broker could write a smart mortgage approval contract to grant your mortgage request the minute all documents and requirements are provided and fulfilled.
Relying less heavily on brokers, banks, and lawyers within these processes should significantly reduce the associated costs and long processing times. This would be a huge reason to start implementing blockchain in real estate more.
Real estate investing is only realistic for those that can afford to buy a property, which isn't many people. People are also deterred by the complicated processes involved in investing in real estate.
Blockchain technology provides people with an alternative; thanks to projects like Parcl, you can now gain customized exposure to real estate by investing in your favorite locations; this is only possible with the support of synthetic assets, smart contracts, and price oracles.
With Parcl, you will be able to trade a synthetic representation of the price return of your favorite neighborhoods.
This means you can invest in your favorite neighborhoods without owning any physical real estate, and the initial investment amount is completely up to you.
Technology within real estate tends to be limited to listings and as a way to connect buyers and sellers. But, using blockchain technology introduces a new way of buying and selling real estate by making the whole process trusted and fast.
A great example of this would be Propy. This blockchain-based property platform simplifies the home-purchasing process and eliminates the risk of fraudulent transactions, costing more than $200 million over 2020 in the US alone. Removing this risk factor would be an outstanding win for the real estate sector.
The same goes for mortgage applications; in the second half of 2021, an estimated 1 out of every 120 applications contained fraud. With data stored on a digital ledger, any inaccuracies within an application would quickly be identified.
The entire closing process of a real estate transaction is completely streamlined and all in one place on their platform, making life easier, cheaper, and safer for both buyer and seller. However, the downside is that you still need huge cash reserves to buy a property in the first place.
Real estate is considered an illiquid market as there are not always buyers or sellers available. Blockchain can help remove this issue; instead of selling equity to a bank, you could release a custom percentage of your home's equity in the form of tokens and release this onto a market to be traded amongst a pool of investors.
Parcl uses an AMM liquidity pool to maintain liquidity while buying or selling Parcl assets like Manhattan or Miami. A constant pool of tokens allows for immediate liquidity, something unheard of until the introduction of Web3 technology.
Alternative Investment Options
Currently, traditional real estate investing is quite the task, from initially looking for properties, sorting out finance options, closing the deal, making repairs that need to be made, and every month, collecting rent.
It's obvious to see that investing and maintaining the investment is a difficult task. There are traditional options like REITs that don't require much management. Although, the investor doesn't have much control over where their money goes.
Blockchain opens up a whole new layer of real estate investing. Projects such as Parcl can be used to gain customized exposure to the real estate market; the real estate investment protocol allows users to trade by going long or short on US neighborhoods.
For example, suppose you know that the government is investing heavily into the urban development of a local town or area within a larger city. This could cause property prices to rise over the next few years; Parcl would allow you to take a long position in this area. Ultimately you'd profit from the increase in real estate value.
Tokenized Fractional Ownership is another alternative blockchain-based investing method. We briefly mentioned it earlier in the article.
Tokenizing property ownership would allow investors to easily buy and sell tokens; they'd also be able to trade fractions of their tokenized ownership rather than full tokens, which isn't the case for traditional fractional ownership products.
This is attractive to most people as it gives investors more control over their initial investment. The issue with traditional and tokenized ownership is that investors are offered a small selection of investment opportunities.
Ownership deeds are mainly paper-based which, as we all know, can be vulnerable to damage, being lost, or fraudulent activities. The legal process of transferring ownership is sometimes a long, complicated process that can require deep pockets.
Blockchain technology is a great solution as all records are tracked on an immutable ledger that can act as a trusted and reliable source of information for both parties to a deal.
The Swedish land authority even trialed blockchain technology for their land registry platform to provide a central source of reliable information.
Efficient Supply Chain Management
Supplying the demand of homeowners has never been more important as governments worldwide continue to miss home-building targets. Some issues facing construction firms, real estate developers, and governments are increasing prices, material scarcity, and difficulty forecasting demand.
All of these issues can be somewhat tamed by the use of blockchain technology to manage and track materials, provide transparent and verifiable data to support forecasting efforts, and effectively track where and when materials are used, ultimately making home building cheaper, faster, and easier. In turn, reducing prices for the end buyer.
Summary of Real Estate Blockchain Benefits
- Increased liquidity.
- A more manageable and easily tracked supply chain.
- Real Estate tokenization for more control over investments.
- More exposure to real estate assets and overall greater accessibility.
- Increased efficiency for the operational side of the real estate industry.
- Shared data allows for more transparency amongst global financial networks.
- Reduction in costs due to the removal of manual tasks and human involvement.
As you can see, blockchain in real estate has plenty of opportunities to improve efficiency and trust within the real estate industry. The next few years will be an interesting time to watch how things unfold.
There are currently plenty of cool real estate projects out there that aim to bring Web3 technology to real estate and real estate investing to the masses, with Parcl leading the charge.