Blockchain technology presents plenty of opportunities to improve current financial systems and even help support the creation of new ones.
With Blockchain technology now coming up for its 15th anniversary, it's hard to find an industry that the tech hasn't muscled its way into. In another 15 years, we could see almost unrecognizable industries thanks to Blockchain technology.
Real estate is a prime example of this potential disruption. Let's dive into the various ways blockchain technology will affect the real estate market.
The real estate industry wouldn't be where it is today without brokers closing deals, lawyers facilitating transactions, and banks lending the money. But, blockchain technology will soon enact a major reshuffling of these roles within the Real Estate industry.
An example of this 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 that would grant your mortgage request the minute all documents and requirements are provided and fulfilled.
Cutting out or relying less heavily on brokers, banks, and lawyers within these processes should significantly reduce the associated costs and long processing times.
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 amount of initial investment 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, a blockchain-based property platform that simplifies the entire home-purchasing process and eliminates the risk of fraudulent transactions, costing more than $200 million over the course of 2020 in the US alone. Removing this risk factor would be an outstanding win for the real estate industry.
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 going to be 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 specifically uses an AMM liquidity pool in order to maintain liquidity while buying and 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.
Currently, traditional real estate investing is quite the task, from initially looking for properties, sorting out finance options, closing the deal, repairs that need to be made, and on a monthly basis, 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 investment. Projects such as Parcl can be used to gain customized exposure to the real estate market; the real estate investment protocol allows users the ability 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. In that case, 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 an attractive feature to most people as it gives investors more control over their initial investment. The issue with both traditional and tokenized fractional 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 of a deal. The Swedish land authority even trialed blockchain technology for their land registry platform to provide a central source of reliable information.
As you can see, blockchain technology 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 the Real estate industry and bring Real Estate investing to the masses, with Parcl leading the charge.
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