I was contemplating to title this blog “Enriching real estate buying experience with Blockchain”, but finally chosen the title “Real Estate Blockchain Eco-system” to brand the collation of ideas as “ReBe”. As you got the crux of the topic and let us dive into details.
Investment Opportunity vis-à-vis Technology Advantage of Blockchain is an ongoing debate. My focus on this post is to underpin technology advantage of the blockchain. While in-numerous use cases are popping up on the blockchain, I have been thinking about enriching real estate customer experiences expanding real estate market opportunity with distributed, trustless, auditable, and immutable nature of blockchain technology.
From the latest MSCI report, the size of the professionally managed global real estate investment market grew marginally from $7.1 trillion in 2015 to $7.4 trillion in 2016. Currency movements distorted national changes. Currency movements effectively reduced the size of the global real estate investment market by approximately 2.3% in U.S. dollar (USD) terms. Let us break down real estate opportunities and analyze areas where blockchain can show higher impact. I will start by asking a question, what if blockchain could help taking out currency movements? That itself leads to a potential of addressing $170 Billion opportunity size. How about addressing the following plausible areas with blockchain technology?
Blockchain Relevance to Real Estate
The six core characteristics of blockchain namely “Immutable, Consensus, Encrypted, Transparent, Programmable, and Distributed” positions the technology to handle/transact almost every element of a real estate value chain on a blockchain. In buying a real estate, whether it is commercial or retail, the current inefficiencies along the value chain can be replaced with a blockchain platform that can make it better, faster and cheaper. Here is a peek into details.
1) Property Search and Records: Search can be enabled by peer-to-peer listing platforms that allow buyers and sellers to transact directly with one another and reduce or eliminate commissions. One property is found the property owner has to be confirmed. For any kind of a high-value property (real estate, cars, art) it is important to have accurate records which identify the current owner and provide a proof that he/she is indeed the owner. A blockchain based property ownership recording system described in this article eliminates most potential failures and attacks through transparency and use of cryptographic primitives for authentication. Thus it can be used to eliminate reliance on trusted third parties, reduce costs (through automatization) and avoid number fraud and errors. For example, REX MLS blockchain platform provides an open, decentralized and democratized environment for listing and transaction processes
2) Property financing and lending: Blockchain can facilitate financing, investment, and crowd-ownership in real estate dealings.
- Blockchain can leverage crypto backed native currencies as a means of payment in real estate transactions, which can involve considerable regulatory issues (e.g. KYC, AML) minimizing transaction fees and potentially eliminating cross-border currency fluctuations in a global marketplace.
- Blockchain technology can be used as a means of crowd investing/funding in real estate tapping into funds beyond banks and institutional money.
- Other possibilities include the noteworthy business models that seek to issue a regulated, blockchain-based cryptocurrency secured by shares in Real Estate Investment Trusts (REITs).
- The current owners of real estate can monetize full or partial ownership of these assets creating liquidity with ease of technology. For example, the UK government’s “shared ownership” scheme helps first-time buyers get on the property ladder by purchasing part of a property and paying rent on the remaining value. Renters can buy additional equity in the property as and when they can afford it, a process known as “staircasing” Blockchain enables more efficient processing of financing and payments
3) Lease and Rental Management: Blockchain technology can automate most of rental and lease management processes leveraging “smart contracts” by shortening the cycle time of reconciling rental payment and property expenses cash flows by providing full transparency. This will finally lead to reduced accounting, property management, and compliance costs. Blockchain driven student accommodations is another evolving trend in this space.
4) Titles and closing: Blockchain enables transparent and relatively cheaper property title management. Distributed ledger technology combined with smart contracts can potentially eliminate escrows. This is possible by altering the real estate transactions by combining identity verification with escrow. In place of a title company, buyers could make a purchase in crypto backed native currencies by sending the funds to one party and title to another without the need of escrow. Another advantage is minimizing the wire fraud impacting the real estate industry. In the traditional real estate closing process, numerous intermediaries are utilized and get paid which increases the lead times and associated costs. By assigning each property to a digital address, blockchain can significantly reduce the number of intermediaries by reducing costs and lead times in multifold.
5) Add-on Services: Blockchain can potentially be extended to multiple add-on services enabling end-to-end real estate processes. These services include but not limited to expediting pre-lease due diligence, ease leasing and subsequent property and cash flow management, offering real-time rich data promoting smarter decision-making, blockchain based land ledger etc.
Real Estate Blockchain Ecosystem (ReBe)
Each of the above real estate services can be a blockchain offering in itself. But what I am trying to project in this post is a Real Estate Blockchain Ecosystem (ReBe), a portfolio of services to offer an enriched and optimal end-to-end real estate solutions. As depicted in the diagram above, ReBe ecosystem constitutes multiple layers.
- First Layer – Blockchain Core: The center layer with a ReBe Token, crypto exchange, smart contracts, and a distributed ledger based financial system creating ReBe technology platform. ReBe token is envisioned as a hybrid token with a utility service to pay network fees and a security that backed by a real estate asset offering collateral and a possible monetization of assets.
- Second Layer – Blockchain Services: A portfolio of services can be built around the core layer that forms the “Blockchain Services Layer”. Here a catalog of services either building a partner ecosystem of existing platform players or pay-per-use platform services for participating service providers.
- Third Layer – Marketplace: The third layer is the marketplace of buyers, sellers, crowdfunding, banks, institutions and legal entities that leverage blockchain services. An example of a marketplace transaction could be Peer-to-peer property transfer or rent.
Blockchain technology is fast changing the property buying experiences and I foresee an existing opportunity in reshaping the real estate industry with ReBe. You can reach me @ firstname.lastname@example.org for a deeper mindshare on this topic.