Michael Kfoury
Marketing and Communication Director
Regency Group Holding – Al Asmakh
Given blockchain’s integration into financial services and following widespread application across many industries, it is increasingly getting harder to find a business line or a segment that has not been influenced by this genius tech. Cryptocurrencies, like it or not, are making a strong impact on payments, transfers, remittances and foreign exchange…Even the food supply chain industry has been overturned by blockchain.
The real estate sector has not escaped the blockchain disruption. Formerly, transacting high value assets (real estate of course) exclusively through a digital channel was never a trusted norm; realtor transactions were often conducted offline and involved a physical (face to face) engagement with different entities. Blockchain, however, has paved the way to change this and was able to introduce us to what’s currently known as smart contracts; in blockchain platforms, real estate can now be tokenized and traded like cryptocurrencies (eg: bitcoin).
Here are six ways blockchain has changed the real estate game.
- Platforms, dashboards and marketplaces
Real estate has always been linked with listings and executed by connecting buyers and sellers. With the integration of blockchain, new ways were introduced to trade real estate, while enabling trading platforms, dashboards and online marketplaces to support more comprehensive real estate transactions.
Newly developed platforms that use blockchain technology are currently being introduced to the market, in an attempt to facilitate real estate and rental property transactions. By tokenizing, assets can then be traded much like stocks on a very secure portal, online… Speaking of which, sellers can now tokenize assets, essentially treating these like stock sales, and liquidating their assets through a token sale using the smart platform. The collected tokens can be exchanged for currency, with buyers owning a percentage’ stake of the asset.
- No Mediators, no intermediaries
For centuries, brokers, lawyers and banks have long been part of the real estate ecosystem, however, blockchain may soon flip the whole process upside down by shifting roles in real estate transactions. According to a report by Deloitte, e-platforms can eventually assume regular functions such as listings, payments, and legal documentation, automating the process in which businesses are being dealt with. Cutting out the intermediaries will result in buyers and sellers getting more out of their money by saving on commissions and fees charged by these mediators. Let’s not forget that automation makes the process much quicker, more standardised, as the back-and-forth between middlemen gets dissolved.
We practically, and efficiently, have a new way to connect buyers and sellers, without the hassle of middle-men / women and leading to huge savings in time and cost. This technology could also help to codify the practice of fractional ownership of real estate… but we’ll keep that for later.
- Liquidity
Real estate, in the business dictionary, has long been considered a secure, yet an illiquid asset since it requires determination and time for sales to be concluded. This is about to change! With cryptocurrencies and tokens, in theory, assets can be readily traded for fiat currencies through exchanges and sellers don’t have to wait for a buyer who can afford the whole property, in order to get some value out of it. Does it make sense? Keep reading for a wider view… - Fractional ownership
By allowing fractional ownerships, the blockchain technology was also seen lowering the barriers for those willing to invest in real estate; typically, investments would require significant amounts of money and expected to be paid upfront in order to acquire a property… Alternatively, investors were seen getting together to form a pool in order to acquire bigger ticket properties. Via blockchain, investors can now easily access a trading app to buy and sell even fractions of tokens as they see convenient and fit to their vision. Moreover, fractional ownerships would also help them avoid managing the properties themselves (including maintenance, marketing, collection and leasing).
The above being said, hopefully in a clear manner, it’s needless to say that maintenance alone can add up to significant costs whilst dealing with tenants may be another troublesome effort. This also affects related activities such as loaning, in which property owners often have to put their assets as collateral for loans in order to secure a quick access to cash money.
- Decentralisation and Transparency
Information stored in the blockchain is accessible to all peers on a secured network, making data transparent and absolute, which is definitely a characteristic that commands trust and security as a decentralised technology. In a quick turn of events, transparency can be a life saver… One only has to refer back to the American housing bubble crash in 2008 to see how the lack of transparency, and greed, can have catastrophic consequences.
A decentralised pool of information has trust built into the system and since information can be verifiable to peers, buyers and sellers can share mutual trust while conducting transactions and fraud would also be lessened. Have you considered smart contracts yet? These are increasingly becoming admissible records in new legislations; as such, smart contracts would have more leverage beyond the technology itself.
- Costs vs value
The transparency associated with a decentralised network will definitely reduce costs associated with real estate transactions, yet adding value in every perspective.
Beyond the savings made by removing intermediaries’ professional fees and commissions, inspection costs, registration fees, loan fees and taxes associated with real estate will all be seen plunging, depending on the jurisdiction. Like intermediaries, these can be reduced or even gradually eliminated from the equation, as platforms automate these processes and make them part of the new ecosystem.
Local and regional real estate is valued at hundreds of billions of dollars, but is dominated by the wealthy and large corporations. By utilising blockchain technology, it becomes possible for the average investor to access the market where transactions can be made, thanks to blockchain, in a more transparent, secure, and equitable way. Real estate transactions may eventually truly turn into a peer-to-peer activity, where blockchain-powered platforms will automate and do most of the work.
This article was published as part of the seventh edition of Property Finder Qatar’s Trends Report.
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