Globally, real estate is the biggest asset class with an estimated value of $217 Trillion. Earlier countries like the US and Europe used to dominate the market, but there has been a distinct shift in the reality of late, as emerging economies, mainly those in the Asia Pacific region, has started to make their presence felt.
The Real estate market, especially, land records sector, is known to be strongly fragmented, and it is extremely difficult to buy real estate properties anywhere in the world. The red-tapism of paperwork, due diligence, multiple visits to banks and agents, making it a cumbersome affair.
Across the globe, industry leaders are identifying technology as the answer to these issues. Impact of technology is rapidly altering the fabric of real estate. Advisors, brokers, investors, and start-ups all over the world are fast recognizing the challenges and opportunities that lie ahead. Data analytics, artificial intelligence, the Internet of Things, virtual reality, blockchain– are revolutionizing the concepts of investment and ownership in real estate.
There is a lot of noise now a day around Blockchain, a new technology best understood as “peer-to-peer” sharing of data. The implementation of blockchain in the real estate sector is amending the industry mainly through – disintermediation, fraud prevention, money, and smart contracts. Making use of cryptographic signature blockchain stores database in blocks that are mutually linked. This helps blockchain to perform the job of a go-between and get rid of intermediaries. The distributed nature of blockchain enables it to offer an incorruptible ledger system that is unhackable. On the other hand, Bitcoin, the digital currency similar to Ethereum, has the potential to perform “smart contracts” thereby reducing human participation in agreement verification.
Blockchain technology can also impact real estate leasing, transactions and enhance security and transparency across the purchase and sale process. Interestingly, 179 proptech start-ups in APAC have succeeded in raising funding since 2013. This accounts for roughly US$4.8 billion of the US$7.8 billion investment that happened globally since 2013.
Earlier, every time a potential buyer showed interest in a house, he/she was immediately referred to the listing broker, which means the individual could not close the deal independently. With blockchain-enabled real-estate-transaction-management-platforms becoming a reality, buyers can now initiate and proceed through the transaction process on their own.
These platforms offer everything from contract negotiations to blockchain-powered documentation and cryptocurrency payment alternatives while giving the property portals opportunity to engage in customer relationship. Listed property records, safe on the blockchain, can easily change hands, while ‘smart contracts’ facilitates management and trading of the records.
The world has now seen how startups in Singapore use blockchain to empower home buyers transact directly with owners. In Japan, the government’s impetus on encouraging entrepreneurship has witnessed increased usage of technology in the country’s real estate sector. To realise UK government’s commitment to make HM Land Registry “world’s leading land registry for speed, simplicity and an open approach to data”, the latter is all set to experiment with a live ‘Digital Street’, which will make instantaneous property transactions. Sweden is confident that blockchain will help taxpayers save over $100 million by hastening transactions, reducing paperwork and controlling scams. Ukraine government has already partnered with a blockchain provider, and the country’s new law allows foreign ownership of real estate. Republic of Georgia will soon adopt blockchain to authenticate all government-property transactions. Ghana and many Indian states are also enthusiastic about adopting blockchain.
National Association of Realtors says home buyers in America look for information on online platforms 95 percent of their time and do online search as the first step of search 44 percent of time. The realty market being complex, blockchain is attempting to expunge the inconveniences in real estate transactions.
With blockchain, doing business in real estate is fast becoming a novel experience. The costs involved in real estate transactions are much higher than in any other asset class. Moreover, deals involve face-to-face discussions with multiple players characteristically associated with the process, including lawyers, bankers and brokers. Smart contracts, which are actually programmes coded in the blockchain, are bringing in a change to this rigmarole.
Tokenizing of assets
Tokenizing of assets which means distributing ownership of assets into various shares, each being saleable to different investors, is fast emerging as a viable solution to bring in transparency and ease in real estate deals. Blockchain offers the facility to tokenize real estate. Earlier, investing called for a huge, direct cost to the investor; with tokenization, the small scale investors can now also benefit from the largest global market.
Hitherto an ostensibly illiquid asset, today real estate can be tokenized and traded like stocks. This empowers institutional investors with means to rapidly and flawlessly attain the target allocations.
Fraud is known to be rampant in the real estate industry. The multiple step transaction methods make it easy for fraudsters to bamboozle customers. Calling it unfair to say real estate industry (alone) is rife with fraud, Ramesh Nair, CEO and Country Head, JLL India, agrees that blockchain technology is a boon for the industry.
“It allows transparency for properties with records going as far back as possible. Through this, during a transaction, buyers are assured of ownership and value of properties. Documents including certificates, approvals etc. can be verified easily. Eventually, online records will become the single source of information pertaining property. In future, this may make online sales and auctions of real estate in India possible,” he enumerated.
Also if the 2015 World Economic Forum survey of 800 executives and information and communications technology sector experts is anything to go by, by global GDP information storage on blockchain will be about 10 percent.
Bitcoin has changed the way we bank and now Deedcoin is believed to be doing the same to real estate. However, for Bitcoin or Deedcoin, laws of the State are important and influential to determine their effectiveness and role in market performance. “It is still very early to assess this,” opined Nair before citing the potential benefits of ‘deedcoin’, including authenticity of records, lowered role of intermediaries, taxation benefits etc. “The sales / land records combined with personal identification details will make the market completely transparent,” he enthused.
However, the innovation also raises a number of questions including where will tokens be traded, will tokenized assets have the same level of governance as REITs (Real Estate Investment Trusts), its effect on asset management, quality and performance and also regarding the valuation of tokenized assets.
Though industry experts are assured about the potential of blockchain in transforming commercial real estate, they feel it will take some time to see the impact. According to Nair, blockchain will take time as ownership records are still being digitized which is a manual process involving time. “While undoubtedly, blockchain technology will help create necessary transparency in the sector, we will have to budget more time for complete implementation of ‘deedcoin’,” he notified.
However, the change is now instrumental and private players along with government agencies are deftly utilising the technology in countries like Sweden, Georgia, the United Kingdom and Japan. Before long, this tech-advancement will disrupt the way real estate operates.
BIoT is the new bloke in town. Basically a convergence of blockchain and IoT, BIoT is creating strong ripples in 2018’s tech-scene. Along with launching an array of services and businesses, BIoT is expected to deftly impact the concepts of smart homes and smart buildings. It would also help in accessing real-time data from sensors while keeping it completely safe through blockchain. IoT market in the Asia Pacific is expected to grow at a Compounded Annual Growth Rate (CAGR) of 10.2% from 2016 to 2023, while North America is likely to maintain the revenue share of 24.2 per cent.
Political issues and governmental policies have often failed to keep pace with technology advancement, and have posed impediments for new companies with cutting—age technology to thrive. To reap the benefits of blockchain it is important for governments across the globe to bring in policy change. Time has come for real estate stakeholders and government bodies to leverage technology in escalating the property market and capitalize on reach.
Traditionally perceived as a slowcoach, real estate sector is fast embracing tech-innovation. The advances in technology have considerable potential in producing dividends for property investors, tenants and managers in the form of new and easily accessed data. Blockchain is leading this revolution by fast emerging as one of the key drivers of improving transparency in the global real estate market.