The Real Estate Market is one of the largest generator of foreign exchange. A considerable percentage of all wealth generated in most nations come from the real estate market, which includes all manpower used in construction, inputs and the entire production and distribution network, the registration system for real estate documentation, the financing system and advisory services for the acquisition of real estate.
Given this scenario, this article seeks to demonstrate how the blockchain can facilitate leasing operations, purchase and sale transactions of real estate, as well as increase financing options for construction and sale of real estate, and improve the current real estate registration system.
It is common for the Real Estate Industry to keep secret on various aspects of its operations such as comparing rental rates, property prices and appraisals to create a possible competitive advantage. However, some of this information has become public, given the disintermediation of start-ups and the growing demand for greater transparency in this more hyper connected world. But although more and more information on real estate is digitally available, this has NOT resulted in greater transparency and efficiency, since a significant part of this digitally recorded information is found in different systems that do not talk to each other. The Real Estate ecosystem still suffers from the incidence of inaccuracies and potential fraud.
How can we then obtain interoperability between the technological systems used by the different participants of Real Estate transactions, and bring greater transparency in this market?
The Blockchain/Real Estate architectures are still in the embryonic stage of development, and their protocols must be carefully examined. That is, entrepreneurs and managers must understand them to the necessary depth before making any practical implementation. Knowing where to go, and how close these architectures are to replicating the desired degrees of functionality is essential. In this context, it is necessary to observe some conditions before deciding to implement blockchain. For example: in the process of real estate leasing and buy-sell transactions, the use of blockchain is recommended if there are:
1) The database: Shared databases are essential for leasing and buying and selling transactions (common database). One of the key examples is a multiple listing service, which groups databases with agent ownership information.
2) Multiple entities responsible for collecting data: transacting and managing real estate properties involves various entities, such as owners, tenants, operators, financiers, investors and service providers, who provide, access and modify a variety of information.
3) Lack of confidence: As many participants in the leasing and buying and selling operations are not known, which creates concerns about data integrity, they need to redouble their caution and diligence. In this framework, blockchain can help mitigate risk through the use, for example, of digital identities and more transparent record keeping systems for real estate titles, rights, pledges, financing and leasing.
4) Opportunity for disintermediation: trustworthy validators can be disintermediated by blockchain, which can offer greater security and transparency in the management of property titles.
5) Conditional Transactions: Many real estate transactions have conditional clauses. In a buy-and-sell transaction that relies on the approval of a loan, for example, you could benefit from using smart contracts. Briefly, “smart contracts” are a self-executing computer protocol that is stored, verified, and executed in a blockchain. Thus, the use of smart contracts would facilitate and enhance the execution of the purchase and sale exemplified above.
The history of real estate titles is long and detailed. For example, we can cite the proportions among owners, mortgages, leases and court records, etc.
Parallel to this, in a real estate transaction of purchase and sale, it is necessary to analyze the legal and financial situation of the owner, which demands the issuance of endless certificates to analyze the situation.
The implementation of the blockchain allows instant access to all this information, allowing the transmission of real estate in an automated, instantaneous and with a high degree of confidence.
• Transparency in ownership management and intelligent cash flow.
The automatic release via smart contract of registering debt on property registration with the mortgage settlement is just one example of how Blockchain can facilitate everyone’s lives and generate wealth.
We can carry out the payment of a property from the issuance of the dwell. The release of the property by the public authority for its use would occur automatically.
This automation of processes and reduction of deadlines generates savings, reducing financial costs and bureaucracy.
• More efficient financing and payment processing
The financing of real estate traditionally depends on banks and private organizations of access to credit. The digitization of trust in real estate brings numerous opportunities for financing and payment. Now this turns the property into a tangible asset anywhere in the world.
With the growth of collective financing of real estate, this has been one of the main fields of application of the blockchain. As the relationship between lenders and their borrower is direct, blockchain solutions in real estate financing reduce interest rates. This allows the entry of small investors, today removed from the real estate market due to the deficiencies of the current system. These shortcomings range from high costs per transaction to the difficulty of registering and automating payment flows.
• Improves the property search process
In addition to the ease of issuing documents and querying information, the blockchain makes real estate transactions secure and transparent.
With the growth of informality and the demand for real estate, the blockchain emerges as an oasis for governments and investors. Blockchain solutions can bring benefits in both the purchase and sale transactions, as well as taxation and release of financing. Still, there would be an increase in real estate financing, whose database was in Blockchain, due to the transparency of profitability. Therefore, there would be an increase in the flow of capital to the real estate market. More funds and investors would surely be attracted to the real estate market due to the real-time auditing made possible by the blockchain.
Conclusion – A first wave of blockchain solutions for the real estate market depends on the compilation and digitization of information relating to the real estate market. Such information, now centralized, will be available in decentralized platforms in the near future. This would enable a “relative” disintermediation in the real estate market. Some reliable (intermediary) validators would still be needed, such as those responsible for assessing whether a property has met the renewal requirements. Identifying what companies expect when deploying blockchain solutions can be a challenging approach. Just like the Internet in the 1990s, the market is still discovering the reach of this powerful tool.
In this framework, blockchain solutions have the potential to generate transparency, efficiency and cost reduction. Its architecture can remove many of the inefficiencies that exist in today’s processes. Any thoughts ?