Blockchain Technology for Real Estate NFTs: The $217 trillion industry on the cusp of a transformation
The Real-Estate industry is currently in a state of flux. As the world’s population continues to grow at an unprecedented rate, and with it, urbanization, Real-Estate markets will continue to heat up. But while this means that Real-Estate investments are more accessible than ever before, the reality is that many people cannot afford Real Estate due to an increased cost of living coupled with stagnant wages. This has led some experts to believe that Real Estate could be heading for another bubble burst – just like what happened in 2008.
Given blockchain’s disruption of financial services and subsequent widespread application across industries, it’s hard to find a segment that has not been influenced by the technology. The Real-Estate industry is one that has been around for centuries, with the process of transferring property ownership being long and labour-intensive. Whilst simultaneously being the largest asset class in the world, valued at roughly $217 trillion according to an early 2016 study by Savills World research team. Some have suggested Blockchain technology as the answer: by implementing blockchain technologies into transactions and contracts related to Real estate ownership, both buyers and sellers will be able to enjoy a much smoother and more seamless process, whilst simultaneously benefiting from increased transparency.
This journal entry will outline how blockchain technology can revolutionize Real Estate by speeding up the current transfer of property ownership. We’ll also explore how NFTs can benefit Real Estate by removing many of its current inefficiencies and bringing it into the digital age.
- What are the Benefits of Blockchain in Real Estate?
- How Smart Contracts Could Impact Real Estate?
- Non-fungible tokens: what they are, what they aren’t?
- How Could a Real Estate NFT Transaction Work in The Real-World?
- What benefits could decentralized Real Estate NFT’s bring to society?
What are the Benefits of Blockchain in Real Estate?
Is your real estate still safe? The traditional way of conducting a transaction may not be enough to protect you anymore. Previously, transacting high value assets such as real estate exclusively through digital channels has never been the norm. Recently, however, blockchain technology and smart contracts have opened up new ways for transactions involving these valuable assets like property or land. These new technological tools allow customers to buy and sell their assets in a safer, tamper proof manner by being recorded on a blockchain-based ledger system. Even without an intermediary party involved, capable of verifying compliance or jurisdiction requirements.
Today’s real estate market however, consists of many siloed and independent networks with transactional friction and opacity between existing systems. Blockchain technology could revolutionize the real-estate industry by bringing about the following benefits:
Smarter, More Transparent Platforms and Marketplaces
The real estate market is notorious for being traditional and sluggish, but blockchain technology has the potential to modernize this industry. Real estate technology has traditionally been primarily concerned with listings and with connecting buyers and sellers. However, blockchain’s transparency can give buyers a better understanding of what they are buying by providing them with detailed information about sellers or listings that would otherwise be inaccessible due to lack of self-promotion on the seller’s part. The same goes for sellers who might not have enough time themselves in order to update their own profiles on listing platforms; blockchain could provide an easy way around these limitations while also avoiding any bias from agents because there is no intermediary involved anymore – it could all happens at once!
Blockchain’s biggest impact on commercial real estate would be a smoother, faster contract management process that expedites deals in a more efficient manner. Through smart contracts and instantaneous payments outside business hours with Blockchain technology, every part of the leasing or sale agreement is automated.
No Intermediaries For Real Estate Transactions
Blockchain has the potential to disrupt an often-overlooked set of industries that are vital in our economy: real estate brokers. The Deloitte report states, “As blockchain technology and cryptocurrencies evolve alongside regulation changes, new platforms can eventually assume functions such as listings, payments or legal documentation.” By cutting out middlemen like lawyers and banks from transactions between buyers and sellers who save on commissions through this process which is also quicker due to efficiency it will be a huge boost for individuals buying homes themselves without having these extra costs added onto their purchases
Fractional Ownership of Real Estate Property
The innovative process of digitizing assets, known as tokenization, has the potential to make them more accessible, increase investor interest and security. Digital assets can represent real-world assets such as real estate, real estate funds, revenue streams, governance rights, and more. By tokenizing these assets, they can be divvied into smaller pieces and opened up to wider pool of investors. Once tokenized, the blockchain enables the secure and compliant digitization of the both the transactions and processes surrounding real-estate assets, including issuance, transfers, and lifecycle management.
Liquidity in the Real Estate Market
The blockchain technology that underpins cryptocurrencies like Bitcoin is being increasingly used for its ability to create a universally accessible, reliable and decentralized registry of ownership. This can be applied to real estate by creating an immutable record of the property’s ownership history on this ledger rather than relying on outdated records or hiding behind lengthy contracts which are vulnerable to disputes over authenticity. For investors who need large sums liquidity, liquidizing assets can be difficult. But tokenized assets such as property held in escrow, in theory, can be readily traded for fiat currencies allowing for easy global access through decentralized exchanges. A seller doesn’t have to wait long periods of time for a buyer. Blockchain technology has the potential to ease this process if all investments are registered through the ledger, simplifying the exchange of shares between investor
Decentralization & Associated Costs
Blockchain commands trust and security as a decentralized technology. Information stored in the blockchain is accessible to all peers on the network, making data transparent and immutable. A decentralized exchange has trust built into the system. Since information can be verifiable to peers, buyers and sellers can have more confidence in conducting transactions. The transparency associated with a decentralized network can also trim down costs associated with real estate transactions. Cutting out intermediaries’ professional fees and commissions, inspections costs, registration fees, loan fees, and taxes associated with real estate could make the dream of property ownership a reality or more and more people around the world.
How Smart Contracts Could Impact Real Estate?
Blockchain smart contract execution would have the potential to “create, authenticate and audit contracts in real-time, across the world and without intervention from a middle man,” a statement said by Nick Clare, who heads up Project Management at Jones Lang LaSalle UK. One of the world’s leading Real Estate Advisors & Professional firms. Smart contracts “have instructions rooted in the transaction so that payment can only be taken as long as the instructions are fulfilled, providing complete transparency to all parties and reducing the likelihood of payment disputes.”
Smart contracts are increasingly becoming admissible records with Vermont and Arizona passing such legislation. Arizona became one of the first states in the U.S. to enact a law explicitly granting smart contracts the same legal effect, validity and enforceability as their standard contract counterparts. With the passing of legislation within these states, smart contract agreements will be valid with equal legal effect to standard counterparts from now on. This is a major step forward for technology that has been long awaited since transactions can become automated, without censorship or interference by third parties like banks or government agencies who might take issue with particular content covered under them.
Non-fungible tokens: what they are, what they aren’t?
NFTs are not like their early digital currency counterparts, like Bitcoin and Etherium. On the surface they may appear similar in that NFTs use decentralised ledger technological as a backbone to track and authenticate individual tokens, but it is here where similarities end. Unlike Bitcoin being somewhat fungible, with all coins having the same value of interchangeable coins, each token on an NFT platform has its own unique set of values corresponding to various attributes making them wholly different from one another.
When you purchase an NFT, you’re registered as the owner of that NFT, regardless of what it is. You are the only person who can claim ownership of the unique item, such as a piece of art, music, or other collectible which certifies ownership digitally. In contrast to previous implementations of blockchain technology, NFTs provide a unique and unforgeable signature that allows for verification of authenticity. Opening up an exciting opportunity to utilize NFTs in the physical world of real-estate.
In a world of deepening unemployment, US stimulus checks and a raging pandemic. NFTs are one of the signature fads of this deeply odd 2020 moment we’re all sharing. In part, possibly because NFTs are the ultimate in artificial scarcity, solving an issue we never thought we had. The NFT frenzy marked the convergence of the art world and the occasional disturbingly Ponzi-like dynamics of cryptocurrency trading.
How Could a Real Estate NFT Transaction Work in The Real-World?
Even though the real estate industry is notoriously slow in adopting new technologies. The very nature of real estate makes it ideal for blockchain applications and transacting using NFTs would save time for buyers by eliminating the need to wait on the lengthy property purchasing process. Which is fraught with potential land mines, depending on the history of the property in question and ensure the chain of ownership.
Imagine a world where you could own property without ever having to visit it, or even know what is inside the building. All that would be required for ownership was possession of an NFT token which contains all necessary legal and descriptive information about the given property. This revolutionary idea eliminates many problems associated with purchasing real estate in today’s society including costly travel expenses, hefty commissions on transactions (which are often passed down onto buyers), high-interest rate loans from banks who may have little interest in getting paid back quickly due to shady lending practices.
Here’s how a real estate transaction as an Non-Fungible Token sale works: Firstly, there is a legal preparation for the sale of a property as an NFT. After which an NFT is “minted” that includes descriptive and legal data about the property, including paperwork, disclosures, reports, image files, location data, and even possibly videos. The NFT serves as an immutable record on the blockchain and is proof of ownership. Legally, whoever has possession of the NFT, owns the property.
The newly minted NFT, which resides on a distributed ledger, can then be listed for sale on an existing NFT marketplace, such as OpenSea or Gemini’s Nifty Gateway, Propy, or better yet onto dedicated real estate NFT-focused marketplace of the future. Where potential buyers have to the opportunity to bid for the listed property. Once an interested party is found, the buyer could pay for the property in fiat currency or a cryptocurrency of their choice. The transaction would be handled by the marketplace, whereby the marketplace could serve as a third party escrow service. Or alternatively the transaction could be executed through a smart contract designed to perform these escrow duties.
All transaction parties could use their Decentralized Identities to streamline background checks, reduce costs, and increase the security of the transaction. Enabling all parties to prove ownership of the respective property, while making essential documents (proof of insurance, identity, credit history) easily shareable with necessary parties.
What benefits could decentralized Real Estate NFTs bring to society?
Since the days of ancient Rome, the rich and well-connected have long held a monopoly on real estate, with recent numbers showing it to be the best investment in modern history. With a set of unfair advantage that are unheard of elsewhere in investing, there’s no wonder why! But through technology we have an opportunity now to bring these barriers crashing down. Opening up those possibilities for many individuals looking to build wealth through this somewhat exclusive asset class.
In the real estate market of the future, the advice, knowledge, and know-how of real estate professionals will remain crucial to commercial buyers. However, the processing of securities, liability management, document processing, and accounting will inevitably change. The innovations brought about by blockchain technology and NFTs open up an entirely new playing field for home ownership. Allowing for a whole new level for democratizing real estate, where anyone can make money from their property in an unprecedented way, at a fraction of the cost. Which means opportunities exist to create greater wealth than ever before.