Sep 7 2022
Blockchain Real Estate: How It Will Change Everything
world’s largest asset classit was only a matter of time before commerce’s new obsession with blockchain began presenting serious opportunity. It’s taken quite a while to reach this point; the real estate industry is notoriously slow at adapting to new technology. We’re still in the speculation stage as most of the results blockchain will achieve are theoretical. But even if what we outline below only ends up being partially correct, the industry and the planet can welcome a host of benefits.
According to the CEO of
AKRU, Mohsin Masud, thousands of households have similar attributes to accredited investors and would be prime candidates for real estate investing – if only it were easier. Well, with blockchain and Web 3 real estate, it can be. We’ll explain how in the forthcoming blog, but first, we’ll quickly outline the complications the industry has historically faced.
Real estate investing can be a headache
Especially in commercial real estate, deals move at a glacial rate, and are subject to a mountain of administrative and legal paperwork. The investment industry is dominated by those that work ‘in the industry’, and have the contacts, know-how and resources to execute transactions. To say that blockchain will disrupt all this is an understatement and great news for everyone – except for maybe a few property lawyers and accountants. Here’s why.
Here’s how blockchain real estate will solve this problem
Despite being proposed as early as
1982, blockchain has only been a thought for some since 2008 with the publication of the
Bitcoin whitepaper. Defining blockchain is an ample task that’s probably not quite within the remit of this blog. But for now, whether you’re clear on the definition or not, keep front of mind its ability to offer a decentralized, standardized data set, its ability to tokenize (definition to follow), and its ability to enact what’s known as smart contracts.
Offering an immutable, transparent, decentralized data set means that important information like ownership rights, financial data, transaction history, etc. can all be logged, viewed and accessed much more efficiently than previously; no more digging through piles of paper. Tokenization allows for fractional investment. And smart contracts help to mandate and automate many of the requirements that need to be met between buyers and sellers. These main pillars of utility play out as follows.
Real estate will be fractionalized and part owned
This can be achieved through tokenization; the act of transferring an asset’s value to the blockchain and dividing it up. Yes, there have always been ways to divide up the value of our real estate but not without sufficient time and bureaucracy.
This method of easy division means that investors can purchase as much or as little real estate as they like. They won’t need to find a large pile of cash and they won’t need to take on debt. This will be particularly useful for the individual that previously couldn’t afford to enter the commercial real estate game, one that has historically had a high financial and ‘professional’ barrier to entry.
You will be able to invest in a wider variety of real estate
This fractionalization will mean that you can easily spread the same amount of money across multiple different real estate assets. Yes, this is currently possible with indirect investment in publicly listed companies like REITs, but here you have little control over exactly where the money is invested. If you want to be hands on and spread your risk, then tokenized real estate will be your answer.
You won’t need to be an accredited investor
Having the credentials of an accredited investor presents you to a fresh pool of companies and institutions looking for investment partners. This will vary from country to country but in the US, accredited investor status is only available to those with an annual income over $200,000 or $300,000 if it’s combined with your spouse. Alternatively, you could achieve this status if you have a net worth above $1 million. Again this can be either individually or with your spouse.
Few people can meet these requirements but there will be plenty of people under these thresholds that are itching to access quality real estate opportunities. Fractionalized real estate will offer this cohort the same opportunities that high net worth/accredited investors might. Albeit with returns scaled down to match the smaller sums involved.
Online portals will streamline the process – similar to an investment portal
When selling real estate online, technology has historically focused on only connecting buyers with sellers. You can’t exactly buy real estate online like you would a pair of shoes. But with online blockchain real estate portals, since you’ll be buying tokens, the product is there, available for purchase directly. Similar to buying stock or any other financial product.
On top of that, blockchain real estate portals will offer the user access to a range of processes that can be less efficient when done traditionally. You can receive things like tax documents within the online portal, proof of identity is easier, security and compliance processes are more efficient, etc.
You won’t need a team of bureaucrats
This is probably the most disruptive aspect of blockchain real estate since it may compromise a vast number of careers. The months of paper pushing from accountants and lawyers can be cut right down when the typical bureaucratic processes involved in real estate purchasing are automated. Mortgage approvals, ID checks, registration processes, etc. can all be turned into code. This produces two fantastic outcomes. Saved time and saved money.
The ownership record will be transparent, indisputable, and less susceptible to fraud
In our current world of paper documents and fragmented data sources it can be surprisingly hard to pin down important facts about certain real estate assets, especially those that haven’t changed hands for a while. A real estate blockchain will track all records on an immutable, easily accessible ledger for all relevant parties to see. This will minimize the chances of fraud and scams as well as eliminate any friction should a “who owns what?” style dispute emerge.
This will boost the real estate market’s liquidity
As we know, real estate sales take ages. This makes real estate a pretty illiquid asset. But with the help of tokenization and fractionalization, percentages of a property’s value could be released and traded rapidly. Basically like selling shares. Sean Stein Smith of The Department of Economics and Business at Lehman College
has notedthat this increased liquidity could create new markets for asset owners. Entire properties could even be bought and sold as NFTs. In theory, we could be buying our next home or next piece of commercial real estate with a few clicks.
Blockchain real estate won’t just make life easier for the customer
Many of the points above will please the individual/non-institutional real estate investor since they help to democratize the industry and move it away from those “in the know.” But blockchain real estate can directly benefit businesses too.
If you’re a developer, you could raise millions by selling tokens
The building’s projected value could be divided up and sold as tokens. The developers can then use that money for development and the token holders can receive a percentage of the net rental value. The value of the tokens will of course move in line with the value of the building but either way, this can be a very efficient way for developers to finance their projects.
Construction will be made more efficient and trustworthy
The construction supply chain can be made more transparent when you can easily access a supplier’s and subcontractor’s track record. This can help incentivize high performance – a bit like viewing driver/passenger ratings on Uber. The blockchain can show the authenticity and quality of materials, it can track the movement and use of materials more easily, and as always, automate what would otherwise take far longer.
This reduction of costs and bottlenecks won’t just make life easier for investors, developers and contractors. These savings could (hopefully) be passed onto the average homebuyer. Namely by making it easier and cheaper for governments to meet their new homes targets.
It will make life easier for banks
If the banks are on board, then blockchain real estate has a serious advocate in its corner. All the efficiency and transparency gains we’ve covered will be equally useful to financial institutions. Things like immutable transaction monitoring, ownership rights, and single versions of verifiable information will make the loan/mortgage process easier for everyone. It will even make life easier for regulators by delivering real-time reporting.
It will make life easier for property managers
The data sharing that blockchain real estate facilitates can let property managers do their due diligence more easily across their portfolios. This in turn will improve efficiency and lower costs. It will also help improve the efficiency of rental collections and owner payments. Again, creating more cost savings.
If this all sounds like we’re on the cusp of a new era in the real estate industry, it’s because we are. Private property ownership and real estate investment could be available to the masses. Blockchain real estate could open up real estate the same way the internet opened up traditional media. Emphasis on the blockchain aspect though. Although crypto may become a popular method for purchasing real estate, this blog is by no means about crypto real estate. It’s about what the blockchain and Web 3 real estate can offer.
When we factor in the Metaverse the future becomes even more jaw dropping. We’re already using virtual and augmented reality to view properties, but that’s really just the tip of the iceberg. It’s not too difficult to entertain a possibility where physical, blockchain real estate is twinned with metaverse real estate. You might buy a property to live in, or office space to work in with a metaverse counterpart offering additional space for community interaction, entertainment, shopping, etc. Throw in the potential for IoT devices and the lines between the Metaverse and the real world could start to merge. No wonder there’s been a
metaverse land rush.
The real estate industry is of course painfully slow to adapt. And we’re still in the early phases of the blockchain real estate revolution, with many applications only working in theory.
At VerseProp we’re trying to help accelerate Web 3’s involvement in the real estate sector via our metaverse real estate platform – launching in December – and our
NFT collection, a collaboration with leading architectural practice PLP Architecture. Ultimately, the
movement to Web 3is only going to happen with sufficient education, hence why it’s one of our top priorities. Our blog aims to address and clarify as much of the Web 3/metaverse real estate/NFT space as we can. That way you can be as informed as you need to be about the future.
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