Real estate is one of – if not the largest – asset class in the world. Real estate companies and enterprises connected to real estate are now realising how blockchain technology will impact the real estate industry. Blockchain can optimise investment opportunities, increase access to real estate funds, streamline payments, and improve retail and commercial property sales.
TOKENISATION IS THE BIGGEST BENEFIT
Commercial real estate alone embodies a compelling portion of global economic asset and transaction activity. In 2017 alone, the world real estate investment market was worth around US$8.5 trillion. However, unlike the old days of traditional face-to-face transactions, today’s real estate market consists of many independent networks with existing transactional friction between the systems. To bring the systems together, improve transparency and transactions, and make the real estate industry more efficient, real estate assets need tokenisation.
Tokenisation can refer to the digitisation of securities, assets, and financial instruments in real estate. With blockchain technology, digital assets can be programmed to include regulation compliance, distribution and transfers, asset issuance, transaction history, and ownership rights. All digital assets in a blockchain ledger can also be customised to meet all kinds of requirements, reducing the costs of creating, issuing, and exchanging assets.
It will also speed up innovating new features, administering dividends, and managing other corporate actions. The customisation factor from blockchain that leads to rapid issuance allows issuers to tailor digital assets directly depending on investor demands, leading to significantly reduced counterparty risk.
In addition, reduced costs allow issuers to decrease minimum investment amounts and expand access to a larger pool of investors. The improved liquidity from a blockchain system will increase connectivity between digital assets, and associated networks can expand secondary market opportunities. Everything stated above in connection to the tokenisation of real estate assets will benefit both issuers and investors and demonstrates the promise of blockchain as the future of new instruments and markets.
Blockchain is leading innovation in all sectors and it’s possible that a whole new asset class of real estate investments will be created through tokenization and smart contracts, such as fractional ownership.
BLOCKCHAIN CAN IMPACT ALTERNATIVE FINANCING FOR REAL ESTATE
Raising basic financing for any real estate purchase is difficult. Property development investors face up to 29% interest rates when going through banking institutions as single source loan providers. They can also face challenges with multiple loan sources if there are various investors to manage.
Blockchain can simplify access to alternative financing by facilitating investor management for developers and ensuring investment transparency and ROI tracking continuously for investors. Blockchain-based financing can also be customised or programmed for worldwide distribution. The solution blockchain can simplify investment schemes, increases investor confidence, and unlocks access to a larger investor pool.
BLOCKCHAIN CAN IMPACT REAL ESTATE LOANS AND MORTGAGE SECURITY
Loans and underwriting remain mostly reliant on paper documentation. Security structuring is mainly left to open interpretation. Great effort is needed to protect against assets being double-pledged. Trading and asset servicing decisions are usually done based on outdated information.
Thus, when blockchain is used for loan and mortgage security, cash reconciliations across lifecycle events will no longer have settlement delays that affect investor cash flow. If banks are involved, blockchain offers a single version of verified information, real-time payment settlement, immutable transaction monitoring, and secure data sharing. By digitising the loan or mortgage, the said transaction can be programmed using a smart contract to include relevant information such as ownership rights and loan payment history to support future loans and other service decisions. Blockchain protected contracts can be used to collect and distribute payments to beneficiary holders and deliver real-time reporting to regulators. This means more efficient lifecycle management and generates confidence in secondary markets by providing investors with proof of performance for assets.
BLOCKCHAIN CAN IMPACT LAND PROPERTY REGISTRIES AND LEASE PAYMENTS
Most countries still rely on paper documentation for land titles. This means the paper is vulnerable to loss, fraud, damage and mismanagement. Property transfers and permits also require a drove of lengthy and costly legal procedures, sometimes locking land disputes for years.
Blockchain can easily replace damaged paper deeds with actual digital assets creating immutable records. It can track changes on an unalterable ledger that acts as a secure, shared source of truth for documents between parties, multiple or even organisational in nature. Blockchain ledgers enable property ownership records and transactions to be more accessible to facilitate faster market transactions. This will lead to increased investor confidence, and unlocking access to financial aspects that everyone will feel secure about.
One perfect example right in Australia is the adoption of blockchain technology by the Real Estate Institute of Queensland (REIQ). They are now using blockchain to execute residential agreements and smart contracts between parties and even across property rental markets.
Distributed ledger technology allows leases to be signed and paid on the chain. This removes the old ways of manual transactions and automates rental and dividend payments to property owners. Distributed ledger contracts can also automate other types of payments and fees as an incentive for good behaviour from landlords and tenants.
BLOCKCHAIN CAN TRANSFORM AND IMPACT REAL-TIME ACCOUNTING
Most people in the finance sector have heard of bitcoin, but less often think about the technology behind bitcoin (blockchain) and how it can impact the infrastructure of the traditional financial products. In the world of accounting, distributed ledger technology can improve the quality of the information by making the data more trustworthy and creating real-time updating.
As payments, cash flows, and property ownership are recorded on the blockchain, investors and asset owners benefit from automated and real-time accounting. The preparation of annual financial statements, balance sheets, statements of cash flows, and income statements can be conducted for real-time audits for firms accounting records. Providing instantaneously records not only within the firm but with regulators this means proper compliance with regulatory oversight and investor relations. All of these records are stored on an immutable ledger creating transparency and trust into the accounting system.
Property management companies often experience inefficient oversight of their properties. Blockchain can facilitate secure data sharing for background checking and vetting, streamline rental collections and payments to owners and also provides correct information on due diligence. This increases operational efficiency and allows for time and cost savings as well as generating better data to facilitate better decision making.
Blockchain is the future for the real estate industry and other industries for that matter. Perhaps you need to consider a career change towards blockchain applications across businesses and industries. Blockchain Collective is an educational body working with Registered Training Organisations (RTOs) and Universities to deliver a benchmark standard of education that empowers professionals and students with the necessary skills for a future in blockchain applications and technology.
The Advanced Diploma of Applied Blockchain 10747NAT is the first-ever in Australia. This course, and the Diploma of Applied Blockchain 10849NAT, also created by Blockchain Collective, are designed to equip people willing to gain knowledge and experience in applying blockchain technology frameworks to any kind of business framework, including real estate.