The housing market crash due to increased foreclosure rates between 2007 and 2009 caused many problems, not only for the real estate industry but for the economy as a whole. The greed of big banks ultimately led to the loss of millions of dollars and even worse — the livelihood of millions of Americans.
Luckily, following the crash, individual systems were put into place to make sure the market crisis of the early 2000s would never happen again.
Nonetheless, the real estate industry still faces a slew of problems. Being primarily paper-based, the act of buying or renting a home has become a complex, convoluted, and time-consuming process. For far too long, the real estate industry has relied upon outdated systems to conduct business.
At the moment, real estate suffers from three main problems:
- the lack of cheap funding options for prospective home buyers
- an increase in the number of intermediaries
- a high rate of fraud primarily fueled by an outdated paper-based system
Being a relatively new technology, blockchain has already become widely recognized as a disrupting force to industries that have primarily run on paper-based systems in the past. The banking, medical, pharmaceutical, shipping, and many more industries have begun adopting blockchain technology to reserve a spot in the future business market.
Real estate seems to be the next in line to be disrupted by blockchain. Further, we will elaborate on this statement.
Why Real Estate on Blockchain?
The technology is already being developed to provide more efficient supply chain management and logistics. It is also being adopted in many industries, such as banking, medical, education, shipping, and transport. The Internet of Things (IoT), artificial intelligence (AI), and blockchain will most likely shape the way business is conducted in the future.
As a digital distributed ledger, blockchain provides businesses with a platform to conduct more reliable, secure, transparent, and effective business practices, namely:
- Improved security – by running the system through each node in the network, blockchain eliminates the ever problematic single point of failure.
- Improved transparency – each member of the chain is provided with access to the same information. The blockchain network can be updated with new information through a majority consensus or vote. In the same sound fashion, old information can be altered.
Due to these improvements, blockchain ledgers are considered immutable and trustworthy. The information is encoded through the cryptographic function, which makes blockchain one of the most secure forms of data sharing and storage.
Already multiple startups have begun implementing blockchain into the current real estate systems. Eventually, blockchain will have the ability to remedy many problems real estate currently faces.
The Current Issues in the Real Estate Industry
Plagued by outdated systems, an improvement to the real estate sector is long overdue. Not only in the US but all over the world, real estate is facing four major problems. Still, all of them can be remedied with blockchain, and more minor issues can be addressed as well.
Lack of Affordable Funding Options
Due to the rise in student debt and housing prices, it is expected that many millennials will be unable to afford a home. And it is not only due to their unhealthy avocado toast addiction but also due to the rising rates of rentals.
According to CNBC, people aged between 18 and 34 give 30 percent of their paychecks to their landlord. The economy has changed drastically since the 70s and 80s, and now millennials, with their ridiculous spending habits and disregard of the future, must shoulder the consequences.
One of the more prominent solutions to this problem is blockchain. Currently, Brickblock, a blockchain startup, is developing blockchain solutions to provide more convenient means of home investing. Brickblock’s main functions come in two forms. One is for potential investors, and the second is for companies to raise capital.
Real estate is one of the most profitable investment opportunities worldwide but is often time-consuming due to a large amount of paperwork involved. By placing both investment and capital raising opportunities for real estate on the blockchain, Brickblock is saving investors both time and money. Brickblock’s blockchain is available for users from anywhere in the world.
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An Increase of Intermediaries
Investopedia estimates that nearly 80% of homebuyers use a real estate agent or broker. The standard commission for these services hovers around 6%. In its simplest form, an agent’s or a brokerage’s fees for a $100,000 home would be $6,000. This is a significant amount of money for just showing someone around a house.
At the moment, brokers and agents are the necessary requirements for the real estate industry. Blockchain, however, might have what it takes to reinvent real estate.
There are a few blockchain startups developing blockchains to rid the market of intermediaries, and Propy is one of them. Propy is basically a blockchain-based real estate search engine. It connects people looking to sell their homes and people looking to buy, this way streamlining the purchase of new homes.
It provides potential home buyers with a search engine where they can apply a variety of filters to buy the home that is right for them. Here, blockchain allows securing the data storage and exchange on the platform. Propy is a worldwide blockchain with listings located in China, the US, the UK, India, and various other countries.
In August 2017, the startup partnered up with the Ukrainian government to conduct the world’s first real estate purchase on the blockchain. The purchase was made in Kiev by TechCrunch founder Michael Arrington.
What about Rentals?
Rentals suffer from the same system the home market does. Real estate agents over-profit through the selling of rental units. Rentberry is a startup that is looking to disrupt that market in this field.
Rentberry uses a decentralized ledger to make finding and renting an apartment easier. It allows tenants to find apartments and even pay their rental fees online.
Through the service, tenants can request maintenance and provide credit reports to landlords along with other features. Landlords can use the service to promote rentals they manage and communicate with tenants securely and conveniently.
Without the need for a real estate agent, landlords can decrease the price for their rental units as they do not need to pay a fee to agents. Ultimately, this benefits both buyers and sellers.
Singapore company Averspace is another blockchain startup changing the real estate landscape, this time in leasing. The platform directly connects landlords and tenants, looking for rental deals, with no agents involved in the process. Through a fairly simple digital process, they were able to cut costs for both sides with the help of blockchain technology.
Real Estate Suffers from a High Rate of Fraud
Fraud runs rampant in the real estate sector, not necessarily in America, but mainly in the areas such as Brazil, the Middle East, China, and other nations throughout the globe. In Brazil, for example, vast amounts of rainforest are being taken over and chopped down illegally. This is mainly due to accessing this land through violence, bribery, or fraudulent documents.
Currently, the Republic of Georgia is toying with blockchain to provide more legitimate means of detecting fraud. Georgia became the first national government to use blockchain technology to conduct land title registrations.
The country relied on Bitfury’s blockchain platform to perform the first transaction of its kind. Eventually, the Republic of Georgia hopes to expand the service to include the purchase and sale of land titles, demolition of property, rentals, mortgages, notary services, and the registration of new land titles.
Georgia is just one of many countries now looking into blockchain technology to streamline government responsibilities related to real estate.
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So Why Isn’t Real Estate Industry Improving Yet?
Introduced in 2008, blockchain technology is still considered new. Not very many people know about it and therefore are not aware of how they can benefit from it.
Secondly, think about how many intermediaries there are in the real estate sector: hundreds of thousands of real estate agents and probably thousands of brokers. These people would definitely like to ensure the safety of their jobs, so why would they adopt the use of blockchain?
For these reasons, blockchain may not bring any significant changes to real estate markets anytime soon. So, for blockchain to begin bringing about the changes that so many people are hyped on, it needs to be adopted on a mass scale even if many job titles would need to be restructured. The entire real estate market could become a thing of the past if blockchain is adopted into it.
Bring in Blockchain
At the moment, mainly large companies are using blockchain since they have access to the necessary resources. IBM has already invested millions of dollars into the nascent technology with more to come.
However, major corporations are not the only ones to benefit from blockchain applications in real estate. Already now several blockchain startups bring multiple benefits to their users with middlemen-free real estate purchasing and leasing to name a few areas.
Once the blockchain-based systems become mainstream, eventually smaller companies will also be able to adapt their business to bring in blockchain. Blockchain, IoT, AI — all of these new technologies bring drastic change not only to businesses but also to our daily lives, this way shaping our future.
Industry leaders and analysts predict 2019 to become a defining point for the technology, with more and more use cases introduced in both public and private sector. According to Silvio Schembri, Malta’s Junior Minister for Financial Services, Digital Economy & Innovation, 2019 will be a “historic year for the blockchain industry.” Until the mass adoption of blockchain occurs, though, consumers would not be able to experience the full potential that blockchain brings.
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