Real estate is the largest asset class in the world. Commercial enterprises and real estate professionals are recognizing the transformative impact of blockchain technology to optimize retail and commercial property sales, streamline payments, and increase access to real estate funds and investment opportunities.
What are the Benefits of Blockchain in Real Estate?
Commercial real estate constitutes a significant portion of world economic asset and transaction activity. According to an MSCI report, the size of the professionally managed global real estate investment market increased from $7.4 trillion in 2016 to $8.5 trillion in 2017. With rising valuations of properties and continuous development around the world, blockchain technology is primed to bring several benefits to the real estate industry:
- Automation and more efficient processes
- Reduced costs
- Network transparency and data accessibility
- Real-time payment settlements
Distributed ledger technology enhances the underlying operations of the retail and commercial estate industry through automation, tokenization, and access to real-time information. Today’s global ecosystem consists of many siloed and independent real estate networks with little to no interoperability between them or their existing systems. The Ethereum blockchain presents a practical solution to optimizing current real estate processes and removing third-party intermediaries. Overall, blockchain presents the opportunity to reduce costs while enhancing transparency, minimizing human error, and increasing data accessibility.
One of the most exciting ways Ethereum can benefit the real estate industry is through tokenization. Programmable digital assets can represent anything, including shares in real-world assets such as real estate, real estate funds, revenue streams, governance rights, and more.
In the real estate market, 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.
Major organizations around the world recognize the potential of the Ethereum blockchain to create real estate platforms, enhance property sales, provided greater access to real estate funds, and record important information in real-time.
Codefi Assets allows asset managers to create, issue, and manage the lifecycle of digital assets, associated markets, and digital financial instruments on public or permissioned blockchain networks
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What are the Blockchain Use Cases in Real Estate?
The main use cases of Enterprise Blockchain technology in real estate are:
- Land Titles and Deed Records
- Asset Management and Real Estate Funds
- Property Sale and Title Assignment
- Investor and Tenant Identity
- Payments and Leasing
- Real-Time Accounting
How will blockchain drive tokenization in real estate?
Tokens can be programmed with any logic the issuer wants, including logic ensuring that distributions and transfers are compliant to meet specific rules. Simple examples include controls to ensure that tokens can be transferred only to certain counterparties, or not at all during a lock-up period. However, the real promise of this programmability is a future with fundamentally new instruments and markets.
Tokenization reduces the cost and increases the speed of creating, issuing, and exchanging assets, innovating new features, administering dividends and other corporate actions, holding, reporting, and creating secondary market trading and settlement arrangements with no counterparty risk. This, in turn, increases access to investors and has the potential to improve liquidity and distribute risk.
How will blockchain impact land titles and deed records?
Blockchain can replace outdated paper deeds with true digital assets and track these documents on an immutable ledger. Further, distributed ledger technology enables a shared source of truth for documents and files between multiple parties or organizations. Ethereum enables transaction and property ownership records to be more accessible, thereby achieving the benefits of digitization. Sweden’s land registry authority, Lantmäteriet, along with banks and industry players, have a fully-functioning blockchain-based digital land register platform.
How will blockchain impact asset management and real estate funds?
Real estate investment funds and asset managers stand to benefit from the automation and real-time data provided by blockchain technology. However, one of the more unique use cases of blockchain is through tokenized real estate funds, which will benefit from new business models and reduced overhead costs. Further advantages of tokenized assets include increased liquidity and the broader availability of assets resulting from the fractionalized ownership of properties and a new flow of capital. Voting rights can be easily distributed through tokens and programmed for specific types of token holders.
Mata Capital: Catalyzing real estate investments with blockchain technology
Real estate investment product and process digitization with Codefi Assets. This initiative enabled Mata Capital to directly distribute funds units, facilitate asset tracking, eliminate account reconciliations, and improve secondary market liquidity for investors.
How will blockchain impact property sale and title assignment?
Smart contracts facilitate executable and traceable legal agreements on the Ethereum blockchain. This optimizes the entire property sale process and empowers faster transactions for all parties involved while providing data and information traceability from a shared ledger. Blockchain-based real estate creates the ability to reduce property transactions and other fees associated with title and property purchases.
HMLR: Exploring real estate asset tokenization in the UK
Using Codefi Assets, ConsenSys customized a digital asset management platform for Her Majesty’s Land Registry in under 3 weeks. The platform demonstrates real asset tokenization as part of HMLR’s exploration of blockchain technology in the UK real estate industry.
How will blockchain impact investor and tenant identity?
Blockchain-based digital identities will be powerful across multiple industries, consumer applications, and within the public sector. More specifically, tenant and investor identities from mutualized blockchain-based KYC/AML procedures will streamline background checks, reduce costs, and increase security. Decentralized identities enable anyone to prove ownership of properties while making essential documents (proof of insurance, identity, credit history) easily shareable with necessary parties.
How will blockchain impact payments and leasing?
Distributed ledger technology will enable leases to be signed and paid on-chain, removing the need for manual reconciliations of accounts balances while allowing dividends and payments to be automatically disseminated to investors or property owners. Moreover, smart contracts can automate other types of payments and fees to incentivize tenants, landlords, and service providers.
How will blockchain impact real-time accounting?
With property ownership and cash flows recorded on-chain, investors and asset owners benefit from automated and near-immediate accounting. In the future, the preparation of annual financial statements, such as the balance sheet, statement of cash flows, or income statement will be conducted with the potential for real-time audits. This enables multiple breakthroughs in compliance, regulatory oversight, and investor relations.
Want to learn more about how blockchain is transforming the real estate industry?
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