How Blockchain Will Transform Real Estate

real estate

The blockchain is a disruptive technology. It has the potential to change many aspects of our future lives. Even if governments or corporations would try to stop it, it is impossible to completely eliminate due to the decentralized nature of the technology. 

According to the Harvard Business Review,

“With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision. In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction. This is the immense potential of blockchain.”

Blockchain can also revolutionize the way we invest and transact in real estate. This is How.

Liquidity

The real estate market offers investors a good opportunity to make good returns. The issue, however, is liquidity. Investors often have to hold their real estate for 3 to 10 years in order to get liquidity back. This is where a secondary market could be beneficial.

A secondary market could give investors the luxury to get out of the market at the time they wish. It could also let new investors get into real estate at the time they wish.

By registering the investment in a blockchain, anyone could buy shares or parts of a real estate investment. Like the cryptocurrency market, shares of real estate investments could be exchanged on a free market (eventually could be done on a decentralized exchange).

Funds Escrow

When a real estate investment is made by many people, there is a distribution that has to be done when profit is made. The way it works right now is that the money is transferred from the investment fund’s bank account to a bank account where it can be distributed to every investor.

Creating separate trusts and virtual accounts amending them for every investor can be extremely costly. This is where blockchain comes in.

The idea is that when the profit is made, the share of the money that belongs to the investor should not be available to the fund. This would eliminate the risk that the manager of the fund runs off with the investors’ money.

A blockchain would allow the money distribution to be locked up into a token that follows the price of the US dollar. This would make it 100% safe and transparent for every actor in the fund. It would also cut a lot of friction costs because it cuts the need for a bank as an intermediary.

Conclusion

There are many ICOs and cryptocurrency startups that are trying to tackle this problem. It is still impossible to know which one of these companies will come on top in the long run. What we do know is that, if regulations allow it, real estate could be made a lot more efficient by integrating blockchain into the market.

 

4 thoughts on “How Blockchain Will Transform Real Estate

Leave a Reply