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Message: Three Ways Blockchain Technology Will Revolutionize Real Estate in 2019
Senior Manager of Strategic Growth at Compass. Pairing the real estate industry’s top talent with best in class technology coast to coast.
Blockchain is poised to redefine how we make transactions in the same way that the internet has redefined how we communicate and share information.
It was originally created a decade ago to support the cryptocurrency bitcoin, but has grown to be so much more. Blockchain has lead to the creation (and loss) of millions of fortunes, the launch of hundreds of new companies, billions of dollars in investor funding and, most commonly for the non-technical, a lot of confusion around its true benefits.
In its most basic form, blockchain makes it possible for the first time ever for people and companies to make major transactions without going through an intermediary. Intermediaries like credit card service companies, stock exchanges, banks and governments can make transactions expensive, slow and illiquid and may open opportunities for fraud or crime.
Access to deals, the amount of time it takes to close, property title mistakes, high fees and fraud bog down the real estate industry. It is the largest asset class in the world and has had minimal innovation in the way of increased efficiency during transactions. Blockchain poses major opportunities for innovation in real estate. Here are three innovations that will change how real estate is done for the better in 2019.
Historically, owning the most lucrative hard assets required investors to already be wealthy and have the luxury of being able to wait years to liquidate. That changes with tokenization.
Tokenization democratizes ownership of assets by using cryptocurrency to split assets into tokens that are stored on the blockchain. Someone who wants to invest in a trophy real estate project now has the luxury of being able to resell their share on the open market through secondary trading. Also, people in different geographies and tax brackets now have access to attractive investment opportunities that they previously would not. Landlords now have the ability to sell off just a portion of their property to the crowd. In 2019, I believe we will see a major migration of real estate ownership moving to the blockchain.
One of the pioneers in the space is Templum Markets, the first federally regulated marketplace for the primary issuance and secondary trading of security tokens. It recently closed what is thought to be the first digital security tokenization of a trophy real estate asset: Investors had the opportunity to invest as little as $10,000 in the St. Regis Hotel in Aspen. Unlike with most major real estate investments, owners are not locked in until the building is sold. They will be able to sell their portion on the secondary market.
The current state of property agreements have a lot of moving parts and middlemen. A transaction using a smart contract is completed entirely between the buyer and the seller (or renter and landlord) and has no human interaction.
Transactions can be done in far less time with far less chance of fraud. The seller includes all of the details of the property and the buyer puts all of their necessary information on a 100% encrypted and secure block. Computer protocols check the legitimacy of the transaction and no agreement can be completed until all of the terms are met.
Propy is one of the most well-known incumbents in the space. It has built technology for buyers, sellers, brokers, title agents and notaries to come together through a suite of smart contracts on blockchain to facilitate transactions.
Real estate purchasing can be a very emotional decision for people. I believe that middlemen such as brokers and attorneys earn their commissions for people making potentially the largest financial decision of their lives. While smart contracts are currently being built to replace middlemen, I believe this technology will ultimately be utilized to make advisers in this space more efficient.
Title insurance has grown to be a $15 billion revenue per year industry by ensuring buyers that their property is clear of old liens and debts. Every municipality has their own way of storing property data. Some cities and towns have put records online while others still use printed paper. If all property title was decentralized on the blockchain, an immense amount of time and money would be saved and, potentially, it could eliminate the need for title insurance altogether. It could also be possible to add information about construction, damages and improvements to the title, almost like Carfax for homes. This will help make it so that people truly know what they are buying.
Unfortunately, while having all title on the blockchain would be great for property buyers, inputting this amount of data from every municipality is an extremely laborious and expensive undertaking. There are a few exciting technology companies in the space, like State Title and Jetclosing, but it is unclear if they are up for the task. It will be interesting to see whether governments, corporations or a combination of both cough up the dollars to enhance the data quality for where we live, work and play.
The coming year will be an inflection point for blockchain usage in real estate. Private investment has been flowing in real estate technology, cryptocurrency wealth is massive, real estate professionals are being increasingly aware of blockchain and the underlying technology is improving. When it comes to the potential growth and adoption of blockchain technology, we are in the first inning. Similar to using the internet, blockchain usage may soon be so common that you forget you’re even using it.
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