One of the key industries that blockchain technology is looking to penetrate outside of the crypto markets is the real estate industry. Not only is real estate incredibly lucrative for crypto investors but it also faces unique problems that blockchain technology can solve. In fact, so promising is the use of decentralized apps in real estate that it could be the catalyst in a revolution. They could fully automate the entire real estate industry.
We look at some of the exciting ways that blockchain technology is changing the landscape of property trading and management.
Basic blockchain benefits – encryption and security
Before we get to the more complex aspects of decentralized apps being used within the real estate industry, there are some basic benefits that will play a crucial role to some of the more sophisticated functions later in the article. Encryption and security functions are natural to most blockchains. All data and records can be kept, locked away and free from manipulation with relative ease.
This is particularly useful in the world of real estate. Properties have very strict governance and are accompanied by property deeds which contain important specific information such as covenants and easements. Currently, property deeds are mainly in hard copy or paper form, which has a few issues when it comes to security.
The problems with hard copy (paper) deeds are:
- Often paper deeds are held by mortgage companies and banks for the duration of a mortgage (this means that repossessions can occur easily and act as a security against the loan). But upon completion of a mortgage, a property owner must store a deed securely. This means they often will pay third parties to keep deeds locked away in vaults. The reason for all of this security? Well, if you lose a property deed or it is stolen you have effectively lost ownership of that property.
- Deeds can be manipulated and forged. Not so much a commonplace practice nowadays (although it still occurs), deed forgery allows fraudsters to sell and trade properties that they do not own. Because of the paper (physical) form of the deeds it is possible to create a forgery with the right expertise; and it's not easy to identify a fake deed against an authentic deed.
- Degradation (loss of information). Paper is fairly robust but it isn’t going to last as long as a house. It means that deeds will often degrade over time (unless stored in controlled environments) and information on that deed will be lost. When you consider that some deeds contain extremely important legal information that is pertinent to the sale of that property this is a major problem, especially with older properties.
Smart contracts and property deeds
Some of the problems above could be rectified with simple digitalization of the property deeds to prevent loss of information and also store documents in a location that could be secure. The wonderful thing about blockchain technology is that it tackles all of the problems inherent to property deeds and then provides further functionality on top of that.
Blockchain technology can:
- Store title deeds securely and keep all information encrypted. This eliminates the need for homeowners to pay for the storage of physical copies and ensures that deeds are kept away from thieves.
- Encryption prevents manipulation. As well as the added benefit of storage, blockchain technology keeps an impermeable record of the information that can’t be altered or doctored. It preserves the deed and the information as it was originally intended.
- No loss of deeds, or degradation. Blockchain keeps the records as long as they are needed and houses securely as time passes. Another crucial benefit is that there is no loss of entire deeds. As you can probably imagine in the real world, deeds and information goes missing all the time, with blockchain tech, this would no longer occur.
Related read: All You Need to Know About Public & Private Blockchains
How smart contracts will automate the real estate industry
Currently, when you buy or sell a property the transaction goes through a legal process where the property is transferred from one owner (seller) to the next one (buyer). This is known as conveyancing and can take months; and in extreme situations where deeds or recorded information isn’t intact or clear, much longer. Conveyancers make a lot of money from processing deeds and completing property transactions because it can be a complex and tricky job to do.
Smart contracts would be able to fill a conveyancer’s role and speed up the completion process by effectively marrying up the information and completing a checklist. If all the boxes are ticked and the information for the sale is input correctly (remember there will be digital and secure records held on the blockchain) the sale would complete automatically, and the smart contract would be fulfilled.
With this complete 360-degree security, unparalleled information retention and accurate parameters for a property transaction to be completed, the process has the real possibility of taking minutes rather than months. Saving buyers and sellers expensive conveyancing costs and streamlining the property acquisition process as well.
It is no wonder that conveyancers all over the world are becoming very nervous about the threat from technology. Huge investment is being poured into real estate blockchain applications by financial institutions and amateurs alike. Some of the current projects that are really exciting in the real estate/smart contract arena are:
- BitRent, a property investment platform and cryptocurrency (RNTB) that is going from strength to strength. With it, you can put money in any type of property at its earliest stage of construction.
- CryptoProperties, a complete crypto/blockchain real estate management platform that is looking to expand beyond Los Angeles where it was founded.
- Harbor, a complete regulatory and compliance framework that has thus far attracted millions of dollars in investment. This is a very new blockchain market, but already fledgling start-ups are making impactful waves in the industry and it is only a matter of time before one takes mainstream hold.
This is a guest post by Mary Ann Callahan. As an expert on Bitcoin-related topics, Mary Ann has found herself as a Journalist at CEX.IO - cryptocurrency exchange. She is working on articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.