Blockchain Technology is Coming: Is the World of Real Estate Ready?

Blockchain Technology is Coming: Is the World of Real Estate Ready?

As cryptocurrency speculators have ridden the Bitcoin wave up (and down) over the past year, a special group of worldwide professionals has come to understand the potential benefits of this technology: land investors, developers, operators, and repair providers. Their shared cautious optimism has little or no to try to to with the increase or fall of cryptocurrency prices but instead comes from the promise of the underlying technology that ignites Bitcoin and its offspring: The Blockchain.

A Blockchain may be a sort of a distributed ledger that operates via peer-to-peer. this suggests that each participant has his or her own copy of the ledger and there's no central record of account. Once recorded, ledger transactions can't be altered and each copy of the ledger is identical across the network. The network and every one constituent part act as a database that records transactions generating an immutable audit trail for transactional activity. The network is often either completely open or open only to trusted counterparties.

What benefits could Blockchain provide to players within the land industry? Here are two areas that suffer from efficiency problems where Blockchain technology might be an efficient solution:

Leasing and Technology

In owning and managing a billboard or residential property, there's a mess of service and payment transactions that has got to occur between the lessor, lessee, and other third parties. Appreciation, cash flow, and tax information must be recorded, tracked and verified, and compliance maintained. Therefore, managing properties and tenants, and enforcing the agreements around lease terms requires a far better platform for consensus and reference also as payments.

Placing contractual bonds on a Blockchain can result in secure cash flows and automate payments with real-time reconciliation. Automating these actions via rules-based business logic is usually mentioned as “Smart Contracts” within the blockchain community. The term Smart Contract is typically a misnomer, as these documents aren't very smart on their own and are typically abiding by software code, not legal agreements. In essence, a written code automatically executes a transaction counting on various conditions, almost like an IF-THEN Excel function.

Although still in the early stages of development and testing, Blockchain technology progress is gaining steam, and real estate professionals will be rewarded for getting on board sooner rather than later 

These smart contracts give blockchain technology the power to grow beyond a decentralized database of cryptocurrency transactions and may feel any sort of value transfer. For instance, the buyer, seller, and an attorney could agree contractually to certain rent payment, collection, and ownership parameters within a contract. That contract would then be transferred into an application that takes that language and creates software-coded rules to execute the terms. That business logic added to the smart contract then could enable split ownership and distributed rents. this is able to be facilitated by using applications that sit on top of a blockchain. That transaction data itself would be housed on the blockchain, and therefore the full lease agreement document would be referenced off-chain.

Unlocking Liquidity

Property research requires a big amount of your time where financials and legal regulations are concerned. For buyers, an outsized part of this effort is finding and verifying physical proofs of identity, ownership, etc. Since this is often a manual task, the method is time-consuming and human error and data loss easily occurs. Checking out properties, vetting, and getting into terms of sale is an in-depth and unnecessarily complicated effort that will discourage investment. For sellers, creating liquidity during a sometimes-illiquid market can cause inopportune market timing and sales at below-market value.

The Real Estate investment company was created to unravel a number of these problems, creating better liquidity and therefore the ability to spread risk across various properties/developments, together would investing during an open-end fund rather than one stock. But what if this forced a marquee development to suffer a reduction because it had been lumped in with other developments that were producing smaller cash flows? By issuing fractional shares of a selected development, and leveraging the worldwide network effect of a blockchain, a CRE investor could raise capital globally and at a lower cost. A CRE seller could also find global buyers at a potentially premium valuation. Investment bankers would have a reduced, if not eliminated role, because the roadshow (a process of shopping around the deal to potential institutional buyers) might not be necessary if a public token offering raises sufficient capital at the specified valuation.

Although still within the early stages of development and testing, Blockchain technology progress is gaining steam, and land professionals are going to be rewarded for the aged board sooner instead of later.

What do you have to search for at your company to gauge if implementing a Blockchain is that the right solution?

Shared Data - Blockchain may be a technology for shared databases there's a requirement for a structured repository of data.

Opportunity for Disintermediation - Blockchain removes the necessity for trusted intermediaries no gatekeeper is required to verify transactions and authenticate the source.

Multiple Writers - Blockchain may be a technology for databases with multiple writers multiple entities generating transactions that modify the database.

Absence of Trust - Blockchain may be a technology for multiple non-trusting writers there must be A level of mistrust between the entities writing to the database.

Transaction Dependency - Blockchain provides value when there's an interaction between the transactions created by the writers, meaning the transactions depend upon each other.

 

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