From our grandparent’s generation to ours, not much has significantly changed when it comes to the real estate market. We still go through the same lengthy procedures of finding a real estate agent that will help us to look for properties- for investment or otherwise. In return, we pay a heavy commission fee to the agent and spend as much as an average person’s months’ worth of salary to complete a house transaction.
Although our homes are now equipped with a variety of smart appliances, the process of buying or selling an asset has not really changed. Is there a better way?
Well, now there is. Blockchain, in combination with smart contracts, promises to bring revolution in the real estate industry.
The Impact of Smart Contracts on Real Estate
Essentially, a smart contract is a computer program that enables you to decide all the agreements and rules of a transaction. These conditions are pre-defined and automated in a software program.
For instance, conditions for the down payment of a real estate property can be a pre-defined condition. As soon as the buyer deposits the amount into the seller’s account, the smart contract will automatically set off a chain of events. Moreover, each aspect would be visible on a transparent platform owing to blockchain technology.
The above example only suggests one use case for implementing smart contract on a real estate platform. It can add value in terms of convenience and efficiency in the real estate industry. Let’s take a look!
Smart contracts keep a track of all the transactions on a real estate property and store it on a decentralized blockchain ledger. This removes the possibility of corrupted or shady land titles. It also enhances transparency and puts trust between a buyer and a seller.
Automated Property Management
Smart contracts enable digital signatures and e-agreements that are legally compliant. Creating a smart contract wherein each party is accountable for their individual obligations can further automate the process of property management. This could further reduce the cost of the inspection, audits, and rental management.
Blockchain facilitates raising digital security tokens on smart contracts such that each token share is defined. This process is known as tokenization. In real estate, tokenization allows digital shares or tokens of a real estate property to be traded on international secondary markets.
Blockchain induces trust and transparency between two unknown parties so that they can securely transact with each other. In real estate, whether you want to rent, lease or sell a property, you need to pay high commissions to real estate broker and agents. Smart contracts remove such intermediaries from the equation allowing two unknown parties to trade real estate assets. This further reduces costs and time for the transfer of any property.
Blockchain ledger stores digital identities of individuals as well as properties. This allows any investor to conduct due diligence on the property rights as well as facilitates the seller to conduct due diligence on the investor. This reduces audit requirements and additional fees.
Automated Payments and Cash Flow
Once all the predefined conditions are set in any smart contract program, it enables automated payments from one account to another. For instance, using a smart contract, the rental amount automatedly gets transferred from the rented party’s blockchain wallet to the homeowner’s wallet in the first week of every month. Further, if the property is owned by multiple investors, the smart contract transfers the rental amount in proportion to digital shares held by each investor.
Tokenized Real Estate
Tokenization is an art of converting an asset into its digital counterpart, raise it on the blockchain, and further manage it using smart contracts.
Digitizing real estate further enables multiple benefits to homeowners, developers, investors, and property managers. First and foremost, it helps in reducing the barrier to entry in the real estate market. Through tokenization, an individual can invest as little as $100 in property and gain returns on their investment. This makes it viable for the average Joe and Jane to access the market of real estate.
Secondly, platforms empowered by blockchain allow security tokens to be sold on an international market that operates globally 24/7. This further helps with increased liquidity to flow in any real estate property. By selling shares on secondary markets, any investor can gain access to instant liquidity from a real estate property.
Tokenization also facilitates fractional ownership in any prime real estate property across the globe. The property can be rented out which allows multiple investors to access passive investment.
Creating a Realistic Scenario
While the concept of smart contracts and blockchain-enabled real estate segment sounds ‘magical’, how true or possible is it?
Our answer is very much so. The concept has already turned into an application wherein a number of platforms are offering to tokenize their property using blockchain and smart contracts.
Any owner can tokenize their home by enrolling it on a platform. The platform builds a smart contract that further facilitates converting your real estate property into security tokens. Individuals across the globe can buy digital tokens online directly from the platform. This would allow individuals to enjoy fractional ownership on your property and facilitate you to access liquidity from your real estate property.
The smart contract automates the process and makes it easier to manage titles, cost, management of the property, transactions, etc.
The Near Future of a Revolutionary Real Estate
Blockchain and smart contracts have given a new direction and changed the dynamics of a segment that has been quite complex and conventional. Blockchain revolutionizes the real estate market by not only making it more accessible but also creating a market that enables the easy flow of data. Moreover, it enhances the real estate industry with reduced costs, automation, easy management, transaction processing, and direct interaction.
The technology has already begun to add value and bring an impact on this industry. The future sure does look innovative!