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How Blockchain technology can impact Real Estate Investment
The infiltration of blockchain, the technology that supports cryptocurrencies like Bitcoin, into industries around the world is only a matter of time.
The historically traditional commercial real estate industry won’t easily escape. In its simplest form, blockchain is a distributed database.
By recording and combining transactions into a de-centralized, secure ledger system, it creates a “chain” of chronological data that no one party has control of.
The value lies in the system’s ability to authenticate and track transactions in real time without the use of a third party, such as a bank. The technology has the potential to transform the property business. The potential shake-up would significantly speed up transactions and increase transparency.
“People are brainstorming new ways of using it so that they fall on the right side of this business disruption,” according to the DBRS research report How Blockchain Technology Is Rebuilding the Commercial Real Estate Industry.
Smarter, more transparent One of the biggest impacts of Blockchain on commercial real estate would be a smoother, faster contract management process that expedites deals. With smart contracts, every part of a lease or sale agreement is automated, and payments are received instantly – even outside of business hours.
Blockchain would make it possible to “create, authenticate and audit contracts in real-time, across the world and without intervention from a middle man,” said Nick Clare, Head of Project Management, JLL UK. Smart contracts “have instructions rooted in the transaction so that payment can only be taken as long as the instructions are fulfilled, providing complete transparency to all parties and reducing the likelihood of payment disputes.”
Smart contracts
Smart contracts would also speed up pre-lease due diligence. Blockchain technology can help verify identities, making the background check process faster.
Parties involved in a contract can access it with a personal digital key, arguably reducing the likelihood of fraud. In the industrial and logistics sector particularly, Blockchain’s transparency could be of benefit to investors and occupiers alike, said Aaron Ahlburn, Director JLL Industrial Research. As corporations have expanded globally, supply chains have become longer and more complex—and the challenge of tracking inventory has become acute.
“With one-day delivery becoming the new normal, e-commerce and retail firms would benefit as the technology greatly improves the traceability of products, help bring down costs by reducing excess inventory.
Over the long term, this could add real value to the retail, logistics and distribution sectors, which are handling heavy volumes of transaction data on a daily basis,” Ahlburn said.
Liquidity For investors under pressure
Liquidity For investors under pressure to create a diversified portfolio, liquidizing assets can be difficult. Blockchain technology has the potential to ease this process if all investments are registered through the ledger, simplifying the exchange of shares between investors.
San Diego-based real estate investment and merchant bank, Silver Portal Capital LLC, made one of the first attempts to capitalise on the opportunity when they partnered with New York electronic trading and technology provider, Fundamental Interactions Inc., last year to launch Silver Portal Markets.
The blockchain-enabled primary issuance and secondary trading platform for illiquid real estate securities and properties “brings new viability to previously constrained aftermarkets by creating additional liquidity and ease of access for best-in-class real estate sponsors and issuers,” said Jon K. Haahr, Founder of Silver Portal Capital.
The secondary market will reshape the historically dislocated network of real estate sponsors, inter-dealer brokers, and registered investment advisers into a dynamic and competitive trading marketplace, according to the company. “This will allow sponsors to raise capital more efficiently and cost effectively, and ultimately create liquidity for new issuers on the platform,” he said.
Land titles a further attraction of blockchain technology is its use in recording land titles – a historically challenging area to access with most information still kept offline.
The technology has the potential to dramatically cut the traditionally lengthy process of recording and transferring titles, with the added benefit of virtually bullet-proof transparency. And more and more governments are looking to apply the secure ledger as a way to store and easily access historical title records.
The UK government has recently announced plans to move the country’s land registry to blockchain by 2022, under the project name ‘Digital Street’, while Sweden, Ukraine, Dubai and The Republic of Georgia are all reportedly trialing the technology.
As with any new technology, Blockchain has its critics. Questions over the technology’s security and reliability have been raised, as well as the issue of human error; when used as a database, the information being inputted needs to be recorded accurately in the first place.
But, as its use becomes more widespread, these issues are expected to be resolved. When they are, the technology will streamline the cumbersome and traditional commercial real estate industry. How Blockchain can impact Real Estate Investment | The Investor
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