The real estate market has plenty of investment opportunities. But those opportunities come with many hurdles. Real estate investment involves a lot of red tape, complexities and costs that make it accessible to a wealthy few.
Structures such as real estate investment trusts (REITs) were meant to open up the market to smaller investors, but they lack transparency and offer little control to the investors themselves.
Enter blockchain, the technology that decentralized money and is now enabling peer-to-peer transaction of many different asset classes. Blockchain can make the ownership of and investment in real estate property more transparent and fluid, and less costly.
Blockchain and the transparent ownership of real estate
In a nutshell, blockchain is a ledger that is shared by several parties. By distributing copies of the ledger among thousands and millions of computers and making it available for all to see, blockchain obviates the need for central points of trusts. Powered by blockchain, bitcoin made it possible to make peer-to-peer monetary transactions without the need for banks.
In the real estate industry, blockchain can revolutionize the ownership of property. Transactions on the blockchain can replace paper or digital records stored in courthouses and city halls, or the tacit and unwritten agreements made between tribal and religious leaders. All across the world, blockchain startups are cooperating with local governments to employ blockchain in the registration of real estate property ownership.
On the platforms these startups offer, when you acquire the ownership of a property, it is immutably registered on the blockchain. No one will be able to refute or manipulate your claim, because it's been stored on millions of computers for everyone to see. As long as you hold the cryptographic keys tied to the blockchain address, only you will be able transfer the ownership of your real estate asset.
An example is India's Andhra Pradesh state, where the government has partnered with Stockholm-based ChromaWay on a pilot program to apply blockchain to the real estate market. The blockchain startup, which has already run a pilot in Sweden, hopes the transparency and tamper-proof nature of blockchain will help fight fraud and disputes over land titles, which are running rampant across the state and account for almost two-thirds of civil court cases in the country.
Tokenizing ownership and investment of real estate
One of the bigger promises of blockchain is the concept of tokens. Any asset can be broken down it down into a number of crytotokens, digital currencies that represent the asset in question and can be exchanged on the blockchain. The value of tokens will rise and fall in tandem with the asset they represent, and owning any number of them will give you a proportional share of the value of that asset.
Tokens also remove geographical, legal and ethical hurdles that often apply to investing in real estate. BitProperty, a Japan-based blockchain startup, has created a platform where property owners can tokenize their property and exchange the tokens with anyone across the world. Tokens and the blockchain trust model can make it possible to hold partial ownership of real estate property without the need to rely on REITs and other middlemen.
Platforms such BitProperty also make it possible to fund construction projects. Organizations can raise funds for their projects by issuing tokens and selling them to people who wish to invest in the future of the finished establishment.
Another interesting concept embedded in blockchain technology, namely the Ethereum blockchain, is that of smart contracts. Smart contracts are bits of software that run on the blockchain network without the need for centralized servers. Smart contracts can automate and facilitate the transfer of digital assets under predefined conditions.
Singapore-based REIDAO is using smart contracts to distribute rental profits and capital appreciation from real-estate property. Smart contracts automatically distributed dividends among stakeholders when they're accrued, based on the amount of tokens each party holds. The profits are distributed immediately without any weeks- or months-long holdups by middlemen, and fees are kept at a minimum, a thin slice of what a trust would charge.
Blockchain technology can democratize the real estate industry and get a lot more people, who were previously deprived of the market, involved in the opportunities it provides. This will possibly make the market more stable and profitable for all. The real estate and housing market triggered the previous financial crisis. Maybe with the help of blockchain it can help create the next financial revolution.
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