Blockchain-powered solutions offer a multitude of advantages over traditional applications. The merits include a censor-resistant, immutable distributed ledger that is accessible to all the members of the blockchain network. Deloitte’s recent global study highlights 6 features that make blockchain the perfect technology for use in real estate, including options for lease and sell.
The innovations in blockchain have, in several instances, outperformed conventional systems in more ways than one. In addition to digitizing information, blockchain also brings forth an actual real-time environment eliminating the need for trust.
Blockchain in Commercial Real Estate
The worldwide commercial real estate(CRE) industry identifies 6 main challenges for keeping detailed transaction data on property leasing and selling. Deloitte, a global powerhouse among accounting firms, highlights the 6 areas where blockchain can instigate a transformation, improve property searching mechanisms, and empower people with better decision-making abilities in real estate transactions.
Blockchain, as per Deloitte’s forecasts, will help in the acceleration of property asset documentation and evaluation of payments negating the need for papers across the entire process. This also helps in cash flow streamlining. The other characteristics of blockchain will present more economical methods for handling the history of asset ownership while expediting efficient payment completion methods.
The report predicts blockchain can easily take over and complete more than half of the processes associated with asset transactions. The only exceptions would be in areas that necessitate physical presence. Examples include asset inspection or negotiation for property loans.
Blockchain: The Best Foot Forward
In its report, Deloitte states:
“Blockchain seems to be most applicable to dynamically configurable or co-sharing spaces, which have a relatively higher number of tenants and shorter duration leases.”
Blockchain offers the following benefits:
a) Real-Time Transactions
Settlements and transactions across the blockchain network can be completed in real-time, eliminating risk. The process also limits chargebacks and cancels transactions.
b) No need for a Trusted 3rd Party
The data stored in a blockchain network is stored after consensus agreement and with cryptographic encryption. Two parties can conduct transactions between them directly without any need for a third party for trust.
c) Distributed Ledger
The P2P distributed network features a public ledger that records transactions. The ledger is distributed and visible across the entire blockchain network. It provides secure evidence of transactions that occurred.
The blockchain ledger comprises an authorized record of each transaction carried out within its network. Hence, this eliminates fraud, abuse, double spending, or transaction manipulation.
e) Censorship Resistant
The economic structure built around the blockchain mechanism provides crypto incentives for participants validating blockchains. This reduces the chances of external influencers modifying existing record information.
6 Areas Blockchain Can Make an Impact in the CRE Industry
1) Enhance Property Search Mechanisms
Multiple site listings lead to Fragmentation of CRE data, which in turn leads to a decrease in the search efficiency for commercial property. The lack of standardization and broker preferences may even result in the information being inaccurate, incomplete, or backdated.
A public Ethereum-based blockchain would enable data distribution across a P2P network empowering brokers with more data control and trust. Listings would be accessible freely, while the standardized blockchain-powered MLS(multiple listing sites) would provide clear details on property location, rental rates, ownership history, and more.
2) Accelerate Financial Evaluation and Associated Due-diligence Processes
Offline, due-diligence or financial evaluation processes are highly time-consuming and paper-centric. There are multiple steps involved due to the division of data across various offices, even more for a loaned or mortgaged property.
The integration of blockchain technology puts the throttle on increasing efficiency and accuracy. Blockchain in combination with digital identity can also accelerate pre-transaction tasks such as mortgage commitment, financial evaluation, underwriting, and more.
3) Quick Leasing of Property and Management of Cash Flow
CRE property management comprises several potential areas of complication that stems from the process’s dependency on multiple people, including landlords, tenants, property managers, and several vendors. The dependency also includes organizations such as banks, financial regulatory authorities, auditors, and appraisers.
Blockchain-powered smart contracts facilitate hassle-free, transparent, and optimized property management along with cash flows. The conventional lease contract in the real estate segment can be easily morphed into a smart tenancy contract, which can be utilized for rent or automated payment bonds to real estate owners, property managers, and stakeholders in real-time.
3) Facilitates Better Decision-Making
The shortage, or at times, absence of functional real-time data hinders the decision-making capacity of real estate managers. The existing CRE methodology lacks organization leading to data redundancy, duplication, and vagueness.
Blockchain works in perfect synergy with other technology systems such as cloud storage, AI, or big data. It can seamlessly integrate into existing CRE technology systems. The consensus mechanism improves data quality, analysis, and decision-making.
4) Transparent and Affordable Property Title Management
Title insurance and associated legal costs for real estate are expensive. The reasons are due to recording issues, required diligence, fraud risk, and lengthy paper clearance. Estimates suggest almost a billion USD is spent annually on the resolution of title fraud cases.
A blockchain-powered digital identity solution for asset management can store the property’s history, title details, and location information. It is difficult to commit frauds in liens to easements, additional rights, and title transfers, as blockchain data is tamper-proof and visible across the entire network.
5) Accelerate Efficiency with Better Finance and Payments Processing
The current existing mechanisms for financing and payment are slow cumbersome and expensive, especially across international borders. There are multiple channels involved in the process, which increases operational costs as well as the time needed.
Blockchain eliminates the intermediaries involved in the process, thereby saving time and processing charges. The technology increases the overall efficiency of the processes.
Without question, the revolutionary potential of blockchain will be a significant contributor to propelling transparency, cost-cutting, and efficiency for CRE business enterprises. It is recommended to follow a three-step process rather than approaching blockchain integration headfirst. Commercial real estate enterprises or owners should educate, cooperate and design/develop blockchain solutions with the right professionals in global blockchain development.