By exploring the cost and time benefits of blockchain technology, along with increased transparency and security that blockchain could drive across the sell and purchase process, it can revolutionize the industry of real estate.
Blockchain Technology to Transform Commercial Real Estate Industry
Recently, blockchain technology has been adapted and adopted for use by the industry of commercial real estate. The executives of commercial real estate are discovering that blockchain-based smart contracts play a significant role in the industry of commercial real estate. The technology of blockchain can potentially change the core of commercial real estate operations like sale, purchase, leasing financing, management transactions, as well as property transactions.
The commercial real estate industry happens to take pride in keeping various aspects of this operation secret, like property prices, compatible lease rental rates, as well as valuations for creating a possible competitive benefit. But, in some cases, secrets are challenging to keep, and might not even be considered in the hyperconnected and digitized world of today. Due to this, property-related data is increasingly becoming accessible in paper and digital form. A portion of the digitized data happens to be hosted on disparate systems which results in a lack of efficiency and transparency, including a higher incidence of inaccuracies that leads to a greater potential for thefts and frauds.
Being a distributed ledger and the digitized technology, blockchain records and shares information that enable the commercial real estate industry to address these inaccuracies and inefficiencies. Now, industry players realize that blockchain-based smart contracts play an important role in commercial real estate, potentially transforming the central commercial real estate operations like financing, leasing, management, purchase and sale. Over time, the adoption of blockchain technology can have a broader impact because it can be linked to public utility services like water, waste, energy billing, smart parking as well as enable data-driven city management.
In this article, we will delve deeper into the value proposition of blockchain technology along with its applicability to property management and leasing as well as sale and purchase transaction processes.
Is Commercial Real Estate Ready for Blockchain Adoption?
As commercial real estate organizations invest within a multitude of technologies to satisfy their different business demands, it may be worthwhile to initially understand the advantages of blockchain technology that are highlighted below.
Benefits of Blockchain Technology
- Trustless environment: Blockchain technology happens to be based on cryptographic proof, facilitating any two parties to transact immediately with each other without the requirement for a trusted third party.
- Near real-time: Blockchain technology enables near real-time settlement of listed transactions, eliminating friction and decreasing risk but further limiting the capability to cancel transactions or chargeback.
- Irreversibility: Blockchain incorporates a verifiable and certain record of each transaction ever made, which reduces the uncertainty of double-spending, abuse, manipulation of transactions, and fraud.
- Distributed ledger: The peer to peer distributed network records the public history of all transactions. The blockchain happens to be distributed and highly available, additionally retaining a secure source of proof through which the transaction has occurred.
- Censorship resistant: The crypto-economics constructed into the model of blockchain offers incentives for participants to proceed validating the blocks, thereby eliminating the possibility of external influencers to change the previously recorded records of transactions.
Companies need to assess where and whether blockchain can be beneficial because blockchain technology comes with its unique characteristics and possibly may not address every inefficiency in current processes. Blockchain technology needs to meet particular prerequisites for blockchain to be relevant. Once commercial real estate companies identify a process that remains ready for blockchain technology, they need to evaluate benefits and costs. While performing so, they are likely to potentially profit from assessing the extent of overhauling prevailing systems and interoperability with the numerous technology systems utilized by various stakeholders of commercial real estate transactions.
Why Consider Blockchain Technology for Real Estate Leasing and Purchase and Sale Transactions?
- Multiple entries can transform databases: Managing and transacting real estate properties incorporates numerous entities, such as, lenders, operators, tenants, owners, service providers, investors who access, modify and provide a variety of data.
- The requirement for a common database: Shared databases are essential for leasing as well as purchase and sale transactions. Multiple listing services can be considered as one of the key examples. It collates property-level data from private databases of agents and brokers.
- Transaction dependence: Various real estate transactions come with conditional clauses and can be executed with the help of smart contracts. For example, the outcome of a purchase-sale transaction can be based on loan approvals or title clearances.
- Opportunity for disintermediation: Trusted intermediaries, like title organizations, can be disintermediated, through blockchain, due to increased transparency and security in title management and auto-confirmation by land registries.
- Lack of trust within entities: Participants in purchase and sale, as well as leasing transactions, remain new to each other many times, and can be cautious in due diligence and might even have information integrity concerns. But blockchain technology can help mitigate the risk with more transparent record-keeping systems and digital identities for tenancy, financing, liens, entitlement and real estate titles.
Among the core commercial real estate processes, purchase and sale transactions, as well as leasing processes, are beneficial for blockchain adoption, because it can take benefit of its inherent advantages and satisfies the prerequisites for utilizing the technology.
Future of Blockchain for Commercial Real Estate Processes
Blockchain technology can help solve inefficient property search processes and existing challenges due to fragmented listings data.
Existing challenge
Today, commercial real estate owners, buyers sellers, tenants and brokers usually utilize multiple listing services to access property-level information like rental rates, property features, capital values and location. Such platforms are usually subscription-based, commanding excessive access fees from customers.
The detail and accuracy of property-level information are entirely dependent on the choices of the brokers because of a lack of standardized processes and substantive human intervention. It might result in the data being outdated, incomplete, or inaccurate. Moreover, the search process itself appears to be inefficient because the data, in general, happens to be fragmented throughout multiple platforms.
Due to a result, there are likely to be delays in decision making for tenants and landlords, along with low levels of trust in the quality of data available on multiple listing services.
The blockchain opportunity: reliable and efficient property search
A blockchain-based multiple listing service would facilitate information to be distributed across a peer-to-peer network in a process that enables brokers to have more control over their information along with enhanced trust, as listings are likely to be more freely accessible.
This blockchain-enabled multiple listing service would additionally provide clear details on property address, capital values, property location, compatible rental rates, tenant details, age of the property, ownership history, and title clarity.
Due to this, market participants can access more reliable and secure information at a lower cost. This can be considered as one of the key benefits of utilizing blockchain technology in the commercial real estate sector.
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