An industry that suffers strongly from information asymmetry is the real estate industry. Because of asymmetry, investors put their trust on intermediaries to process and verify information and agreements, which is really costly. However, despite the effort, the real estate industry is still known for the fraud that is committed because of the lack of transparency.
A technology that could revolutionize the industry is blockchain. Blockchain is most known for the cryptocurrency Bitcoin, but the technology can be useful for many other industries. With blockchain, data is stored in a distributed ledger (record book of all transactions). This book is distributed to all members in a network who use their computers to authenticate the transactions. As a result, information is not only available to everyone in the network but also validated by everyone (Deloitte, 2016).
According to consultancy firm Deloitte (2016), blockchain has three major benefits for the real estate industry.
Firstly, the costs associated with deal completion will decrease sharply. At the moment, firms need to hire intermediaries at high costs because only those parties have access to insightful information needed to complete a deal. With blockchain this information will be available to all parties in the network. As a result, there is no need to hire an intermediary firm.
Secondly, the number of fraud cases will decrease because information is available to everyone in the network. In the past, people could commit fraud because information on transactions, price, ownership and agreements was not available to others. Nowadays, this information is available and verified, reducing fraud opportunities.
Thirdly, the time needed to complete a deal will decrease. Blockchain enables the use of “smart contracts”. With smart contracts transactions are automatically executed when predefined criteria are met. Nowadays, when ownership over a property is exchanged for a certain amount of money, an third party will validate whether the criteria are met before the property is transferred. With blockchain this will be done automatically when the money is received (Realcomm Advisory, 2016).
Because of the abovementioned benefits, there are currently a lot of blockchain initiatives that are focussed on real estate. For instance, velox.RE and ChromaWay completed pilots focussed on storing data on property records and land registry with the use of blockchain. While Factom uses blockchain technology in the mortgage-industry to prevent problems that caused the crisis of 2008 (Fast Company, 2017). Although it will take several years before blockchain will live up to its potential, several firms are already working with the technology. The future of real estate will be very different thanks to blockchain.
What do you think? Is the real estate sector the number one industry that could benefit from the use of blockchain? What initiatives are most promising according to you? Leave a comment below!
References:
Deloitte. (2016). Blockchain: the next game changer in real estate? | Real Estate Predictions 2016. [online] Available at: https://www2.deloitte.com/nl/nl/pages/real-estate/articles/blockchain-the-next-game-changer-in-real-estate.html [Accessed 11 Oct. 2017].
Fast Company. (2017). Will Blockchain Revolutionize Global Real Estate Next?. [online] Available at: https://www.fastcompany.com/40449268/will-blockchain-revolutionize-global-real-estate-next [Accessed 12 Oct. 2017].
Realcomm Advisory. (2016). What Is Blockchain And How Does It Apply To Real Estate?. [online] Available at: https://www.realcomm.com/advisory/738/1/what-is-blockchain-and-how-does-it-apply-to-real-estate [Accessed 12 Oct. 2017].
Interesting post Marvin regarding blockchain in the real-estate industry. I agree that it will help in increasing transparency and in the ability to reduce costs. I am however curious as to how blockchain will be used here. You mentioned Factom, which is a public blockchain as a possible solution. I agree that a public blockchain could potentially work to help log the transactions, however does that mean that governments have to work together with decentralized communities such as Factom for the records to be legal and legitimate. Personally, I think that blockchain offers a way to increase transparency regarding records, however I am skeptical as to the extent that governments will be willing to work with decentralized blockchains. I think it would be more likely for a private blockchain to be created among the record-keeping organizations. This way blockchain works complimentary to what they are already doing.
Hi Marvin,
Interesting article you wrote! I totally agree with you on the fact that the blockchain could change the Real Estate Industry as a whole. But don’t you think we should broader the subject to every market with intermediares, such as banks and notaries. I believe the ‘gap’ the blockchain fills is the ‘trust gap’. We now have intermediares who kind of stand in between seller and buyer to close this gap. Because for instance the buyer does not trust the seller, and the seller does not trust the buyer.So the intermediares kind of ensure us of that trust, but charge you for their services. Do you think that it will change most of the things we are used to today, or that it will only have use in particular industries?
Nice article Marvin! I do think that the blockchain is able to disrupt this industry. Actually, I think it is one of the most prominent industries that could be disrupted by the technology. However, my biggest concern is the commissioning of the technology. In the Netherlands, there are clear records of when a house was build, who owned it and for how much it was sold. This can easily be transferred into the blockchain. But what about other countries? What if the current ledgers are such a big mess, that transferring them in to the blockchain would only cause bigger problems?
Interesting post Marvin. You have a clear and strong vision that blockchain will improve the real estate industry by reducing the cost, fraud and time of making the deal.
I think that the cost, fraud and time reductions are all nice potential benefits of implementing blockchain in this industry, however there are only a few examples of real-world implementations like Bitcoin. You mentioned that several firms and initiatives are already working with the technology, but there is still not a breaking point, where it is implement and working in the real-world. I believe that the technology is too complex, too difficult and it is hard to regulate, so it’s impossible to implement it at broad scale. Because it’s a foundational technology, I’m afraid that the technological development is to quick and there will be a better solution before the implementation of blockchain. Also in the real estate industry where organizations and banks can see the lack of transparency as a potential benefit for their businesses instead of a threat.