How blockchain technology is set to change the real estate industry
For most people, the word “blockchain” – if they understand the term at all – will make them immediately, and perhaps inevitably, think of Bitcoin.
For many people, Bitcoin is the beginning and the end of blockchain technology. Maybe they will know about other altcoins, but that’s usually the end of the road. Even for altcoin enthusiasts, an understanding of the potential blockchain tech offers can sometimes be limited.
Blockchain technology has many other applications too– and some of them are just as, if not more, exciting than the possibilities offered by cryptocurrencies. One industry that blockchain technology is set to revolutionize is the real estate industry, and the potential changes are already beginning to take shape.
The existing world of real estate
The purchase of, and investment in, real estate at the present time is… complicated. Anyone who has ever tried to purchase property tends to quickly find themselves overwhelmed by the onslaught of red tape, paperwork, and various hoops they have to jump through.
If we break it down, we can see that the purchase of real estate usually goes through a number of channels, delays, and requirements:
Person A wants to buy a property to live in as their primary dwelling.
Person B wants to sell their property. This means they have to contact a real estate broker and a lawyer to help facilitate any transactions.
Person A decides they want to buy Person B’s property.
Person B wants to sell their property to Person A.
Person A has to contact a mortgage provider, a real estate broker, a surveyor, and a lawyer, which delays the transaction and means the sale can take months to process.
The sale will fail if…
Person A cannot find a large enough mortgage to buy the property.
The delay in the processing of the transaction is too long for Person B to wait.
Furthermore, if a person wants to invest in property, they face similar restrictions:
They want to buy a property for investment purposes, so they have to obtain a mortgage.
If they cannot get a mortgage, then they cannot buy the property.
If they can get a mortgage, they then have to use the property to generate income to pay that mortgage. For most property investors, this means they place their investment property on the rental market and become a landlord.
Frankly, the current processes and demands required for buying or investing in property are absurd. The process of buying and selling property has become hugely complicated, and it has meant that many people buy their own home (through gritted teeth and with no small amount of stress) and that’s it. Due to the complexity, investing in real estate is something people just don’t want the hassle of trying to engage with, despite the fact that real estate is one of the soundest investment strategies there is.
The two main problems with the conventional methods of buying and investing in real estate can be addressed by blockchain technology.
The mortgage problem
This issue primarily affects those who wish to invest in real estate.
Unless someone can buy a property outright, they will need a mortgage to complete the sale. Mortgages are judged on a variety of conventional financial information, such as income, credit score, and a number of other factors. If a person does not have a large enough income or has a poor credit report, they are effectively barred from investing in property. If a person can’t get a mortgage and they don’t have the cash lying around to buy outright (which hardly anyone does), then they’re stuck.
Using blockchain technology offers a chance to circumnavigate this issue.
Companies such as I-House are now offering a way for people to buy small amounts of a property rather than need to finance the entire cost of the property themselves.
This means they can invest in property without having to find a mortgage for the entire amount.
The shared nature of ownership means that property investment becomes a viable idea for far more people than can currently engage in it.
Blockchain technology also allows people to diversify the properties they invest in, without having to buy, own, and be responsible for an entire property. Not everyone who wants to invest in property wants to be a landlord, after all.
The idea might sound far-fetched, but it’s becoming a reality. The initial coin offering for this venture proved wildly popular, suggesting that there is a real appetite for a different way of approaching property investment in the future.
Property investment has long been considered one of the most secure, reliable forms of investment that there is. However, it has also been impossible for a huge number of people due to the financial requirements and the potential requirement to be willing to become a landlord. Blockchain tech offers an opportunity for property investment without the need to finance and outright own a home, and could be revolutionary to the real estate market.
The transaction length problem
The second issue with real estate transactions as we currently know them is the length of time they take to process. As the buying and selling process involves a number of “middlemen” — predominantly real estate brokers and agents — the process takes far longer than it has to.
If properties are sold by blockchain, everything is different. In the same way that blockchain tech for altcoins allows for the removal of banks from financial transactions, blockchain tech allows for the removal of real estate brokers and agents. Instead, the transaction can be processed and verified using a blockchain system, so the transactions could be conducted (theoretically) instantaneously.
The future could then look like this for buyers:
Person A wants to buy a house.
Person B wants to sell a house.
Person A obtains a mortgage and uses blockchain technology to send the funds.
Legal documents are exchanged.
The transaction is finalized.
And for investors:
A person wants to invest in a property.
They cannot obtain a mortgage, or do not want to be a landlord.
They invest in property without taking full ownership, using their own funds and without needing to borrow.
They now have a property investment.
Without a doubt, the real estate industry is set to be shaken to its foundations with the changes blockchain technology can offer. However, with this seismic shift could come a lot of new opportunities for you.