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How Blockchain Technology Made It to Real Estate Business

Blockchain

Although blockchain technology is still considered to be cutting-edge and may be considered by many to
be a technology solely related to tech companies and cryptocurrencies, more and more of the more
traditionally old-fashioned industries are beginning to consider embracing the potential innovations
available to them though the new technology. One such industry is real estate, where some
governments are testing whether blockchain technology can be used to run auctions of property. The
consensus thus far appears to be that the innovation has its applications in the industry.

Real Estate and Blockchain Technology

However, it’s not just governments that are looking to the technology, a wide variety of existing market
leaders and startups are looking to apply blockchain solutions to the real estate industry. In applying the
technology, most of them are offering a form of property tokenization, whereby investors purchase
digital tokens that represent real property. Although this process sounds similar to shareholdings,
national and international regulations have yet to apply the rules of shares to tokens issues under such
schemes.
This system is being used by construction companies and contractors to raise funds. By tokenizing
property, the holders’ tokens relate to a percentage of a future structure. The sellers of these tokens,
the construction companies or contracts, use the funds received from tokenholders to finance the
construction project. Although similar fundraising initiatives have been in existence for many years, the
introduction of smart contracts results in both parties being able to regulate the relations between them
easier than through traditional methods that placed greater reliance on mutual trust.

Tokenisation Opportunities of Real Estate with Blockchain

Experts foresee that, combined with the Internet of Things, tokenization may result in properties being
personalized, whereby the token holders are the only ones capable of using the property that they have
purchase, through the use of smart locks or through the apartment environment being ‘locked’ for use
by anybody other than the holders of the private key to the tokens.

Even without considering the potential of ‘smart’ homes, the advantages of tokenization can include
easy and transparent distribution of profits, a simplified registry of title that does not rely on a central
system, and complete traceability and immutability of all transactions place on the blockchain.
However, there remain a number of issues, especially in respect of regulation. As many people can
attest to, real estate is one of the areas of government that continues to have lots of complicated
regulations to comply with, which is the antithesis of blockchain. In addition, the wariness towards
blockchain that still exists in some parts of society means that the major hurdles to be got over are
convincing that powers-that- be that it is necessary, as opposed to having the programming in place.
However, despite these negatives, there are a number of flourishing examples of the technology being
successfully applied in real estate. REAL, a company operating in Spain, the Caribbean and the US offers
tokenization to allow holders to invest in properties on their crowdfunding platform. By investing on the
blockchain, investors are able to rely on monthly audits, avail of minimum investment thresholds and
obtain transparent payouts of dividends on project revenues.

Another similar project is currently operating in respect of London real estate projects. By purchasing a
token, the holder of the toke is entitled to receive dividends on aall future revenues generated from the
building. Once construction is completed and the building is sold, the revenues are distributed to
investors in proportion to their holdings.
The advantages of projects such as these include being able to avoid the red tape in property
transactions, especially in jurisdictions where investors may not be aware of the law. For example, a
blockchain-based real estate project backs its tokens with proceeds from power produced by a solar
farm in Japan.
Another startup, Propy, offers users a decentralized title registry. Propy’s smart contracts allow
purchases and sellers, as well as intermediaries such as estate agents and mortgage brokers, to legally
sign all documents, which are verified on the blockchain. The intention is that the system will cut the
cost of international property ownership, reduce fraud and cut through many of the regulations
applicable to property.
The above examples are some of the most prominent startups focusing on applying blockchain to the
real estate sector. Although there are many more directions in which blockchain technology can be
pointed, these examples illustrate just some of the ways in which the technology may be implemented
into the real estate industry.

About the author

Jason Manolopoulos co-founded Dromeus Capital Group in April 2008 and is the co-CIO of the firm. Jason leads the firm's investment activities is a member of the Firm's Executive and...

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