Today, the real estate market is largely inert, but even here the distributed ledger technological stack creates positive momentum in terms of innovation-infused reduction in market frictions reaping sizable efficiency gains. There is a wide range of applications of Distributed Ledger Technologies in the real estate sector.
- Fractional Real Estate Ownership and Portfolio Diversification. Blockchain significantly simplifies the processes of buying and selling real estate enabling unique opportunities for creating an efficient fractional ownership market. For example, an average house in LA costs around US$ 810,000, which is far too costly for the overwhelming majority of middle-class demographics to afford. When tokenized, the property can be fractionally owned by an arbitrary number of people each earning one’s fair share of rent earnings proportional to the share of total token owned. In turn, this enables portfolio diversification opportunities similar to those provided by the securitization process, but at a fraction of the cost.
- Record Management Benefits and Reduction of DB Maintenance Costs. Being in essence a decentralized record-keeping system, DLT by its nature realizes a number of significant efficiency gains in the area of record management, thereby reducing the burden of bureaucratic procedures, and the associated costs.
- Instant Peer-to-Peer Settlement of Transactions. DLT based platforms allow for direct p2p settlement of transactions greatly reducing the associated costs through the reduction of the number of intermediaries involved.
- General Reduction of Market Frictions and Intermediaries Involved. Deep integration of DLT infrastructure into the real estate sector will also significantly reduce the general overhead that is today generated by the large number of intermediaries that are required to mitigate market frictions (lawyers, realtors, notaries, employees of registration chambers, etc.).
Estimates by Forbes suggest that as a bare minimum, the cost savings from integrating blockchain into the real estate sector across the aforementioned dimensions will amount to 1-2% of the aggregate deals value. What is more, the risks of fraud will decline significantly, because blockchain-based platforms have immense potential in preventing data forgery, simplifying the property due diligence process. Nowadays, countries like the USA, Netherlands, Sweden, Switzerland, UK, UAE, Georgia, Greece have already implemented blockchain into their real estate.
The Benefits at a Glance
- Workflow transparency
- Fractional ownership/securitization
- Minimized number of mediators
- Portfolio diversification
- Access to global liquidity
- Fraud resilience
- Reducing the burden of bureaucratic procedures
- Fast international property transactions