Blockchain is Forging a Path in the Real Estate Market

Blockchain technology has many real-world applications beyond cryptocurrency, and the real estate sector is in need of disruptive technology.

Blockchain infrastructure can democratize real estate data across North America, and is the perfect solution to address the demand for secure, integrated and accurate property information.

The real estate industry today

North America’s real estate market has recovered from the 2009 recession. Coastal cities like San Francisco, New York, Seattle and Los Angeles are back to being among the most expensive markets on the continent, while Portland, Washington DC, Denver and Salt Lake City are among the fastest rising markets thanks to strong income growth and quality of place. But Canada’s real estate market has been the recent headliner.

The Canadian commercial real estate market set another record for investments in 2017 and was one of only four countries in the world to do so, according to a report from CBRE Ltd. The report said there were more than $43.1 billion in investments last year, surpassing $34.7 billion in 2016, and CBRE predicts another record will be set by the end of 2018. Toronto and Vancouver began 2018 with the lowest downtown office vacancies in North America at 3.7 percent and 5 percent respectively; those rates are predicted to fall even lower by the end of the year due to growing tenant demand and a lack of new office supply. And Vancouver, with a median sale price of over $1 million and median family income of $63,000, is the most unaffordable market in North America.

“We have spent the better part of three years debating where we are in the real estate cycle; for 2017, we dragged out a baseball analogy,” said Mark E. Rose, Chair and CEO of Avison Young. “We concluded that the real estate industry was in the late stages of the game but could be headed into extra innings. In 2018, the game is still going, but there is a clear and palpable difference. Change is underway and the dynamics on the field are in flux. Our industry needs to decide what to do next.”

Current technology in the real estate market

For almost two decades, the real estate market has relied on online data management and analytics software. The lengthy buying and selling process requires technology to help with property verification, field inspection, workflow management, track vendor interactions, observe construction goals and schedules, estimate expenses and ensure tax compliance. Marketing platforms often provide buyers with online catalogues and they can reveal buyer interests through search behavior.

As the tech industry has evolved, so has the real estate industry’s reliance on technology. Nowadays, chatbots in the real estate market are emerging as a powerful tool for lead generation by automating the initial contact between buyers and sellers. Either Virtual Reality or Augmented Reality allow a buyer to take a virtual tour of a house from anywhere in the world. Some companies like Zillow take a big-picture approach by using Big Data to get a better understanding of communities and long term trends, while banks are using Big Data to ensure they don’t sell their properties for anything less than the market will bear.

While technology has improved, the industry has yet to see disruptive change that benefits both buyers and sellers.

“Real estate is by far the world’s largest asset class in value but has yet to meaningfully adapt to modern information exchange standards and trading platforms, resulting in limited accessibility, and disparate, contradictory data,” said Gary Yeoman, CEO of iLOOKABOUT (TSXV:ILA), a software, data analytics and visual intelligence company focused on real property.

But with the adoption of blockchain technology, the real estate industry can address the demand for secure, integrated and accurate property information.

How blockchain can benefit real estate

Blockchain has proven effective in several industries as a disruptive technology that provides transparency, efficiency and privacy along a peer-to-peer network. In the real estate industry, blockchain can improve access to data, enhance security, lower costs and remove fraud.

“Real Estate property records are notoriously flawed. They contain mistakes, omissions, and are prone to fraud,” says Yeoman. “Creating a decentralized and distributed ledger significantly reduces the ability to misuse such records, and significantly increases data integrity and ease of access.”

A shared ledger on a blockchain can improve the recording of a title or land claims, mortgages, liens, or even “the most mundane, like the color of paint,” he added. “With the ability to record, for prosperity, all relevant information in an immutable ledger and create an insurmountable challenge for fraudsters, blockchain can completely revolutionize the way we record all aspects of real estate and real estate related transactions.”

Once a transaction is recorded on a blockchain, information becomes impossible to change or edit. It’s this component of blockchain technology that would reduce the risk of fraud and falsification of documents for transactions between landlords, tenants and relevant third parties. On a blockchain, every part of a lease or sale agreement would be automated, and payments would be received instantly–even outside of business hours.

Seamless transactions on a decentralized marketplace

A centralized marketplace that utilizes a central authority, like a bank, is costly to operate in and is prone to business and political pressures. For transactions to occur in the real estate market, one of the largest centralized marketplaces, banks and often real estate firms are needed to confirm a transaction. But a decentralized marketplace that can exist on a blockchain, provides buyers and sellers more access to data and better security.

“By overriding market dynamic factors, cost restrictions, and aggregation limitations, the small players in a typically large transaction stand to benefit the most,” said Yeoman. “A decentralized marketplace creates a completely new asset class for validators. Many parties may not act as a principal seller, but can act as validators―increasing their income, and acting as a data integrity amplifier.”

iLOOKABOUT recently signed a joint venture with Cherre Inc.―a developer of a platform that provides residential real estate data to investors and brokerage firms. The JV is focused on developing a blockchain initiative, allowing iLOOKABOUT to democratize real estate data across North America and capitalize on the demand for secure, integrated and accurate property information.

Current uses of blockchain in real estate

Several municipalities in the US have already launched pilot projects to examine the benefits of blockchain for land registry and the transfer of documents. The city of South Burlington in Vermont has partnered with startup Propy, Inc. to convert their current system for real estate transfer document recording to a blockchain-based system. They recently completed the first blockchain-based real estate deed in the United States.

In Canada, the government is launching a trial program to explore the use of blockchain to make government funding more transparent. If successful, the Canadian government could look at using blockchain technology to provide funding for Canada’s explosive real estate market.

Real estate prices have risen throughout North American since 2009, and the results have benefitted agents, banks and intermediaries. The power could very well go back into the hands of buyers and sellers with the adoption of blockchain technology and a decentralized marketplace.

This INNspired article was written according to INN editorial standards to educate investors.