The impact that blockchain can have on the real estate market =

In 2019, the first real estate transactions with blockchain took place. This was the start of a revolution in the way real estate is sold and bought. Blockchain can have a huge impact on the real estate market as we know it.

Of course, real estate is not the only market in which blockchain will play a major role. For example, blockchain can also play a major role in retail and the financial world. Just think of Decentralized Finance (DeFi), for example. That includes real estate, of course.

In this article we explain how blockchain can play a major role in the real estate sector. This market will probably look very different in the future.

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  • View quickly
  • Buying a house
  • Tokenize real estate
  • The first real estate transaction
  • Investing in real estate becomes easier
  • Benefits of blockchain in the real estate market
  • The regulations: what needs to change?
  • Conclusion

Buying a house

When you want to buy a house, it will take a while before the entire transaction is completed. Of course this depends on several factors. Still, you generally spend a long time before a transaction is completed. It starts, of course, with the search for a home. That is already extremely difficult in this day and age, given that there are far too few houses available on the market. And when everything is arranged, you often have to wait a long time before you finally get the keys.

Not to mention that in 90% of the cases the buyer has to get a loan from his bank to complete the transaction. So nothing is gained by signing the sales promise. And to make matters worse, the real estate sector is a true administrative nightmare that requires the submission and filing of a large number of documents. Think of various intermediaries such as real estate agents, experts, notaries, insurers, etc.

Buying an apartment or a house is therefore always an obstacle course with, as a bonus, a lot of uncertainty during the whole process. The real estate industry is like an ancient dinosaur, evolving in the Jurassic era of real estate sales. The good news is that this could all change dramatically thanks to blockchain, with many benefits to come. And in a very short time. Because it is actually strange that it takes so long and that so much has to be done to complete a transaction. Especially in the world we live in now. Everything can now be fixed within a few clicks of the button.

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Tokenize real estate

Invented in 2008, the blockchain is an information storage and transfer technology that works decentrally, without a central authority to control everything. This particular structure guarantees a high level of data protection, as each person can verify the validity of the blockchain.

Selling or buying via the blockchain is easy. Just as a company is divided into shares when it goes public, a property is divided into digital tokens and offered on a digital marketplace, such as a crypto exchange. It is therefore also possible to sell a plot (and a house) in whole or in part. This can be done using tokens.

The blockchain therefore seems particularly suitable for the problems of the real estate market. And that’s mainly because it validates the security of transactions. But it also ensures that transactions can no longer be modified once they have been made. Blockchain can be used at different levels. For example, it can serve as an escrow, so that there are no more doubts between the parties involved. This can be done through a smart contract. The moment the buyer has actually paid, he will receive the key.

 

The first real estate transaction

It all seems like future music, but it’s not. Because on March 1, 2019, the very first real estate transaction on the blockchain took place. In Switzerland, a building consisting of eighteen apartments and a restaurant was symbolically tokenized before being sold in four lots. This operation was carried out by Elea labs (a start-up specializing in blockchain), Blockimmo (an online platform for real estate transactions) and Swiss crypto tokens. The latter is the main Swiss player in the cryptocurrency market.

The following month, Propy (a real estate startup dedicated to blockchain) tokenized two pieces of land located in Niseko, on the Japanese island of Hokkaidō, and then sold them in Yen to investors in Hong Kong.

In July, it was Brazil that completed its first blockchain real estate sale. Construction giant Cyrela has partnered with startup Growth Tech to acquire a building via the IBM blockchain, as part of the Notary ledgers project, which offers the digitized services of a notary. The takeover was completed in twenty minutes, while it usually takes a month. So a lot of time was saved by executing the transaction on the blockchain.

So there have already been several real estate projects that have made use of blockchain. Unfortunately, this has not yet happened in the Netherlands. However, the Netherlands is at the forefront when it comes to innovations regarding blockchain. Therefore, there is a good chance that the first real estate transaction on the blockchain will also take place in the Netherlands. Especially in the times we live in now (a lot of demand for homes and little supply), it would be very convenient if blockchain was used in the real estate market.

Investing in real estate becomes easier

Have you ever thought about investing in real estate? It’s not exactly easy or cheap. To be able to buy a building or piece of land, you will have to dig deep into your pockets. Most people even have to apply for a loan (mortgage) from the bank first, so that they eventually have enough money to buy a house in their name. And that entails a lot of risks. That is why the real estate market is not that accessible at all.

When real estate is tokenized, it is much easier to invest in real estate. We can best explain this with an example :

Imagine that Hans wants to buy a house that he would like to rent out. The house costs €300,000, and he himself has €100,000 in his possession. So he still needs € 200,000 to actually buy the house. He can decide to sell tokens in order to raise money to sell the house. He will then share part of the proceeds from the rental with the token holders.

By selling 20 tokens, each investor has to pay €10,000 per token. It suddenly becomes much easier for ordinary people to invest in real estate. Normally they would have to have much more money in their possession to be able to invest their money in real estate.

Hans can then buy the house, and asks € 1,500 rent per month. Each token owner has invested 3.3% of the total amount, which means they are also entitled to 3.3% of the income. Each month, the token holders will therefore receive €49.5 for their investment.

 

Benefits of blockchain in the real estate market

It is probably already clear to you that there are many advantages when blockchain is used in the real estate market. Still, we haven’t talked about all the benefits yet. These are the advantages if we start using blockchain more often in the real estate world:

  • Transactions are completed faster . Much less paperwork is required, and there are far fewer middlemen involved in the transaction. This ensures that a transaction can be executed much faster. No months of waiting, but a house already paid for and in your possession within an hour.
  • Simplifying the processes . Because far fewer people and intermediaries are needed, the processes that still need to be carried out become much simpler. This makes it possible for people without knowledge of real estate to carry out a transaction themselves. This makes the real estate market a lot more accessible and accessible.
  • Higher security . It is no longer necessary to distrust a buyer or seller. Executing a transaction on the blockchain is much safer than doing it through paperwork. By using a smart contract, there is no longer any doubt or mistrust towards third parties.
  • Less administration . Not everything needs to be recorded on paper or in a computer program. So much less administration is needed to carry out a transaction.
  • Investing in real estate is becoming more accessible . People can also buy tokens when they want to invest in real estate. These tokens are a lot cheaper than if someone actually had to buy an entire building. That is why the real estate market is becoming much more accessible to people with a limited budget, who still want to invest.
  • Lower Costs . Normally you have to pay a lot of intermediaries to carry out a transaction. For example, you spend a lot of money on a notary, as well as on real estate agents, experts and insurers. When this is all done on the blockchain, all you have to do is pay the transaction fees. These are many times lower than the costs you would normally have to incur.

The regulations: what needs to change?

You may be wondering why we in the Netherlands are not yet fully using blockchain for the real estate market. The main reason is that a lot of things still have to change regarding the regulations. And those are pretty big challenges. At the moment, only a notary may transfer property as a third party. That is determined by law. Transferring ownership by blockchain is therefore not yet allowed. A change in the law will first have to take place before blockchain can do its job.

The AVG (General Data Protection Regulation) is another problem that is still around the corner. To transfer real estate, personal data will have to be stored in the blockchain. And once stored in the blockchain, it cannot be changed. This is at odds with the GDPR, because users must always be able to change or delete their data.

However, this would not be a problem if a private blockchain is used. However, there will be many parties who will wonder what the point of the blockchain is, because it will no longer be decentralized. After all, there is still a central authority that controls everything. This can ensure that parties have more power, as well as earn the most money from all transactions that take place on the blockchain.

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Conclusion

Blockchain can therefore have a major impact on the real estate market. The real estate market will not look like it does now in 10 or 20 years. This market has remained unadjusted for a long time, and blockchain will change that one way or another. There are already several countries where this is already happening, although unfortunately we have to wait a little longer in the Netherlands until we can also carry out real estate transactions on the blockchain here.

Tokenizing real estate makes it much easier to raise money. A mortgage is therefore no longer necessary per se. It also makes it a lot easier for ordinary people to invest in real estate. This ensures that there are no longer a few people/companies who buy up all the real estate. The housing and real estate market is becoming a lot more decentralized, just like the blockchain is.

Before this can take place, however, a lot will have to change. For example, legislative changes must first take place so that a blockchain can transfer ownership. Now this can only be done by a notary. In addition, there are plenty of other problems that need to be solved, such as an adjustment in the GDPR.

It also becomes clear that blockchain cannot solve all problems. Of course, there are also some disadvantages to blockchain. However, the biggest problem lies outside the technology. The biggest problem the housing market is currently facing is a lack of supply. There are too many people looking for a house, while the supply is extremely low. So more needs to be done to address this. However, blockchain can play a major supporting role, such as raising money to get a real estate project off the ground.

 

 

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