The real estate industry appears to take pride in keeping several aspects of its operations secret, such as comparable lease rental rates, property prices, and valuations, to create a possible competitive advantage. As a result, property-related information is increasingly available in digital and paper form. However, a important portion of the information is hosted on disparate systems, which results in a lack of transparency and efficiency, and a higher incidence of inaccuracies that creates a greater potential for fraud.
Blockchain technology— distributed ledger that immutably records and shares information—could enable the Real estate industry to address these inefficiencies and inaccuracies. According to a 2015 World Economic Forum survey global information will be stored on blockchain technology by 2025. Blockchain-based smart contracts can play a major role in real estate, such as property transactions
(purchase, sale, financing, leasing, and management).
How blockchain technology can raise real estate leasing processes?
Real Estate owners have an opportunity to reduce some of the existing big challenges in their leasing transactions using blockchain technology. such as
1. Inefficient property search process due to less listings data.
2. Time-consuming, paper-driven, reasonable steps taken by a person to avoid committing a tort or offence.
3. Complexity in managing ongoing lease agreements, property operations, and cash flows
4. missing and less of real-time rich data affects decision-making capability.
Opportunity I: Improve property search process
Existing: Inefficient property search process due to fragmented listings data:
Real Estate brokers, owners, and tenants often use Multi Listing Service to access property-level data such as location, rental rates, and property features. These platforms are typically subscription-based, commanding high access fees from users. The accuracy and detail of property-level data is completely dependent on the preferences of the brokers, due to a lack of standardized processes and substantive human intervention. This may result in the information being inaccurate, dated, or incomplete. As a result, there are delays in decision-making for landlords and tenants,
Blockchain opportunity: Efficient and reliable property search:
A blockchain-based MLS would enable data to be distributed across a peer-to-peer network in that allows brokers to have more control over their data. Available for each property listing would be clear details on property location and address, comparable rental rates, ownership history, tenant details, age of the property, and title clarity. As a result, market participants could have access to more reliable data at a lower cost.
Opportunity ІІ: Make pre-lease by reasonable steps to avoid committing a tort or offence:
Existing: Time consuming, paper-driven, predominantly offline due diligence process:
In a Real Estate lease transaction, usually significant time is spent on due diligence activities related to financial and legal review due to using physical documents for proof of identity, documents that are often stored in isolated places. This inefficient manual verification process increases administrative tasks and is prone to loss of information and errors.
Blockchain opportunity: Drive efficiency and accuracy in due diligence process:
Real Estate market participants should consider developing digital identities for a property to keep pace with the growing preference for digital transactions. As the name suggests, digital identity with respect to a real estate property would imply a digital identifier that consolidates information such as vacancy, tenant profile, financial and legal status, and performance metrics in digital form.
A combination of blockchain technology along with digital identity can make the above-discussed existing challenges of physical identity proofs.
Opportunity ІІІ: Ease leasing and subsequent property and cash flow management
Existing: Complexity in managing ongoing lease agreements, property operations, and cash flows
There are complexities in managing a Real estate property due to dependencies among landlords, tenants, property managers, and various vendors. Right from the start of a lease, there are numerous payment and service transactions that need to be executed, tracked, and recorded on a regular basis. There are also several checks on the same data. For instance, periodic cash flows are investigated by real estate owners and:
● Auditors as part of preparation and review of financial statements
● Banks for (re)financing related decisions
● Financial regulatory authorities for monitoring purposes
● Appraisers for property appraisals
As a result, real estate companies have rigorous accounting, compliance, and cash flow management needs and related costs.
Blockchain opportunity: Smart contracts enable easier, transparent, and efficient management of
property and cash flows
Executing a real estate lease using smart contracts can address many of the challenges associated with property and cash flow management. “a smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.” The contract could use rent or bonds for automated payments to real estate owners, property managers, and other stakeholders along with near real-time reconciliation.
source : https://www2.deloitte.com