Blockchain in real estate: New technology to elevate transactions

The Indian real estate sector has been long resistant to technology. With the outbreak of the COVID-19 pandemic, it appears to have received an unprecedented push in embracing new technologies.

From smart cities to smart offices, technology has revolutionised the operational aspects of the commercial real estate segment. Whether it is comparable lease rental rates, price of a commercial property or valuations, technology has successfully met the strong demand for transparency in the segment.

In today’s hyper-connected and digitised world, keeping up with the accuracy and authenticity of the information becomes challenging.

With the emergence of proptech startups and technological advancements, information related to commercial properties is increasingly becoming available across different digital channels. However, a significant portion of this information lacks transparency and inaccuracies that create possibilities for fraud.

Prior to the adoption of technology, commercial real estate witnessed the scope of evolution and disruption. Embedding blockchain technology – a digitised ledger that stores and makes information immutable, in Commercial Real Estate (CRE), address challenges in the acceleration of the sector.

Until recently, blockchain was only recognised as the technology empowering Bitcoin / Cryptocurrency. However, its potential is beyond finance and playing a larger role in storing information about an asset on a ledger, instantly available to any stakeholder on any network. It is transforming core operations of CRE including sale, purchase, leasing, financing and management of an asset.

Key factors driving the use of blockchain in CRE

The onset of the pandemic has resulted in the use of a multitude of technologies by forward-moving CRE companies. The industry players are assessing the capabilities of these technologies as each of them has its own unique characteristics that eliminate growth and efficiency challenges. Similarly, it is extremely important for companies to identify the pre-requisites for adopting blockchain, specifically in leasing and purchasing, and facilitating sale transactions.

The conventional CRE sector has always relied on a shared database. It usually collates information from private databases of brokers and real estate agents which is critical for leasing, purchasing and sales transactions.

Further, managing CRE involves several entities such as owners, tenants, investors, intermediaries, etc. who can access and modify information, increasing the concerns of inaccuracy. The integration of blockchain technology increases security and transparency in record keeping of CRE.

Optimising CRE transactions (sale, purchase and management)

Conventional CRE has continued to face challenges due to the dependency on legacy technology systems that hampers progress. The insufficient property search process, time-consuming paper-driven tasks, complexity in managing lease traditionally and absence of real-time data affect the entire CRE sales/purchase process.

Considering the financial uncertainties unfolded by the exacerbating impact of the pandemic, proptech companies and CRE owners are capitalising on the opportunities of blockchain technology to alleviate existing challenges in the segment.

Improving property search process

Traditionally, CRE brokers, tenants, buyers and owners use multiple listing services including online aggregators to search location, property, value and rates. These platforms are typically subscription-based, lack standardised processes and involve human intervention. This results in the inaccuracy of the information and makes the entire property search process inefficient due to fragmented property listings.

To improve the property search process, stakeholders in CRE are leveraging the potential of Blockchain-based listing services that distribute data across a peer-to-peer network. This allows brokers to have a sense of ownership of data and increase customers’ trust. The enhanced technology provides clear details about the property while creating efficiency and reliability in the property search process.

Expediting the process

Purchasing a CRE is a time-consuming process that requires a significant number of days in due diligence – whether assessing financial, environmental, legal, or prices. Further, purchasing or renting a CRE is a long paper-driven work that has limitations to flexibility in customization.

Additionally, finding the history of ownership and evaluating the maintenance activities create risks for errors or loss of information. As a result, the offline diligence and financial evaluation process become longer and inefficient.

The preferences for digital transactions are growing at a fast pace. CRE stakeholders can use Blockchain technology to develop digital identities of the property and consolidate information such as vacancy, tenant profile, pricing, legal and financial details, etc.

This eliminates the existing challenges of time-consuming paper-driven work and expedites the diligence and financial evaluation process. Furthermore, it also reduces transaction time, enhances data security and offers less scope of manual errors and duplication of the verification process.

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Easing complexity in lease and cash flow management

In CRE, the management of lease and cash flow is based on the dependency of landlords, tenants and other vendors. It requires several payments and transactions that need to be executed and tracked on a regular basis. This calls for the rigorous need for accounting, compliance and cash flow management.

The blockchain technology in CRE offers an opportunity to create smart contracts that enable easier, transparent and efficient property and cash flow management. It addresses several challenges by making a set of promises in a digitised form including protocols that both parties need to follow.

Since there is no scope of morphing, blockchain technology offers transparency in lease terms and transactions. As a result, there is instant settlement and management of cash flows, simplified property management and faster reconciliation of payments.

Faster and smarter decision making

Presently, the CRE sector is plagued with outdated processes. Further, the information related to properties is scattered on different data sources. This results in redundancies, duplication of records and inefficiencies. Considering the conventional CRE systems, there is no availability of real-time data, impacting the decision-making capabilities of real estate stakeholders.

Blockchain technology acts as connective tissue between CRE companies and other technology systems. It provides a shared database to all parties while enhancing data quality and also enabling real-time data records. As a result, CRE stakeholders can harness the power of predictive analytics and draw real-time insights for smarter decision-making.

Simplifying property title management

The current paper-based property titles pose several challenges for CRE stakeholders. The concerns about authenticity, accuracy and other information related to titles complicate property title management. Usually, in all CRE transactions, there is at least one title defect that needs to be corrected before transferring the title. This involves heavy costs to be incurred by parties during the transaction.

Using blockchain technology, digitised property identity including its history, location and title details can be created to reduce fraud and simplify title management.

CRE stakeholders can rely on such digital identities for title assessment and any change made in the data can be updated across networks. As a result, the title check process is simplified with improved transparency on ownership data.

Efficiency in processing of financing & payments

The conventional property transfers and transaction processes are time-consuming. It involves multiple channel partners and an extensive documentation process. Typically, a commercial mortgage is the process of about three months, and it requires extensive paperwork which lacks standardisation of data. This makes the entire process of financing and real estate payments more complex and riskier for all parties.

As a solution to this challenge, blockchain-enabled digital identities and smart contracts can reduce inefficiencies in the process. Further, it can increase transparency in the real estate transaction process and simplify loan application, documentation, diligence and servicing stage.

A smart contract document is accessible to all parties involved in the process while making the information complete and immutable. As a result, the whole process becomes efficient with faster payments, improved security, lower costs, and increased transparency.

What’s next?

Though blockchain technology has disrupted the finance sector dramatically, it is still at a nascent stage in the CRE sector. The technology has the potential to drive efficiency, transparency and optimise costs and still, the entire real estate transaction process cannot be automated.

In many scenarios, intermediaries and parties in CRE would still like to meet for contractual obligations and assessment of the property. Thus, to make the process efficient, blockchain technology should be implemented correctly, and its usefulness should be able to bring significant value to the CRE sector.