Blockchain technology has made its name in the banking sector but has also found its way into the health care world, the music industry and even the U.S. presidential election. And now, it seems it’s building its case for an appearance and use in the real estate sector.
Some experts suggest that blockchain will have a significant impact on the financial verification related to the sales process of properties — namely, because it is most people’s “most local of assets.”
“Ownership of real estate for centuries has been tracked at the local level, and real estate transfers are some of the most complicated and antiquated of any asset type out there,” said Lewis Cohen of Hogan Lovells. “The good news: Real estate is a near-perfect asset class to see efficiencies through deployment of blockchain technology. The other news: It will take years and years to develop common standards with appropriate security to allow ownership interests in real estate to be transferred effectively through a blockchain-based system.”
He added that the rewards for the real economy in terms of efficiency will be enormous.
“The benefit of transferring real estate on a blockchain-based system is dramatically enhanced efficiency,” said Cohen. “The promise of expediting the property transfer system and creating an immutable record of property ownership (which could, in theory, eliminate the need for title insurance as we know it today) is highly enticing.”
There is, however, a caveat here: Any blockchain system used to record the ownership and transfer of real estate must have the very highest level of security and certainty.
“It must be robust enough so that no external hackers or governmental actors from outside of the U.S. can ever interfere with it in any way,” said Cohen. “This can be achieved but will take time to develop and test.”
Matt Shaw at Synechron Business Consulting agreed that there are indeed potential benefits of blockchain being incorporated into real estate, even some benefits yet to be realized — namely, when dealing with mortgages.
“Blockchain has the potential to transform mortgage financing and processing over the next three to five years and to increase transparency for real estate companies into the loan origination process,” said Shaw. “Blockchain can give the lending bank, real estate company, title registry, insurer, credit rating agency or any party involved in the loan origination a single view of the translation on a distributed ledger that allows them all to agree on a single version of the information, automatically generate and execute a smart mortgage contract and make a digital payment and asset exchange to complete the transaction.”
Shaw cited Synechron’s estimates that blockchain could expedite loan settlement and save $177 million on a book of $97.7 billion.
And those blockchain benefits would extend to commercial real estate ventures.
“For commercial real estate companies, having credit rating and identity information mapped to blockchain, such as the DUNS ID number Synechron mapped to blockchain in a pilot earlier this year, would prove incredibly valuable, allowing all parts of the transaction to occur on the chain and to remain digital,” said Shaw.
Cohen agreed that there are many potential applications of blockchain regarding commercial real estate. Specifically, he gave the example of just managing multiple properties and multiple tenants in an efficient manner.
“One of the most obvious is for owners of multifamily properties (apartment houses),” said Cohen. “These companies have to manage thousands of leases with tenants that come and go daily. Moving to a blockchain-based system could certainly reduce costs, with smart contracts doing the work of many administrative personnel.”
So, the next time your business — or even your family — relocates, could blockchain be part of the equation? Perhaps both buyers and sellers may never know.