How Blockchain Can Impact the US$228 Trillion Global Real Estate Market

The real estate industry is in need of an upgrade globally to provide greater transparency , more efficiency and greater security. The key to this is blockchain technology, it can unlock extreme value in the real estate industry by providing a secure, transparent, immutable and tamper-proof ledger for all real estate transactions such as land, commercial, industrial, agricultural or residential. This can streamline the process of buying and selling property, reduce the need for intermediaries, and increase efficiency and speed of transactions.

Integrating such systems with government controlled digital land registry systems provides much more transparency and protection for the general public while reducing the legal cost associated with closing a real estate transaction anywhere in the world.

There are perceived limitations currently as far as the adoption of blockchain technology in the real estate industry but I would like to address these points and give my view of the solutions that may be helpful to major players in the real estate industry.

Lets start with complexity, this is what is heard often from real estate professionals, blockchain is too complicated and it’s too difficult to understand and implement. This couldn’t be further from the truth, blockchain in essence would work on the backend and as long as the frontend is simple then it would not change much of the frontend. Basically simplicity will increase the adoption of blockchain technology in the real estate industry across all areas. The simpler any technology is to use, the more industries will adopt it, the simpler it makes it for the general public the more it will be embraced. Too many blockchain developers refuse to crossover what exist now with blockchain and if blockchain technology is perceived as too complex or difficult to understand then the adoption will be very slow if not impossible to take place in any industry.

Simplifying the end user experience is key and it will solve the perception that blockchain technology is too difficult, it will break down these invisible barriers to mass adoption, such as the difficulty of understanding how the technology works, or the need for technical expertise to use it. So providing a user friendly interface without all the techie confusion, well that will be the gamechanger, this is something that MegaHoot Technologies is doing.

Next is regulation, the reality is that as much as the securities industry is regulated so is the real estate industry and for good reason. It prevents fraud and protects the general public from bad actors. Since the real estate industry is heavily regulated, it is perceived that there may be legal barriers to the widespread adoption of blockchain technology.

Nothing can be further from the truth, blockchain technology can actually work hand in hand with regulators to prevent fraud at the highest levels. Regulation can actually increase the adoption of blockchain technology in the real estate industry, it can provide clarity and certainty to the industry, and help to address some of the legal and regulatory challenges associated with the use of blockchain technology.

As long as clear guidelines are established for the use of blockchain in real estate transactions, regulators will, not can but will, mitigate the risk of fraud, ensure that transactions are conducted in a secure and transparent manner, and provide greater protection for the general public. This can increase confidence in the underlying technology, help to drive its widespread adoption and in the real estate industry it will reduce legal expenses. I’m sure real estate attorney’s do not want to hear that one but its true.

Now as with the SEC, CFTC or any regulatory body it is important not to forget that excessive regulation can also have the opposite effect, by slowing down innovation and limiting the ability of the industry to adopt new technologies. A balance must be struck between ensuring the safety and security of transactions, and fostering innovation and growth in the industry.

This point is probably the most challenging and that is interoperability across different layer-1 blockchain systems. There is a lack of standardized protocols for blockchain technology as the technology itself is ever evolving, this can can make it difficult for different layer-1 blockchain systems to work together seamlessly. There are solutions for that which can promote interoperability and increase the adoption of blockchain technology in the real estate industry. The communication across different chains will allow for the user experience to be seamless, kind of like going to a travel website that offers many options, this can be achieve with a solid layer-2 platform that provides Interoperability between various systems. For example Bitcoin, Ethereum, XRP and Pecu Novus are all different layer-1 systems but a secure decentralized bridge may be a resolution.

If layer-1 blockchain systems are interoperable for the real estate industry then it is a path for greater efficiency, ease of use, reduced costs and can be the template for other industries. This can make the technology more attractive to many industries and increase the likelihood of wider adoption. The big issue here is that the development of a secure bridge that can make many chains interoperable can be complex, will require a significant investment of time and resources. In the end it will come to pass as some really smart people are currently working on these issues as I write this.

Now scalability should not be an issue but not all blockchain systems are equal, some systems may not be able to handle the volume that the real estate industry offers, it’s massive. In the real estate industry, blockchain technology has the potential to revolutionize the way property transactions are conducted, but this will only be possible with blockchain systems that are able to scale to meet the needs of the industry. If a blockchain system is not scalable directly such as Bitcoin, it may become slow, congested and expensive, which can reduce its appeal to users and limit its potential for widespread adoption.

However the blockchain systems that have implemented the the use of sharding and off-chain transactions such as Ethereum and Pecu Novus are very scalable. The addition of the Bitcoin Lightning Network for Bitcoin itself may be one interesting solution but that is a layer-2 protocol whereas Ethereum and Pecu Novus are layer-1 systems and scalable by design. Scalability will increase the likelihood of the widespread adoption of blockchain technolgy in the real estate industry.

As with any industry, the old guard will always have a resistance to change, the real estate industry is not different as at it’s core it is a traditional and conservative industry, and there may be resistance to the adoption of new technologies such as blockchain. It is a common challenge that will always be encountered when trying to adopt new technologies, including blockchain technology, in any industry but especially in the real estate industry.

There are a number of things that the blockchain industry as whole can do to increase the adoption of blockchain through education and action. Such as education and awareness, these are key components, so providing education and information about the benefits and potential uses of blockchain technology can help to reduce fear and uncertainty, and increase understanding of the technology.

How about developing pilot projects along with key industry participants, this will help to demonstrate the value and benefits of blockchain technology in a real-world setting. Creating collaborative partnerships with the same key industry participants to promote the adoption of blockchain technology will be a big help in overcoming the resistance to change by leveraging existing networks and relationships.

The value, that should be made abundantly clear, articulating the benefits of blockchain technology properly and highlighting how it can add value to the real estate or any industry can help to persuade hesitant users to adopt the technology. But another key is not forcing the adoption, gradual implementation as opposed to a complete and immediate system overhauls will play a big role in the adoption of blockchain technology across any industry. It will help to mitigate resistance to change by allowing users to adjust to the technology over time. Remember this is a marathon and not a sprint.

Now it’s not simple to predict exactly the dollar value that blockchain technology would be as it relates to the real estate industry as it will depend on a number of factors such as the rate of adoption, the maturity of the technology, and the regulatory environment.

The potential impact that blockchain technology could have on the real estate industry is significant and by streamlining processes, reducing costs, and improving transparency, blockchain technology has the potential to unlock extreme value for the industry. The global real estate market is estimated to be valued at approximately US$228 trillion, and just imagine the potential value that could be unlocked over time via blockchain technology.

It can revolutionize the way that property transactions are conducted, how land registries operate and provide true transparency for the general public. As the technology becomes more widely adopted, the impact will become more substantial and that can lead to unlocking massive value in the real estate industry. Many innovators in the space will reap the rewards of this growth over time.

Louis Velazquez
FGA Partners