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Bilockchan Real Estate
Blockchain real estate. Several industries have recently discovered the large amount of positive utility blockchain technology has in its space. One of those industries happens to be the real estate industry. Real estate remains the largest asset class in the world. According to Fortune, London-based real estate consultant Savills recorded the value of all global properties, including commercial and residential properties and forest and agricultural land. According to his calculations, the total global valuation of real estate reaches a total of $ 217 billion, and residential properties represent approximately 75% of the total value.
Note: These figures were calculated on January 26, 2016.
Yolande Barnes, head of global Savills research, said: "To give context to this figure, the total value of all the gold extracted is approximately US $ 6 billion. This sum pales in comparison to the total value of the property developed by a factor of 36 to 1. "
There was a critical conclusion that Savills pulled from his study. As Barnes puts it, "Real estate is the pre-eminent asset class that will be most affected by global monetary conditions and investment activity and which, in turn, has the power to impact national and international economies." The state has played and will continue to play a huge role in the global economy.
However, as with most traditional businesses, some problems are seriously affecting the real estate industry. Let's see some of these pain points.
The biggest problems with the traditional real estate industry
# 1 Not open to all
Real estate has long been the investment option of the rich. Very few assets manage to provide the same degree of passive income and revaluation of capital. The problem is that the barrier to enter the real estate market has always been extremely high. These barriers can be citizenship, international bank accounts, credit scoring, financing, cash requirements, accreditation and having access to the appropriate sponsors and fund managers.
If you plan to invest in another country, you must make at least one international trip and visit the property. You will have to spend a lot of time and go through several intermediaries to invest in the property of your choice.
# 2 Serious lack of transparency
The Panama Papers controversy showed us the depth of corruption and dishonesty in the real estate business. A greater degree of transparency can combat corruption, tax evasion and money laundering. According to the United Nations, $ 800 billion - $ 2 billion dollars are laundered globally each year. A significant amount of it is washed through real estate. The United Nations Office on Drugs and Crime estimated that this figure is in the region of $ 1.6 billion in a single year.
To understand why this is a big problem, think about this: according to Global Financial Integrity, almost 80% of the estimated $ 1 billion left to developing countries in these illicit financial flows, could be taxed to provide income for the public spending on global challenges such as infrastructure and climate change.
# 3 High fees
If you are investing in international real estate, these are some of the fees you will have to pay: exchange fees, transfer fees, broker fees, attorneys' fees, taxes, investment fees, etc. Due to the total number of intermediaries involved, foreign real estate investment can be an expensive process. Also, keep in mind that you should also consult lawyers and accountants to make sure that your tax returns are in order.
# 4 lack of liquidity
Now we come to one of the most important problems with real estate. They are notoriously difficult to liquidate. Liquidity is defined as the speed with which an asset or investment can be converted into cash. The reasons why real estate is not as liquid as cryptographic are because:
Cryptocurrencies can be included in a public exchange and sold quickly during open hours.
The number of buyers for cryptography is much more than for real estate. The liquidity of an asset is directly proportional to the offer of the buyers. The problem with real estate buyers are:
First of all, the barrier to entry is very high when it comes to real estate.
They do not seek to buy any property that is far from where they live (except in the case of international real estate).
Real estate transactions have many third parties involved, so transactions are stuck by tariffs and regulations. This discourages potential buyers.
Even if you find some buyers, you will be locked into a lengthy transaction process, and there are many chances that it will end in failure. # 5 Price Commitments
Investment in real estate requires a lot of capital in advance. Most of the time, investors have to look for costly alternative financing methods. Also, when it comes to international real estate, having an excellent credit rating in your home country will not be transferred to the country in which you want to invest.
Transaction speed # 6
As we have mentioned several times, real estate transactions can be extremely slow According to the International Survey of International Consumer Travel of Juwai, 56% of Chinese investors spend more than a year finding their ideal investment property in the USA UU In general, it can take six months to find a property and another six months to complete all the necessary procedures to acquire it.
Taking all these factors into account, you can see why the real estate industry is paramount to the interruption. This is where the chain of blocks comes in.
Blockchain Real Estate
A blockchain is, in the simplest of terms, a series of immutable data records and sealed in time that are managed by a group of computers that are not owned by a single entity. Each of these data blocks (ie, block) is secured and linked together using cryptographic principles (ie, string).
The three main properties of the blockchain are:
Decentralization: all data that is stored within a chain of blocks is not owned by a single entity.
Transparency: all the data that is stored within the chain of blocks can be seen by all those who are part of the network. Each individual data can be traced back to its origin.
Immutable: all the data found within the chain of blocks can not be manipulated due to the cryptographic encryption functions. The blockchain introduces several utilities in the real estate ecosystem, among which are:
Smart contracts
TokenizationContracts
smart Smart contracts are automated contracts. They are self-executable with specific instructions written in their code that are executed when certain conditions are met. Intelligent contracts are a series of instructions, written using the programming language "solidity", which works using IFTTT logic, also known as IF-THIS-THEN-THAT logic. If the first set of instructions is finished, execute the next function and then the next one and continue repeating until you reach the end of the contract.
The best way to understand it is by imagining a vending machine. Each step you take acts as a trigger for the next step to be executed. The most important part of this complete interaction is that you (the buyer) are contacting directly with the vending machine (the provider). At no time are you dealing with a merchant (an intermediary).
Also, remember that smart contracts are created in a chain of blocks, which makes contracts immutable and transparent (unless privacy features are used). Let's review the main benefits that smart contracts can offer.
Benefits of smart contracts
The most obvious benefit is that it will eliminate all intermediaries. Imagine how much money you can save by eliminating all brokers, banks and lawyers. With them without charging your standard cuts of 2-5%, you will be saving a small fortune.
Smart contracts will also significantly accelerate real estate transactions. As we mentioned before, real estate transactions can take months, and this is mainly due to the large amount of bureaucracy, intermediaries and lack of transparency that must go through. Government regulations, however, will eliminate intermediaries, as mentioned above. In addition, all the various data related to the property can be saved as a hash file within the block chain. If you are interested in knowing more about a particular property, you can exploit the transparency of the block chain to track all the information you need. Imagine how much time you will save compared to the more traditional approach of the average man.
Finally, smart contracts can protect owners from property fraud. It is possible to link the digital property of your property, documents and contracts directly to the block chain. Once inside the chain of blocks, it is impossible to manipulate or alter it. The governments of Andhra Pradesh and Telangana in India are using blockchain technology to fight against property fraud. We have covered this in detail here.
Tokenization
According to Wikipedia, "Tokenization, when applied to data security, is the process of replacing a sensitive data element with a non-sensitive equivalent, called a token, which has no extrinsic or exploitable meaning or value. The token is a reference (that is, an identifier) that is assigned back to the confidential data through a tokenization system. "
In simple terms, a token is a digital representation of an asset, value or function of the real world. One of the most exciting use cases of blockchain technology is that it helps the tokenization of real-world assets. This tokenization will not only increase the liquidity of traditionally illiquid assets, but will also make it possible to trade those assets without a third party. Think about it, instead of buying a property, you are buying simple tokens from an exchange.
Does this seem a little exaggerated? Well, according to the World Economic Forum, in the next ten years, 10% of world GDP will be stored in cryptographic assets. That's worth $ 10 billion in assets stored as chips.
A deeper insight into the tokens
Tokens in the blockchain space are generally classified into three categories:
Payment currencies: These are the "cryptocurrencies" with which we are all familiar. Bitcoin, Litecoin, Ethereum, etc. They can be used as currency both inside and outside of your platform.
Utility tokens: tokens that fulfill a particular utility or function on their platforms are called utility tokens. Utility tokens can give right holders the right to use the network and / or take advantage of the network by voting within the ecosystem. The Golem GNT is an example of a utility token.
Security Tokens: A token that derives its values from a negotiable external asset is called a security token. These are subject to federal values and regulations. This is the category that will be used to tokenize real estate.
Fractional ownership through tokenization
One of the most interesting results of tokenization is fractional ownership. This is especially interesting when it comes to expensive assets such as real estate. Instead of a person owning a property, it is possible for several people to buy chips from the property and be co-owners of the building.
To understand how this will work, let's take a hypothetical example.
An average beach house in Malibu costs ~ $ 650,000, which is out of budget for most people. However, suppose the seller tokenizes the house. After that, five people for every $ 130,000 of these tokens each and jointly own the home. When the transaction is completed, these five enter into a multiple signature smart contract based on home ownership.
An intelligent multi-signature contract will ensure that any decision made regarding the house is agreed upon by the majority of owners. Since the contract is automatically enforceable and executable, it will not require any supervision and will force co-owners to be honest.
Advantages of real estate tokenization.
Fractional ownership decreases barriers to entry by an astonishing amount. Real estate no longer needs to be the playground for the rich. Instead of saving and taking loans to buy an expensive asset, you can simply buy a fifth of that asset. An intelligent multi-signature contract will ensure that joint owners adhere to honest behavior.
Tokenization increases liquidity by a considerable margin. Instead of waiting forever to sell your property, you can go to an exchange and liquidate your tokens.
It allows a greater portfolio diversification and risk reduction. Instead of keeping all your money in one property, you can use the same money to buy fractions in several properties.
How will Blockchain Real Estate change?
The blockchain technology will allow the democratization of real estate. It will open the doors for potential investors around the world to prove their investment in real estate. If executed correctly, this can also be enormously beneficial to the encryption space, since it will increase the real-life utility of the tokens. The terrifying part is that we just scratched the surface of what could be possible through the union of blockchain and real estate. Hopefully, we'll soon see more exciting use cases.
Road map
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