Have you ever heard of the concept of blockchain in real estate before? Interestingly, the concept of blockchain existed before Bitcoin was created by Satoshi Nakamoto in 2009. The world-famous Bitcoin white paper gave the first workable implementation thereof. In this blog, we will describe the term blockchain in real estate industry and how it is helping the industry thrive.
Blockchain in Real Estate
Real estate is the largest asset class in the world. Interestingly, real estate professionals and commercial enterprises are recognising the transformative impact of blockchain technology to optimise commercial and retail property sales. It streamlines payments and increases access to investment opportunities and real estate funds. Many people ask what blockchain technology is. Well, it is a shared, immutable ledger that facilitates the process of tracking assets and recording transactions in a business network.
If we talk about blockchain technology, then it is a technology that enables the secure sharing of information in a respective business. Now, how is blockchain technology related to and used in the real estate industry? Let’s find out.
Commercial real estate covers a good portion of world economic assets and transaction activity. The real estate market is thriving and continues to grow. The real estate market in Pakistan is projected to grow at a value of US$2.08tn in 2025.
How Blockchain Benefit Real Estate
Today’s real estate market consists of many independent and siloed networks with opacity and transactional friction between existing systems. The Ethereum blockchain aims to provide solutions for these industry benefits.
- Tokenization of real estate assets
- Reduced costs from process automation
- Process efficiency for underlying real estate operations
- Access to global asset distribution
- Access to secondary market opportunities
- Data accessibility to enhance transparency and make informed decisions
- Access to broader investor pools due to ownership fraction
Ethereum benefits the industry through the digital scrutinisation of real estate properties, which is known as tokenization. Digital assets can represent real-world assets like real estate funds, governance rights revenue streams and more. Once these assets are tokenised, they can be divided into more granular pieces, attracting investors and leveraged to raise capital.
Once it is tokenised, the programmable Ethereum blockchain enables the compliant and secure digitisation of the transactions and processes around the valuable assets, including trading, issuance and lifecycle management.
Moreover, real estate developers‘ advice, experience and knowledge will remain important to commercial buyers. However, the process of liability, securities, management, document processing and accounts will innovate.
Blockchain in real estate transforms the sector with these use cases:
- Asset Management and Funds
- Loan and Mortgage Securitization
- Project Financing
- Property Management
- Urban Planning
- Land and property registries
- Sales and reassignment
- Investor and Tenant Identity
- Real-Time Accounting
- Payments and Leasing
- Property Development and Construction
Impact of Tokenisation on Real Estate
Tokenisation refers to the digitisation of securities, financial instruments, and alternative assets. With Ethereum blockchain technology, digital assets can be programmed to include the transaction history, ownership rights, and the rules to ensure asset issuance, transfers and distribution are regulation compliant. Simple examples include controls to ensure that tokens can only be transferred to meet all kinds of issuer requirements.
Tokenisation increases the speed of issuing, creating and exchanging assets and reduces the cost. With this, we can customise and do rapid issuance, which allows issuers to tailor digital assets directly according to reducing counterparty risks and investor demands.
Reduced costs help issuers to decrease minimum investment amounts and expand access to investors. Connectivity between digital assets and networks expands and creates market opportunities. These benefits to both investors and issuers show real promise of a brighter future for blockchain in real estate.
Impact of Blockchain on Alternative Financing for Real Estate
Raising finance for any new real estate property project is tough. Property development firms face higher interest rates when working with banking institutions as single-source loan providers. They also face challenges with multiple loan sources, as financing can be tough for the administrator.
Luckily, Blockchain access to alternative financing models by facilitating investor management for real estate professionals. Blockchain ensures investment transparency and return on investment tracking for investors. This can also be programmed for global distribution. These solutions simplify the investor experience, unlock access to wider investments and increase the confidence of investors.
Blockchain Impact on Property Management
Firms that handle large-scale property management endure oversight of their global portfolios. Blockchain helps to secure data sharing and streamlines rental collections and payments to the owners of properties. Also, it provides premium due diligence across the portfolio. This increases the efficiency of the operations and allows for cost savings. Blockchain technology generates richer data to facilitate better decision-making.
Real Estate Tokenisation Market Size
As per the current market research, the global real estate tokenisation market is expected to record a CAGR of 21% from 2024 to 2033. In 2024, the market size was projected to reach a valuation of USD 3.5 billion. By 2033, the valuation is expected to reach USD 19.4 billion.
The process of digitising real estate assets and representing ownership rights as tokens on a blockchain. This allows the investors to purchase the fractional shares of real estate assets and trade them as well. It offers cost savings, efficiency, transparency and estate traction, attracting investors and driving growth in the market.
Blockchain Impact on Leasing and Payments
Distributed ledger technology allows leases to be signed and paid on-chain. This removes the need for manual reconciliations and automates dividends and rental payments to property owners. Smart contracts can also automate other types of payments and fees to incentivise good behaviour from landlords, tenants and service providers.
Lately,
It has become difficult to manage with fractured subcontracting and procurement practices. A blockchain platform can smoothen procurement with reputation management for subcontractors and suppliers. Smart contracts can automate contract agreements and payment terms to simplify financial management. Blockchain technology in real estate will take over in the future as all the developer companies will use it frequently.
