- In its study, Deloitte explains how blockchain-based smart contracts can simplify several intermediary processes in executing a transaction.
- Besides, blockchain can also help reduce costs while building trust among the transacting parties.
There have been several debates going on around the use of blockchain technology across multiple industries. Blockchain presents a strong use case in real estate due to its inherent features of strong immutability and transparency.
As per the recent study by consulting giant Deloitte, blockchain is a perfect fit for real estate use cases around leasing and selling. Blockchain outdoes other traditional systems by providing a real-time trust environment along with digitizing information. The Big Four consulting giant cites six such opportunities for blockchain to disrupt the commercial real estate industry.
It also explains the process of improving leasing and purchase as well as the sale process by using blockchain technology. Deloitte explained that the inherent qualities of the blockchain network offer cheaper means of managing the property ownership history. It also enables the efficient processing of financing and payments.
1. Improving the property search process
Blockchain technology can provide a transparent multiple-listing service (MLS) system enabling all parties to view available listings depending on their requirements. The use of blockchain technology provides additional security for all parties involved in the process.
2. Pre-lease due diligence using smart identities
Blockchain will help to easily identify the digital identities of individuals and assets. Thus, the lessor shall be easily able to conduct the background check of the lessee. Similarly, the lesser gets to know the prior transactions and liens of the property. This helps in establishing greater trust between the two transacting parties.
3. Ease leasing and subsequent property and cash flow management
The study also shows that blockchain is now capable to take over more than 50 percent of the leasing and sale processes. Deloitte also explains the ease of creating lease agreements using smart contracts. This would of course exclude steps that require physical intervention such as loan negotiations and property inspections. The Deloitte report stated:
Blockchain seems to be most applicable to dynamically configurable or co-sharing spaces, which have a relatively higher number of tenants and shorter duration leases.
4. Enable smarter decision-making
Since blockchain maintains the highest levels of transparency, it also facilitates smarter decision marking for the lessor as well as the lessee. It helps to break down the barrier to trust while ensuring a smooth transaction between the two parties. The report notes:
Blockchain technology can be the connective tissue between technology systems of CRE companies and other participants in a leasing transaction by providing a more open and shared database for all involved parties. This would enhance data quality and also enable real-time recording and retrieval.
5. Transparent and relatively cheaper property title management
Legacy title recording systems have disadvantages like concerns with mortgage authenticity and title documents. There are also concerns with the accuracy of recorded liens and information attached to title documents.
This brings an added cost for buyers to take insurance for purchase and sale transactions. On the other hand, a blockchain-based digital identity of the property will include e its history, location, and title details.
The stakeholders in the transaction can rely on this data as any changes on the blockchain would happen through a consensus across several nodes. The encrypted and tamper-proof nature of blockchain also makes it difficult to commit fraud related to liens, easements, air and subsurface rights, titles, or transfers.
6. Enable more efficient processing of financing and payments
Due to the involvement of multiple channel partners, payments and money transfers are quite expensive and time-consuming in a property transaction. In its study, Deloitte explains:
Blockchain-enabled digital identities and smart contracts can potentially reduce inefficiencies and increase transparency in the financing and payments processes. To begin, blockchain can simplify the financing process during the loan application, documentation, due diligence, and servicing stages.
The digital identity of a property would reduce both due diligence and loan documentation time, and perhaps even data integrity concerns. Then, the borrower and lender can execute a smart contract-based25 loan document. The smart loan contract would be accessible to all involved legal parties.