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Cryptocurrency appeared in the residential real estate market only a decade ago, but it has already changed a lot for both buyers and sellers. It isn’t surprising to learn about Bitcoin home sales, though a majority of such sellers accept crypto and later convert it to traditional dollars.
In the modern real estate world, crypto performs a role of leverage mainly. Lenders, including Propy, use it as collateral for loans, no matter whether it is residential or commercial property. Therefore, buyers don’t need to exchange the cryptocurrency they have if they want to buy property. These people are more likely to save their crypto since it grows much faster than the state housing market.
Blockchain VS Commercial Real Estate
All this has resulted in changes in the commercial real estate market since investors have received an opportunity to buy properties using cryptocurrency, too. However, they should remember one important thing: crypto lives in the blockchain, and the commercial real estate market is adopting it at a rather slow pace, unfortunately!
According to Tony Giordano, the Opulent Agency Founder, commercial real estate is on the verge of embracing blockchain at the moment. Being a luxury broker and a crypto pioneer, he educated other brokers on how to use crypto for buying and selling properties via video conferences and social media posts. At the moment, he is researching how the blockchain has influenced the commercial sector and what changes investors and sellers can expect in the future because of that. He predicts that the entire real estate industry will be transferred to blockchain in the next 10 years due to its security and high-tech characteristics.
Giordano compares blockchain to a huge virtual cabinet that stores files with billions of records in absolute security. These might be very different records of crypto transactions, mortgage bonds, deeds, titles, etc.
How Blockchain Is Transforming The Commercial Real Estate
The analysis of the Deloitte report has shown how blockchain technology is changing the commercial real estate market. Until recent times, blockchain has been associated only with Bitcoin and several other popular cryptocurrencies. However, the introduction of blockchain technology in many other industries has also led to the understanding that smart contracts stored in the blockchain can be very useful in the commercial real estate sphere, too. They have the power to transform core property operations connected with purchases, sales, leasing, management, and financing. Experts predict that blockchain’s impact will only increase not only on the real estate market but also in many other spheres, such as utility bill payment, data-driven city management, etc.
When it comes to the use of blockchain for commercial deals, the most popular approach is tokenization. According to this process, commercial real estate asset ownership rights are converted into a digital token, which supports fractional ownership and makes share trading easier. At the moment, the American people don’t have an opportunity to invest in tokenized real estate, but this option is already available for international investors.
One more report emphasizes that technology might increase the economic activity of the real estate sphere greatly and lead to the expansion of an investor base and product offerings. The Deloitte Center for Financial Services predicts that over $4 trillion of real estate is going to be tokenized by 2035.
One more use case for blockchain in the real estate business is financing. For example, it is worth mentioning a blockchain platform used for creating transferable mortgage bonds for different types of properties. This AI-driven tool serves as an assistant for finance companies which transfer loans with their actual interest rates between different properties. It means that you can turn to any bank and transfer the mortgage and interest rate to any other property at the click of a button.
This software works in the following way: AI runs a risk analysis of the new real estate for the bank to ensure that the property purchased for the existing interest rate is worth it. It also prevents an owner from paying the prepayment penalty characteristic of commercial real estate.
Benefits Blockchain Technology Can Provide
If you don’t understand whether blockchain can be helpful in your business, it is important to identify your goals and needs, consider the processes and desires, as well as find out possible pain points. The real estate business has many important processes that require transparency, order, and reliability, and blockchain can provide all those and many other benefits.
- Immutable records and focus on truth and security. Blockchain offers a clear real estate ownership history, information on leases, transactions, and many other important aspects which don’t arouse any disputes or suspicions. It also verifies all the buyers and sellers carefully.
- More affordable transactions. Smart contracts allow automating payments and saving on their processing, since you can avoid ordering many extra services of lawyers, brokers, etc.
- Tokenization. You can transform any property into digital shares and get access to the global trading market even if you are a small investor.
- Improved financing. Ease of on-chain data verification, fast risk assessment opportunities, and access to De-Fi style lending.
- Automatization. Smart contracts take a good deal of responsibilities used to be performed by people and minimizes potential errors.
- Elimination of borders. Commercial real estate is getting more accessible for foreign investors and removes obstacles connected with currency exchange, international verification, and more.
It goes without saying that blockchain offers a range of significant advantages to real estate professionals and investors, but it is important to be aware of the possible challenges it might result in, too.
Challenges Of Incorporating Blockchain Technology Into Commercial Real Estate
The value of blockchain for commercial real estate is underestimated, but not every professional is also ready to overcome the potential challenges they are likely to face on their way when this technology is incorporated.
- Lack of legal and regulatory certainty. Since property laws were developed not for blockchain, and registries are controlled by the government, smart contracts aren’t recognized as legal in some countries. There is no clear regulation of the tokenized real estate, and international deals face lots of regulatory complexities.
- Necessity to use extra tools. Existing commercial real estate systems haven’t been meant for blockchain. There is also a need for APIs and middleware, too.
- Minimum adoption. Unfortunately, many real estate professionals don’t trust blockchain and avoid it, undertaking only conservative methods.
- Data and privacy risks. Blockchain isn’t the best option for sensitive lease or tenant data, while smart contracts may have bugs, and people may lose private keys, which provide access to the platform.
- Volatility. Crypto price changes may result in serious risks when it comes to property purchases.
- No governance and dispute resolution. Technology can’t solve some problems without human interference.
It is important to remember that the real estate sphere depends a lot on laws, trust, and discretion, while blockchain, powered by code and automation, lacks these features. Therefore, the commercial real estate sphere may utilize blockchain’s benefits actively, but only if they don’t add problems in the future.
