With more than a decade under its belt blockchain still remains for a large segment of people an elusive proposition. This is mostly because, during its relatively short existence, prominent members of the developer community, entrepreneurs, tech evangelists as well as a number of public figures including celebrities have endorsed this technology as a catch-all solution for every ailment or shortcoming present in the business and industry sector.
Isolating the truth from this sea of white noise seems like a daunting undertaking, as a nugget of knowledge about blockchain usually leads to more questions that seek an answer. Even so, current blockchain applications and POC’s demonstrate the technology’s potential to act as an enhanced storage and exchange medium for valuable assets. Besides the obvious financial sector where this technology has already consolidated itself as a disruptive element, blockchain seems poised to make a similar impression on the real estate sector.
Real estate ranks among the largest asset classes in the world, with an estimated global market size of USD 3.2 trillion in 2021, ranking it as one of the most profitable industries. Regardless of this aspect, the real estate industry seems to have resisted so far the pressures of the digital world, still maintaining a connection to the traditional pen and paper approach and outdated record-keeping and business practices. Taking these elements into consideration, the old adage comes to mind “If it ain’t broke, don’t fix it”. Should innovative technology be used to rejuvenate the real estate sector? The answer is a straight forward yes, it is only a matter of time. Throughout its history, real estate has been characterized as an opaque and illiquid investment category, accessible only to a fraction of the population.
Not to be misunderstood, technological advancements have indeed permeated this sector, the problem is that they have been implemented in such a way as to propagate the old status quo. More often than not, real estate data is siloed, shared only with a select few industry actors, inaccessible to other domains which result in a highly fragmented data domain.
Current developments in the real estate sector showcase a distancing from the classical paradigm to a more dynamic and flexible model characterized by short-lived rentals such as flex-offices (co-working spaces that try to avoid some of the burdens and financial pressures that come with traditional office space), pop-up stores opened by retailers that aim to answer a seasonal, short-lived demand, and co-living spaces.
All these examples represent a series of relatively new trends and needs projected by people in an industry that so far has signaled that it isn’t adequately prepared to adapt to the new circumstances. As such, commercial real estate and leasing transactions need to be able to accommodate lower values but at a much higher output. A major pain point encountered in this direction is the explosion in administrative complexity that further burdens a system plagued by bureaucratic friction. Real estate ownership is also changing.
Historically speaking it was common for a property to remain in the family, so to speak, for generations before changing hands. Now in our increasingly globalized world, ownership trends have shifted towards multiple, short-lived and international ownership of a real estate asset. The first conclusion that can be drawn is that as a whole, the real estate industry is incompatible with a wide range of new demands. Luckily, blockchain technology can be used to overhaul the real estate sector, updating it to a version compatible with the fast-paced digital twenty-first century.
Real estate industry pain points and how blockchain addresses them
The need for trust
Real estate leasing, purchase and transactions take place between entities that do not know or trust each other, as such due diligence becomes an essential prerequisite before engaging in the aforementioned processes. As you already can imagine, due diligence is a time-consuming process that further adds significant costs to an already expensive transaction process. Blockchain acts as an enhanced record-keeping mechanism that offers unparalleled levels of transparency and visibility to data, making it easily verifiable by every party involved in the process. Also, a real estate system complemented by a blockchain-based digital identity solution can substantially enhance the trust dimension, which will remove the time necessary for due diligence and the costs associated with it.
Siloed and fragmented data
Property related data is of vital importance for the real estate industry, the problem is that most real estate actors and stakeholders collect and store data in isolated database systems that are accessible only to a limited number of partners. This creates a highly fragmented real estate data landscape that offers an inaccurate image of real estate assets and properties.
Due to its decentralized and distributed nature, blockchain acts as a tamper-proof shared data storage environment that compiles data, documents and any other valuable real estate information from various real estate stakeholders and agencies to create a comprehensive and accurate data system.
Lack of cooperation on data
Real estate is a multifaceted industry that involves a diverse number of participants such as owners, tenants, operators, lenders, investors and service providers, each of them contributing their own set of information to the ecosystem. Besides creating a common shared database, blockchain enables every participant to access and add a variety of information which further enriches the real estate data ecosystem.
Intermediary based industry
Brokers, lawyers, banks, escrow companies are only a few examples of intermediaries that are involved in real estate transactions. It’s undeniable that each of these parties performs a set of processes without which the real estate apparatus would come to a standstill. For decades their services have been essential, but the fact of the matter is that they also significantly slow down real estate transactions, adding a layer of complexity and snowballing costs. The remnants of an outdated and inefficient system, intermediaries may soon become a thing of the past. A blockchain-based platform offers the opportunity for disintermediation through the enhanced security and transparency in title management and auto-confirmation by government land registries.
Through the use of smart contracts, blockchain-backed real estate platforms can have inbuilt functionalities such as listing, payment and documentation. Cutting out the middleman will place buyers and sellers in an advantageous position as they will no longer be required to pay commissions and fees for intermediary services. Also, real estate transactions will become faster, because the back-and-forth hassle between intermediaries will no longer be necessary.
Real estate transactions are subjected to numerous checks and verification before being authorized as well as a series of conditional clauses like loan approvals or title clearances. By utilizing smart contracts, a blockchain-based real estate platform can transcribe the logical flow of real estate transactions into code which will integrate a layer of automation to streamline the whole process and significantly reduce waiting times.
Throughout history, the real estate industry has been an investment choice available for the select few who could afford the necessary capital. By enabling the tokenization of real estate assets, blockchain technology can lower the barrier to real estate investing and enable fractional ownership. Real estate investments traditionally require large upfront payments, but a blockchain real estate platform can allow aspiring investors to pool their resources and purchase an asset or a fraction of an asset that would otherwise be inaccessible. Besides fractional ownership, the tokenization of real estate assets also addresses the liquidity issue of real estate assets. If a property is split into 1000 tokens, it automatically becomes accessible to a larger pool of investors, because the upfront costs are significantly lowered. Furthermore, investors can easily buy shares in a particular property and sell or trade them faster than a conventional real estate transaction.
Modex Blockchain Database, an offering that helps reimagine the real estate sector
Blockchain presents itself as an interesting value proposition for the real estate sector, as it can act as a supporting framework for a myriad of real estate applications and solutions. Of course, this technology does come with its own set of challenges concerning implementation. By itself, despite its considerable disruptive potential, blockchain can do little to help an industry that is already slow to embrace the innovation brought by the wave of digitalization. This was the conclusion drawn by the minds behind Modex. Their solution?
To combine blockchain with a technology that is already deeply ingrained in every business and industry sector, a database system to create a hybrid software product that makes blockchain easy to use in existing systems, to streamline operations and data security, or to build an entirely new infrastructure from the ground up that has this innovative technology working in the background.
Modex BCDB is a middleware software solution that combines the functionality and familiarity of traditional database systems with blockchain, a technology designed to deliver a slew of disruptive features such as data integrity, immutability, traceability, distribution and decentralization that can help companies rethink the real estate sector. Bundled as an Infrastructure as a Service offering, Modex BCDB is devised to act as a building block that companies can use to build an infrastructure tailored to their specific business requirements. What makes the Modex technological layer stand out is the fact that it incorporates a blockchain component that unlocks a series of powerful features and functionalities without requiring any prior knowledge of blockchain development.
Available on the Microsoft Azure Marketplace, Modex BCDB can be easily deployed in cloud environments as well as on on-prem infrastructures. With a modular and agnostic approach to its two core components, the database engine and blockchain framework, companies can utilize what blockchain and what database is best suited to answer their data-related needs. Organizations can use the Blockchain Database solution to build a new infrastructure for their business or complement their existing IT framework to unlock a slew of data security benefits.
Opportunities unlocked by Modex BCDB in the real estate sector
Enhanced property search processes
Currently, commercial real estate brokers, owners, sellers, prospecting buyers and in some cases even tenants rely on multiple listing services (MLS) to store and access property related information like location, rental rates, capital value, and other property features. A MLS is one of the most commonly used real estate property search tools that acts as a database created by brokers to centralize property-related data.
MLS platforms are subscription-based, imposing users a high access fee. The problem with these types of platforms is that they lack a common standard and the information stored is completely dependent on the preferences of the brokers. Paired together with the fact that MLS platforms do not communicate with each other creates a highly fragmented real estate data landscape that is dotted with inaccurate, dated or incomplete information. All these factors come together to create an inefficient property search mechanism that generates frequent delays in real estate decision making, due to the questionable quality of the information available.
Modex BCDB can be leveraged to build a blockchain-backed MLS system that stores property listing information in a single decentralized, database system that is distributed across a peer to peer network. This blockchain enhanced MLS would give brokers more control and transparency over their data. More importantly, Modex BCDB will significantly stimulate trust in the information as well as traceability, offering users a complete historical view of a property’s history, ownership, rental rates, capital value, maintenance details, tenant details, the age of the building as well as a myriad of other useful information.
As an append-only structure, once information is introduced in a blockchain-backed system, it cannot be altered or removed from the system, as opposed to a traditional database system. This means that a MLS system that uses Modex BCDB as one of its building blocks provides on-demand access to the history of a property. An important aspect that needs to be highlighted is the fact that Modex BCDB is an IaaS offering which means that Modex employees cannot access, control or alter the information introduced by the users of the newly created platform, as opposed to BaaS or SaaS offerings.
Streamlined due diligence and financial evaluation
Real estate transactions and purchases are preceded by a lengthy period of time necessary to perform due diligence and financial verification, processes that are predominantly paper-driven as they require the use of physical documents for proof of identity. The issue is that the aforementioned documents are usually stored in siloed data systems for processing that offer very little in terms of flexibility and customization.
Documents necessary for real estate asset due diligence can range from certificates that showcase ownership history, occupancy, tenants, as well as repair invoices and other documents that keep track of maintenance activities. Because most of these verification processes are performed manually administrative friction points and information mismanagement due to human errors become a common occurrence. Moreover, due diligence requires the services of third-party service providers that add another layer of complexity that further extends the time necessary for the process to conclude as well as the associated costs. The operation is further complicated if the buyer is supported financially by an outside entity because all the documentation needs to be duplicated both for the buyer and lender.
The advent of digitalization has ushered in numerous innovative concepts such as digital identity. Modex BCDB can be used as a foundation by real estate companies to build a digital identity platform for real estate assets that would help real estate transactions fall in line with the new digital paradigm. A blockchain-based digital identity for land and other properties would require a unique identifier for each asset, as well as an extensive portfolio of information regarding ownership history, occupancy, tenants, as well as repair invoices and other documents that keep track of maintenance activities. Making all this information available on a platform built on top of the Modex BCDB solution will unlock new levels of transparency and traceability to the documentation necessary for due diligence processes. Because the information will reside in a tamper-resistant blockchain ecosystem, the parties involved receive guarantees that the data introduced in the system accurately depicts the state of the real estate asset. As information is readily available for every party involved in the transaction, costly and time-consuming third-party verification services will no longer be required.
As previously observed, property-related data is scattered in siloed MLS systems that lack a common standard, making it difficult to collaborate and share data. The absence of interoperability means that many MLS systems store redundant, duplicate, inconsistent, outdated and sometimes incomplete information that has a negative impact on decision-making processes.
Modex BCDB can help create an open, shared platform that enables collaboration between multiple real estate actors. A common standardized platform ensures that only quality data is introduced in the system. Also due to blockchain’s near-real-time replication, new information becomes readily available to every participant, meaning that recorded data accurately reflects the current state of the property and the market in general. Real-time data analysis facilitates smart decision making, timely fraud detection, improves compliance and pattern predictions.
Transparent and secure property title management
Paper-based property titles paired together with legacy title recording systems creates a series of authenticity concerns regarding mortgage and title documents, while also raising a series of red flags concerning the accuracy of any additional information attached to the title. In Blockchain in commercial real estate. The future is here!, Deloitte underlines that in 25% of real estate transactions, title professionals need to address title defects that have the potential to impact the buyer’s ownership. This means property owners often incur high legal fees to ensure the authenticity and accuracy of their property titles. Deloitte also points that according to certain estimates, title fraud resolutions spending peaks around USD 1 billion annually. In an attempt to bypass some of these challenges, buyers often take out title insurances which adds to the overall property cost, while also slowing down the whole transaction process with additional paperwork and middlemen.
The blockchain component of Modex BCDB helps bypass many of the aforementioned issues. Creating a digital identity platform for properties and other real estate assets can strengthen the security of real estate data, making it more resistant to fraud attempts. This is mainly due to blockchain’s tamper-resistant nature and high levels of availability and transparency it provides to data. Property information introduced in a Modex BCDB backed system is available to every party involved in the transaction process.
This makes the whole operation highly auditable because anyone can analyze the data, but more importantly, no alterations are permitted by the system, so any fraud attempts are immediately detected and rejected. As an additional layer of protection, Modex BCDB comes with an inbuilt data encryption mechanism that facilitates custom encryption at the field level to protect sensitive data or personally identifiable data. Modex BCDB offers real estate companies the opportunity to reimagine property title management by providing increased security and transparency through immutable records of titles, and faster title transfers due to streamlined fraud verification processes.
It becomes evident that in order to meet the increasing demands of a digitized society, the real estate industry will soon be forced to renounce its legacy systems and mechanisms to embrace a more innovative alternative. Blockchain has demonstrated that it holds the potential to initiate a set of transformative changes in the real estate sector that can benefit not only real estate players, but also people who wish to buy or sell, by making the process more affordable, secure, transparent, efficient and inclusive. Modex BCDB is readily available to fulfil all your blockchain-related infrastructure needs.