The arrival of Bitcoin, along with market changes, virus lockdowns, has become one of the most iconic events of the 2020s. But how does a volatile asset itself behave in the most stable market – real estate?

How is blockchain applied in real estate?

Blockchain allows the use of tokens to secure ownership of real estate from owners. Moreover, various forms of fractional ownership of real estate can also be objectively reflected on the blockchain. All tokens can be effectively checked and stored, the transaction history allows you to trace all transactions with this property, which means that all legal risks can be effectively and at minimal cost avoided. The active use of smart contracts allows you to achieve maximum reliability in the conclusion of transactions for the sale and lease of real estate. The necessary balance of interests of the parties, as well as compliance with regulatory requirements, allows for closer integration of the real estate market with financial markets. Most of the legal work of verifying documents or processing mortgage agreements can also be delegated to blockchain technologies.

The dynamics of the market capitalization of real estate tokens confirms the rapid growth in recent months. In particular, CoinTelegraph reports that the monthly capitalization of tokens in the residential and commercial real estate sector reached $194 million in May 2022, while in June 2021 it was only $65 million. An approximately threefold increase in a year indicates an increase in trust in the use of blockchain among buyers, sellers and landlords of real estate. Saving transaction costs and time, as well as minimizing legal and regulatory risks, contribute to the spread of the use of this technology. At the same time, the legal field of a particular state should create the necessary basis for the systematic use of blockchain in this area. For example, Colombia has approved the use of blockchain for land market transactions, and similar reforms in other developing countries could stimulate progress in this area. In the future, the unification of the legislation of different countries can contribute to the creation of a global real estate market with uniform requirements and approaches to the use of blockchain.

Liquidity of blockchain technology in real estate

Although real estate transactions are quite popular, they are generally regarded as conservative and long-term investments. The main reasons are the low liquidity of such investments, transaction costs associated with finding the necessary object or buyer, as well as paperwork and other requirements. Blockchain offers unique opportunities for increasing liquidity and speeding up transactions for buying and selling, renting, leasing, etc. For example, a company that wants to open a branch in another city, but is not ready to purchase an entire building at this stage, can buy tokens that provide ownership or ownership of a specific part of a common property complex (for example, a specific floor or office).

The use of smart contracts allows you to integrate your corporate real estate strategy with other business areas. Thus, a drop in demand for products below a certain level can serve as a signal of the need to change the location of real estate. In this case, the company can sell these tokens and purchase others – in accordance with its new priorities and the situation on the market, and the blockchain will allow these plans to be implemented as soon as possible and as rationally as possible.

Advantages of crypto solutions in the real estate market

In addition to providing liquidity and achieving maximum functionality for users, the following strengths of blockchain technologies in the real estate industry should be noted.

  • Maximum data protection and the ability to reflect various legal requirements. For example, varying degrees of anonymity or pseudonymity can be implemented on a blockchain. Thus, information about the owners of some real estate objects may not be freely available, but all such transactions can be controlled and verified through an audit.
  • Implementation of the principles of separate ownership. Blockchain allows the issuance of any reasonable number of tokens as a reflection of ownership of a property. Thus, the owners of such tokens can successfully perform various operations with them, including buying / selling, providing collateral, etc.
  • New certification standards. All major regulatory and certification requirements can be reflected in the blockchain (for example, No Objection Certificate, common in many countries). This information can be used for quality control and early detection of violations or risks.
  • Integration with trading platforms and exchanges. The active use of blockchain, tokens and smart contracts makes it possible to create new trading mechanisms for traders who specialize in predicting major price trends, participating in arbitrage and other exchange operations.

Thus, the use of blockchain in the real estate market can be potentially beneficial for all major participants, allowing the distribution of existing technological and economic resources in the most rational way.

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