As in many other fields, the real estate sector is embracing technology and innovation to modernize its processes and boost its operations. The recent COVID-19 pandemic has highlighted the need to digitize many aspects of daily life to speed up communications and negotiations between companies and individuals, so the real estate industry is at a pivotal moment to develop a new business model that is profitable for all its stakeholders.

In this context, the blockchain is a relatively new tool that is opening up a world of possibilities for the real estate sector, as it enables the development of smart contracts, the creation of a more democratic and decentralized environment, and increased trust. This is particularly important for an industry that, until now, has been characterized by its complexity and transparency issues.

Today at CULMIA, we’d like to talk to you about all of this and how blockchain technology in the real estate sector is helping to digitize and secure all of its activities. Will you join us?

What is blockchain?

Blockchain is an English term that can be translated into Spanish as “cadena de bloques.” It refers to a technology capable of storing data in a multitude of records or blocks, each of which contains information encrypted using cryptography. This allows transactions to be carried out securely through networks or nodes of users interconnected via the Internet, by transferring these data chains.

The most common metaphor used to illustrate the blockchain is that of a massive ledger that anyone in the world can consult, but in which the information recorded cannot be deleted or altered. Specifically, all transactions are analyzed and validated by the network of nodes that has been set up, so there is no need for a third party to approve them. As a result, the privacy and independence of each of these connection points are maintained, which in turn are key to ensuring the accuracy and legality of all transactions carried out.

Originally, this technology was associated with cryptocurrencies because the digital currency Bitcoin was the first to take full advantage of it. However, the origins of this technology actually date back to the early 1990s. Specifically, in 1991, Stuart Haber and W. Scott Stornetta devised the first system based on a cryptographically secured blockchain to prevent the tampering of document timestamps.

This idea was subsequently refined, and in 2008 Satoshi Nakamoto (a pseudonym representing a person or group of people) designed and launched a project to create the first digital currency, Bitcoin. Bitcoin was created with the goal of enabling the independent recording and transfer of value, without the need for control by “governments, banks, or financial institutions.” It achieved this by relying on blockchain technology to carry out its transactions and operations.

Blockchain in the real estate sector: applications and benefits

Now that we’ve reached this point, you may be wondering how blockchain can help the real estate industry. Well, the truth is that this technology has a multitude of interesting applications in this field.

Increased trust, transparency, and security

Blockchain is a highly secure technology because it encrypts the data it handles and divides it into different blocks. This way, it provides visibility into all transactions within its network and offers full traceability. This translates into the creation of immutable and transparent records of its operations, giving the real estate sector a reliable system that is extremely difficult to manipulate for fraudulent purposes.

Use of a decentralized, attack-resistant network

Creating a real estate network using blockchain technology allows for the decentralization of all available information. The data is “packaged” into blocks, which are distributed among the various nodes that make up the network. This makes it very difficult for a potential attacker to extract all this information, since they would need to gain access to all these connection points in order to piece together all the parts of this enormous “puzzle.”

Greater immediacy in transactions

Traditionally, real estate transactions require a great deal of patience, because the documentation must be completed, reviewed, and processed. In fact, these tasks are typically handled by intermediaries such as notaries or real estate agents, which significantly lengthens the process. But with the application of blockchain technology in the real estate sector, all these processes are simplified, because the network itself verifies the transactions and grants them full validity. This saves time, effort, and money, since all the paperwork can be completed almost immediately.

Creating Smart Contracts

Blockchain technology in the real estate sector is essential for creating smart contracts. Through the use of digital applications, these contracts can be programmed to execute automatically once they have verified that certain pre-established conditions have been met, thereby enabling the transfer of property or the processing of rent payments.

This is closely tied to what we discussed earlier regarding safer and faster transactions, since smart contracts significantly simplify the cumbersome processes that often surround real estate transactions. This means that the parties involved can finalize and process their agreements automatically, without the involvement of third parties, immediately, and with complete peace of mind that all their transactions are secure.

The Use of Tokens in the Real Estate Market

The real estate sector is also capable of “digitizing” its assets. A token (“token” in Spanish) is a unit of value that operates using cryptography and is established and issued by a private company or organization. Therefore, any cryptocurrency, such as the aforementioned Bitcoin or Ethereum, is a token, although this concept has many more applications, as it can be used to grant a right, pay for an activity, offer an experience to its holder, etc.

In this way, ownership of a real estate asset, such as a home, can be digitized and tokenized to be traded on the digital market. This is a truly interesting development for expanding the market’s possibilities, since properties can be divided into shares and traded in various ways. As a result, investors can participate in high-value investments and crowdfunding projects without needing a large amount of capital, allowing them to diversify their portfolios and share ownership with others.

Ease of collaboration and project tracking

When integrated with other solutions or methodologies such as BIM ( Building Information Modeling ), blockchain technology can contribute to the management of large real estate projects. This is primarily because, when properly implemented, it can enable the traceability, authentication, and certification of all documents involved in the planning, construction, and subsequent management of properties.

This way, all professionals involved in a development—such as the developers themselves, architects, builders, etc.—can access a digital profile of each project (for example, a building) to participate in it in real time, track every change, and carry out the necessary activities to grow their business. This represents a major step toward making the concept of “collaborative construction”.

Property and Financing Records

Blockchain in the real estate sector enables the creation of tamper-proof databases that record every transaction carried out in the real estate market, thereby providing assurance regarding property records and facilitating access to financing services. In fact, lenders can quickly access the credit histories of their loan applicants, which streamlines the entire approval process; meanwhile, borrowers can even access P2P loans with terms and rates that are more favorable to them.

Improving Property Search Processes

With the introduction of this technology, all stakeholders in the real estate sector can create and share their property listings. Specifically, blockchain paves the way for the implementation of a multiple listing service (Multiple Listing Service) that is freely accessible to all parties and allows for searches based on specific needs. Thus, one of its best applications could be property searches, enabling potential buyers to find the property that best meets their requirements.

Blockchain technology has yet to gain a foothold in the real estate sector

According to a recent study byDeloitte(2022), blockchain technology in the real estate sector is already capable of “handling more than 50% of leasing and sales processes, ” making it possible to eliminate steps that require physical intervention, such as property inspections or loan negotiations. However, despite this, it remains a little-known and under-explored solution, perhaps due to a lack of awareness.

That’s why we hope this article has been helpful in showing you all its advantages and introducing you to what is set to become one of the essential tools of the future of this industry.

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