Kirill Bensonoff: 5 ways real estate can be transformed with a blockchain approach
The real estate market has seen steady growth the past few years, and is showing no signs of slowing down. The commercial real estate industry alone is expected to reach $414 billion in commercial transactions next year.
This isn’t the biggest news in the real estate industry though.
According to real estate and cryptocurrency expert, Kirill Bensonoff, the most significant growth for real estate in the next few years will be how blockchain technology is applied to the market.
Kirill Bensonoff Predicts 5 Ways Blockchain
Technology Will Transform Real Estate
What Is Blockchain and How Does It Work?
Blockchain technology is best known as the operating system for the cryptocurrency Bitcoin. The blockchain works as a digital database and ledger containing information that is decentralized across a public network of users to provide access to data, verify transactions, execute smart contracts and track all transactions.
Bitcoin uses this technology to create a decentralized record of all Bitcoin transactions that can be tracked, checked and verified without the need for a centralized database to manage the currency. However, this isn’t the only use of the blockchain. Companies are using blockchain tech such as the Ethereum blockchain to create their own digital coins, raise funds, provide more transparent access to datum and to tokenize traditional asset classes such as commodities and real estate.
Already in 2018, companies have raised $13.6 billion from Initial Coin Offerings (ICO). This success has come from the ability of blockchain and digital tokens to open up investments to a global marketplace, increase liquidity of funds and reduce the barrier to entry from many traditional investments.
While cryptocurrencies and ICOs are exciting, the real industry disruptions come when blockchain is applied to traditional markets such as real estate.
What Does Real Estate Have To Do With It?
There is perhaps no industry that is better suited for blockchain technology and tokenization than real estate. According to Kirill Bensonoff, a partner at Caviar, blockchain in real estate solves many of the problems traditional real estate investments have seen.
One of the main components of the combination of blockchain technology and real estate is the tokenization of real estate investments. A digital token can be created to represent the value of the property and allow investors to purchase part or all of a property through a blockchain market.
These digital tokens can then be offered for sale in a decentralized real estate market which offers buyers and sellers complete access and transparency. This technology could benefit real estate developers looking to raise funds, investors looking for property to put money into, funds looking to keep a record of their moves and even individuals looking for a house loan.
A high barrier to entry, illiquidity and the high cost of real estate transactions are all problems that have limited investors and hindered the growth of the industry. Here are five ways blockchain technology will transform the industry and directly address these problems:
Tokenizing Real Estate Will Increase Liquidity for Real Estate Investors
The tokenizing of real estate investments creates a much more liquid investment than traditional real estate property investing which can take months to close on a deal and may take years before an investor can sell the property and see a return. Tokenizing the asset class allows investors to quickly and easily buy and sell real estate investments as they would any coin. Rather than owning an entire piece of land or property, a buyer can own a small piece of a blockchain property and increase or decrease their exposure as needed.
Blockchain Opens Up Real Estate to Global Market
Another benefit of tokenizing real estate investments and offering them on a blockchain system is the elimination of many of real estate’s barriers to entry. Most real estate investments require a large upfront investment. Even real estate investment trusts (REIT) typically have a minimum investment. These investments are also usually limited to investors inside the country.
The blockchain opens real estate investing to a global market and makes it easy for anyone to enter. The ability to purchase single tokens representing a small percent of a real estate investment allows sellers to open up sales to a much larger audience.
Token Sales Present New Fundraising Options
Blockchain has proven a valuable option for companies and individuals looking to raise money through ICOs and other token sales. For real estate, blockchain allows developers and buyers to raise money in blockchain markets for the purchase of land or property.
This presents a new option that removes the necessity of working with banks for home loans or other real estate development deals.
Blockchain Lowers Cost of Fund Management
When it comes to the management of funds, blockchain provides many benefits for the real estate industry. According to a Goldman Sachs study, blockchain technology could save capital markets $6 billion annually in reduced personel, IT system improvements and generally streamlining the entire process.
For real estate funds, the introduction of a new market that allows them to sell tokens and speed up the transfer of ownership of properties means a much more efficient system. The ability to keep a record of these transactions on the blockchain will greatly increase the transparency of funds. With more transparency looking into REITs and other funds, investors can feel more secure buying into them, further strengthening the overall market.
Smart Contracts Limit Need for Real Estate Transaction Services
One of the primary functions of blockchain technology is the management of smart contracts. Smart contracts are programmed into the blockchain solution to automatically run programs when certain criteria are met. These contracts are verified by the blockchain to maintain the integrity of the entire system.
For real estate, smart contracts could automate the creation of contracts, escrows, property records, and more, without the need for banks, real estate agents, attorneys or title companies. The need for these real estate transaction services can make traditional real estate business expensive and difficult.
Using smart contracts, blockchain can be used to facilitate real estate sales, generate the necessary documentation and contracts, and create a secure record of the transaction. Blockchain could eventually be used to manage an entire market of land and properties without the need for any agents or service professionals. Land developers or individuals looking for a home mortgage could easily turn to this market for buying and selling properties in a much simpler and automated way that greatly reduces the cost of the transaction.
More than simply reducing the cost of a house, blockchain technology offers enormous potential for transforming the real estate industry in the next few years. Providing a token market for the sale of real estate assets, a registry of all transactions and a simple and accessible way for the global market to get involved in real estate investing has wide reaching implications that we are already seeing unfold.