In Blockchain We Trust

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in blockchain we trust

Hailed for its transformative powers, yet not truly understood, let’s shed some light on blockchain technology and explore its capabilities for the real estate industry.

Blockchain. Arguably one of the biggest buzzwords on people’s lips these days, across multiple geographies and industries, yet we have little understanding of the technology aside from its obscure power to transform.

With the Internet speckled with anecdotes about its ability to revolutionise sectors, businesses and sometimes even lives, it is necessary to question whether this revered technology actually lives up to its hype.

Why Blockchain?

Simply put, blockchain has the potential to bring about Internet 2.0.

The existing Internet architecture is essentially a database on a centralised server, controlled by a central authority. Due to this central control, the data on the server is susceptible to destruction or corruption by any user with sufficient access. Additionally, because users depend on the administrator, trust between parties also becomes an essential requirement.

Blockchain, on the other hand, built on addressing the shortfalls of the previous architecture, is a decentralised, digital ledger controlled by a consensus mechanism. Due to the decentralisation of control, it eliminates the risks faced by the aforementioned clientserver network. Apart from being able to operate in a trustless environment, information on blockchain is verified near real-time, irreversible, as well as censorship resistant.

Real Estate Applications of Blockchain

Because of its unrivalled advantages over client-server architecture, the use of blockchain in real estate can terrifically change the way transactions have long been conducted globally. In fact, I expect blockchain adoption in our sector to be faster than most, due to the extent of its efficiencies. In addition, I anticipate that implementing the technology will lead to unprecedented growth for our industry, thus allowing a new wave of investors to enter the market.

While the convergence of blockchain and real estate can happen in a multitude of ways, I will be focusing on the integrations that are currently underway.

With the Internet speckled with anecdotes about its ability to revolutionise sectors, businesses and sometimes even lives, it is necessary to question whether this revered technology actually lives up to its hype.

1. Tokenisation of Real Estate Properties

By means of blockchain, it is possible to break up or tokenise real estate properties to allow for partial property ownership. This also creates an efficient and transparent way to crowdfund the purchase of assets, thus allowing for returns on investment to be easily distributed based on an individual’s level of ownership.

What this means is that investors with limited funds, or those who want to limit their risk, can now enter the real estate space and enjoy the rental returns and capital gains of property investment through partial or co- ownership.

The tokenisation of real estate assets also increases the liquidity of real estate investment. Generally, buying a property is one of the most illiquid forms of investment, as it can take significant time and effort from multiple parties in order to find a tenant or a buyer. This is known to be one of the major drawbacks in purchasing real estate assets as an investment, and blockchain technology greatly helps minimise this issue. This is because when real estate assets become tokenised, these tokens can be sold privately to anyone, without the need of the new buyer to invest a large amount to acquire the entire property. Furthermore, if these tokens are listed on a cryptocurrency exchange, they can be traded easily with the simple click of a button.

This can also help in the scenario of an asset having a corporate owner who is seeking a partial exit. The asset can be broken up into tokens and the desired exit percentage can be sold in the open market. Similarly, if an asset has multiple owners, some of whom are seeking an exit, the asset can be tokenised and the owners who want to sell can do so easily to multiple buyers.

The proof of concept is one of my newest ventures, Global REIT, which has been modelled on this integration. Global REIT is a blockchain-based REIT, which provides the investor two tokens – one which is the fund manager income (GREM) and another which is the asset-backed property income (GRET). What is unique about Global REIT is that the entity is designed in a way that it overcomes the hurdles of the traditional REIT model, such as jurisdictional dependence, difficulties in dividend distribution, barriers to investment, amongst others. Additionally, since Global REIT is based on an established REIT business model with income rooted in the real world, we’ve also been able to mitigate the risks of a typical crypto such as volatility and unstable returns.

Global REIT generates returns for our investors by purchasing income-generating assets around the world and distributing the rental income and capital gains to our investors. Our first asset under management is a hotel in Dubai called Mysk by Shaza, valued at AED 275 million located on the trunk of Palm Jumeirah.

Global REIT has not only proved this merger of real estate and blockchain feasible but also highly successful, as our AED 51 million Initial Coin Offering raise demonstrates.

Therefore, it is clear that the flexibility and liquidity that blockchain tokenisation of real estate assets cannot be ignored.

2. Digital Title Deeds and Smart Contracts

The Dubai Land Department (DLD) certainly hit the nail on the head with their plan to transfer all title deeds and conduct all transactions on blockchain.

I’m pleased to see them spearheading the global initiative to create a paperless and efficient digital ledger of real estate ownership. The end result will be a decentralised store of information which includes records of ownership as well as details of all real estate transactions.

Digital Title Deeds and Smart Contracts

Similarly, one of the biggest advantages that the industry can reap from blockchain is through the creation of smart contracts. These are contracts which are automatically executed depending on the fulfillment of a set list of requirements. I foresee all real estate transactions in the near future taking place on blockchain.

For instance, once the payment clears and all required documents have been submitted, the smart contract will automatically transfer the title deed in the name of the new owner and the proof of ownership information is automatically and securely stored on blockchain.

These contracts will eliminate the need for third parties such as a notary public, escrow accounts, banks, lawyers and others, thus speeding up transactions and minimising the risk of disputes. The increase in ease of doing business should result in a greater number of property transactions, lifting the market to new heights.

3. International Property Transactions

I also predict an increase in the globalisation of real estate investments, as parties no longer have to be physically present or rely on the cumbersome power of attorney documents in order to conduct transactions. Using blockchain, property, and money can change hands quickly and legally worldwide, which once again will increase the number of transactions, benefitting the whole economy.

Furthermore, investors will be able to purchase properties globally using either FIAT or cryptocurrencies and have the title deed transferred to their name instantly. Instead of seeing only local property listings, we will soon have access to property listings worldwide with consumers being able to own whole or partial real estate worldwide. Blockchain transactions based on smart contracts can be safely conducted without the need for building expensive and bureaucratic institutions to instill trust, without the need for parties to interact, know each other, or go through trusted third parties. Therefore, the nature of blockchain transactions leads to a greater number of transactions between all types of parties, on a global scale.

Increase in the globalisation of real estate investments,

Since blockchain transactions can be viewed by anyone through a blockchain explorer, large amounts of transparent and valuable information will be available for users to access. This information can also include recent property transactions, as well as current sale prices and rental figures. Access to this information will help all parties make informed and efficient investment decisions and can also be a factor in contributing to an increased number of real estate transactions. While anyone can access the information, the anonymous nature of blockchain means that identities and sensitive personal information stay protected.

Clearly, blockchain can be a tremendous disrupter in all segments of the economy, not just in real estate. We will see the roles of institutions change and we will see these institutions either adjust and thrive or face a downturn. However, greater implementation of blockchain is required across all industries in order for it to truly fulfill its potential for positive change. This depends on a mutually supportive relationship between governments in creating thoughtful and supportive regulations and legislation with regards to blockchain use, and blockchain based companies being vigilant with regards to KYC and customer information in order to prevent fraudulent transactions.

Despite what appears to be a boom, blockchain industry is still in its cradle. We have just experienced the beginning of the sea change that this technology will uncover for our economies, and I’m thrilled to be part of it with Global REIT.

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