According to the Internet Crime Complaint Center, fraud in real estate in the United States for the period from 2015 to 2017 increased by 1100%, financial losses – by 2200%. Only because of the substitution of financial data bank accounts lost $1 billion in 2017, although in 2016 this figure was at $16 million during the deposit of funds in sales transactions, Americans.
The rapid growth of fraud is due to three factors:
1. The high cost of real estate – 220 thousand dollars in the US average – gives the motivation of criminals to break the law.
2. The complexity of transactions – creates opportunities for the participation of scammers who forge documents, lie about the state of the object, sell it to several people, steal financial data.
3. Using the Internet – creates even more opportunities to steal money and personal data, and also allows cybercriminals to wield from any point on the planet where there is access to the network.
Future. The entire life cycle of real estate is easy to digitize and transfer to the blockchain, so you can create a system where each property will have a digital passport with all the information about it: information about title documents, past owners, sales prices, dates of transactions, lease agreements, loans, service contracts and even the origin of building materials and their condition.
This information will be unchanged, protected and Market transparency will increase and prerequisites will appear for creating a rating system that will track the actions of all market participants and at the same time will provide only genuine information about counterparties. Combined, this will minimize the risks of fraud.
Cases. iNation и International Blockchain Real Estate Association (IBREA) back in 2015, merged to create a global database based on the blockchain on owners and transactions in real estate. The IBREA believes that the use of the blockchain:
– reduce the risk of fraud to a minimum;
– reduce costs and speed up transactions;
– internationalizes markets;
– increase financial privacy.
This global project can combine information on all real estate objects and operations with them into one database, giving all market participants access to real-time key information.
Reality. Real estate transactions are associated with large paperwork, as they involve government agencies, notaries, realtors, banks, insurance companies and a seller with a seller (a landlord with a tenant). At the same time, all participants are trying to check and double-check the other side as thoroughly as possible in order to make sure that she is honest and to protect herself from fraud.
As a result, a significant part of physical documents passes through the entire chain of intermediaries who must register them, check, certify and pass on. On average, all this takes from 30 to 60 days. And what is remarkable, no matter how much time was spent on checking documents, none of the intermediaries guarantee the “purity” of the transaction.
Future. The use of smart contracts and the digitization of documents with their transfer to the blockchain will turn a complex process into a simple transaction. Since participants will have access to the necessary documents online and will be confident in their authenticity, and will be able to track all stages of the process. The authenticity of the documents is guaranteed by the blockchain, and the execution of the terms of the transaction is a smart contract.
Cases. In 2016, the Cadastral Chamber of Sweden began testing a system that registers land ownership rights and registers them in a public distribution register. The platform was developed by ChromaWay with the active participation of the real estate search portal Svensk Fastighetsförmedling, the TV provider Telai Sverige, the consulting company Kairos Future, local banks and the government.
Within the ChromaWay system, the buyer and the seller initiate the launch of a smart contract, the participants of which can be government agencies, registration authorities, insurers, realtors and banks. They, along with the buyer and seller, can verify the authenticity of title documents and track all stages of the transaction, including payments made.
According to the Kairos Future report, the use of the blockchain in cadastral operations will save Sweden’s taxpayers 100 million euros per year and reduce the process of transferring ownership of real estate from a couple of months to one week.
In addition to Sweden, ChromaWay is testing its products in Georgia, India, Ukraine and Honduras. Similar projects are being developed by ArabianChain in Dubai, Propy and Ubiquiti in the USA, Digital Street in the UK.
A large number of intermediaries
Reality. Real estate transactions are usually involved:
– buyer and seller;
– land cadastre;
– notaries and lawyers;
– realtors and real estate agents;
– banks and insurers.
Only the seller, the buyer and the land registry are mandatory participants. All others earn on the complexity and inefficiency of the process, providing mediation services or guarantees of a separate operation, which raises the price by 5-10% or more, and also slows down the process.
Future. Banks, realtors, lawyers and notaries will become unnecessary, since the blockchain guarantees the authenticity of documents and gives them access to all participants in the transaction, and smart contacts automate the process of transfer of ownership and financial transfers.
Cases. The ATLANT and Propy projects are focused on creating blockchain platforms for buying and selling real estate using smart contracts. With their help, private and legal entities conclude peer-to-peer transactions without intermediaries and guarantors.
You can rent a property without intermediaries at LiquidSpace, Blandlord, Airbnb, Rentberry or Bee Token sites. All of them use smart contracts to support transactions, “freeze” the guarantee payment and automatic payments of monthly payments.
High entry barrier for investors
Reality. Investments in real estate are available only to those who have a lot of free money – from 50 thousand dollars. For particularly promising projects, the threshold for entry is $200–500 thousand. This is due to the high cost of construction and finished objects that have the potential to increase value:
– office space in promising urban areas;
– residential areas in densely populated cities;
– building suburbs.
In the USA, only accredited investors and participants of the Real Estate Investment Trust (REIT) can invest in real estate. In the first case, you need to have 200 thousand dollars of income per year or 1 million net assets. In the second – you will pay high commissions and transfer the money to manage the third party, which is associated with additional risks.
Future. Developers will launch a separate ICO with their tokens for each new construction using blockchain technologies and sell them on the financial markets. Thereby:
– the market will become global;
– increase liquidity of investments in real estate;
– coverage of potential investors will expand;
– the investment threshold will decrease.
Anyone anywhere in the world can invest $100, 1,000 or 10,000 in construction in London, Paris, New York and Beijing. Without the need to come to the country of location of the investment asset, paperwork, expectations and intermediaries. The investor will simply buy the token of the object and sell it after the growth rate – as traders do with stocks, gold or currency in financial markets.
Cases. In 2017, the ICO startup BitRent was completed. The mission of the project is to provide everyone with access to real estate investments in the early stages of construction in order to benefit from the rental or sale of the constructed object.
BRent installs special RFID tags on the construction details to track the state of the elements of the architecture and monitor the construction progress online. BRent also uses the Building Information Model (BIM) in order to simplify the design of architectural projects and their evaluation.
The combination of blockchain, BIM and RFID will allow you to create an investment platform on which:
– no minimum investment threshold;
– investors control the construction process;
– dividends are paid automatically;
– investors control the quality of construction work and materials.
Investing in a small amount of real estate is also possible on platforms such as NEST, Slice, ATLANT and Propy. Their functionality is generally similar, the difference is only in the popularity and listing of objects available for investment.
Search for real estate information
Reality. Brokers, owners, tenants, buyers and sellers of real estate, as a rule, use several multi-listing platforms to search for information about the object of interest or the state of the market as a whole.
There are several significant flaws in these platforms:
– they usually work by subscription;
– what information to provide and in what format – platform holders decide;
– there is no possibility to check the accuracy and reliability of information;
– low database update rate.
As a result, the information on such sites is inaccurate, deterministic, incomplete and has a dubious level of confidence. Therefore, you need to use several multi-listing platforms to compare information from different sources and to obtain the most accurate and reliable information. This approach reduces search efficiency and leads to delays in decision making.
Future. A multi-list database based on an open decentralized blockchain will allow you to create a platform where:
– users decide what information to collect;
– there is no need to maintain expensive infrastructure (servers, security, large support staff, etc.);
– you can check the system code;
– impossible to fake data.
Due to this, market participants will have access to more reliable data at a lower price.
Cases. As an example of a working draft, you can put only Rex MLS, a smart contract based blockchain platform that provides listing services for finding information about real estate: location, legal address, comparable prices and rental rates, history of ownership, data on the owner, age of the object and title documents.
Rex MLS rewards third parties – oracles – for searching, entering into the system and checking information about real estate and market participants. By checking is meant a comparison of the data entered into the system with the real state of affairs: the evaluation of the object, the comparison of data with the information of public services, and the like.
Reality. Payments for the sale or rental of real estate are carried out by one of two schemes – in cash or by bank transfer. In the first case, all are at risk, since one party can use fake money, and the second is to commit robbery. Therefore, cash payments take place in several stages with the involvement of third parties, as a rule, notaries.
Banking calculations are less risky, but they are slower, require additional workflow and cost in international operations. In addition, if something goes wrong, the money can be returned only in court. Both options imply an increase in the price of the transaction by 1-3%, since you need to pay a commission to the notary and / or the bank.
Future. If the real estate has a digital certificate of ownership on the blockchain, transactions in the transfer of ownership can take place according to this algorithm:
1. The parties agree on the price and terms of the transaction, and then prescribe them in a smart contract.
2. A smart contract accepts from the participants both values, checking them and becoming the owner of both money and property rights to real estate.
3. When the authenticity of valuables is established, the smart contract rewrites the title certificate to the buyer and transfers the money to the seller.
This is a standard scheme that takes up to 60 minutes depending on the speed of the blockchain. For example, for Bitcoin it is 30 minutes, since he needs confirmation of three blocks in order for the operation to be considered perfect.
Another sale and purchase scheme implies the tokenization of an object and the sale of all its tokens to one person, which can be faster and more efficient if the object is initially toned. For example, if funds were raised in this way for the construction.
Using such schemes saves a lot of time, because without a blockchain financial transactions require from 1 to 5 days for domestic bank transfers and from 1 to 5 days for international ones. In addition, commissions are thus saved: in Bitcoins, the commission is $0.42 per transaction.
Cases. The first real estate purchase transaction using the blockchain was conducted at the Ripple site in 2017: a buyer from New York bought a house in Kiev (Ukraine) for 60 thousand dollars. This is the most popular platform for the conclusion of sales transactions of real estate.
Another promising project in this regard is the development of the Dutch bank ABN Amro and the it-giant IBM. Together they create a system that allows you to accompany real estate transactions through smart contracts, linking all market participants and providing them with the necessary information on the progress of the transaction. The project is developed on the basis of Hyperledger.
You can use Midasium to manage property and cash flow when renting property. CRM and smart contracts of this site allow you to check title documents, conduct financial transactions, freeze guarantee fees and many others. In this case, the relationship between counterparties can be made transparent or closed.