Blockchain revolution in the real estate
My name is Ishay Tentser. I am Co-Founder and CEO at IniTech, an Israeli-based innovative software development company. We help companies use technology to solve core business problems.
We are experts at utilizing cutting-edge digital innovation in such areas as blockchain applications, decentralized technologies, big data, AI and cloud services.
I am a former IDF/ Mamram officer and a graduate of both Hebrew University (B.Sc. in Computer Sciences) and the Technion (MBA).
I have over a decade of broad industry expertise. I’m a founding member in several startups, I give mentorship in startup accelerators and help clients to implement their digital products.
I would like to share with you my vision of the inevitable revolution in the field of real estate that the blockchain brings.
So, how can blockchain be applied to real estate?
Blockchain technology is all about decentralization and implementing decentralized systems in order to make things more transparent. When it comes to real estate, the industry is very old fashion and virtually no large technological changes have been made in this area for centuries. In many parts of the world, real estate is very expensive, it’s hard to buy, and you cannot simply purchase a small section of a property. You need to buy the entire property in order to own it. Furthermore, because real estate registration operates on archaic systems, with ownership sometimes being marked on a piece of paper, it becomes very difficult to manage several owners or group ownership of a property. For this reason, small investors like you and I who don’t have much of a budget, and wish to buy a full property, would have to go to a broker or family office that would represent us. Subsequently, that representative would join a buying group of similar small investors, who would like to invest in the property. This model has several disadvantages.
First of all, in most cases, property ownership involves a 3rd party. Your property ownership will likely be registered on a 3rd party, which means that you must trust that 3rd party, and if something happens and the 3rd party goes down, you’re left with nothing. You don’t have any real ownership rights on the property because it was registered on the 3rd party, and not on you. Another problem is that this current model doesn’t allow for a secondary market base. This means that there isn’t an easy way to make deals between private peoples. For instance, let’s say that I am the owner of some part of a property in Tel Aviv, and you’d like to buy my rights, it’s difficult to make such a deal, as we would have to approach a 3rd party together. Not only that, but it would cost us money to go to the representative, and you won’t actually receive the ownership directly. Instead, you will receive some paper or record that is kept by the 3rd party that claims you are the owner. However, this information isn’t transparent to us, and we will always need to trust the third party. And history always shows that 3rd parties end up going down, and people are left nothing.
So how can blockchain technology fix all of these problems? Blockchain technologies can create a new way to register properties. As we discussed in our previous talk, blockchain technology is a chain of blocks, in which each block (or node), contains an entire copy of the records. This means that if some mode gets corrupted, the other nodes will still maintain the original copy, and the rust will be returned. This way, we can save tons of information in a very trustable manner because it’s transparent, public, everyone can check this information, and everyone can see who owns what property in the case of real estate. The other half of this equation is that, with blockchain, you can go and register real estate rights on small parts of properties so that you don’t need to own the entire property. This means that you now own a small part of a property directly without any 3rd party at all, and then you can share it, license it, sell it, or rent your rights.
These opportunities open up new models of business that we currently don’t even think about because they simply don’t exist at the moment. Think about Uber. Uber opened a new model of transportation that was otherwise blind to us in the past. Therefore, I believe that the democratization and open secondary marketplaces in real estate could definitely revolutionize the industry, and blockchain is the perfect tool to make such a change.
What benefits can the Real-Estate industry gain from decentralization?
With the current centralization of industries, we need to maintain trust in our government or municipality organization to keep our records. In some places, those records can be corrupted, in other places, it’s difficult to obtain access to the records. For instance, if I was in Tel Aviv, and you would want to check the property ownership on my building, you would need to go to the municipality and, with great hardship, attempt to review those records. Some of the records are online, but some are not, and with this disorganization, it’s difficult to access the full ownership rights on a given property. In this way, our centralized system is not very user-friendly. With the implementation of blockchain technology, it’s easy to obtain access to information and quickly find the ownership rights on a property. Additionally, blockchain implementations could function as very general networks that could support various geolocations. This means that the same network can be supported around the world, and it could be a very general-purpose technology that could potentially take property ownership to the next level. Again, using records to maintain ownership of a small part of a property is a new ability that would be very difficult to implement with our current centralized registration system. Every local municipality would need to adjust the current registration system to make such a drastic change, and yes, the government always takes a long time to adjust to changes in regulations. However, when blockchain tech is eventually integrated, it will be very easy to adjust and manage.
Will there ever be applications of cryptocurrency to real-estate?
Because each real estate property is unique, you cannot compare two different properties equivalently. So, the current cryptocurrencies don’t provide a good way to manage properties. They provide some monetization elements for properties, which is important, but you have many other rights on properties that aren’t exactly monetized rights, such as rent, ownership rights, selling rights, etc. For these more complex rights in real estate, I think we will need a new token and new ways to look at these multiple rights, and I think that the ERC 721 (a draft protocol provided by the Ethereum foundation) and similar protocols that will be provided in the future, will allow for a better solution to represent such rights than Bitcoin or Etherium. This is because real estate is not only about monetization value, it’s more about the number of rights that together provide the representation of your ownership of a property. For example, there might be a case in which there are 5 owners of a property, however, each person’s rights can vary. So, when it comes to these varying rights, we will need a new token that can represent these discrepancies.
How will blockchain-based Real-Estate compare to our current model?
Bottom line - the main differences between a blockchain-based model and our current model:
with the new model, there will be the option to manage and own small parts of a property
in the old model, the rights transfer required involvement and sometimes approval of a centralized authority, often, a legal party must be involved to ensure correct format of record
in the new model, the rights transfer and the payment transfer can be executed within the same transaction over the same infrastructure (blockchain), making it much more fraud-resistant and eliminating the need for complex escrow arrangements (no payment: no transfer of rights)
Feel free to reach me if you need assistance with navigating the brave new world of blockchain.
My contact details:
Initech’s site: https://initech.co.il/en/blockchain-and-crypto/