How Blockchain and Cryptocurrencies Could Revolutionise the Real Estate Market

As Malta cements its reputation as ‘The Blockchain Island’, financial headlines worldwide continually hail blockchain as an innovative technology that could be as globally transformative as the internet.

Indeed, blockchain has already made significant impact in almost every industry, most particularly in the financial sector from foreign exchange right through to the stock market.

The real estate industry is no exception. While property transactions have in the past always taken place in person, blockchain technology enables smart contracts that could even make property sale and purchase possible via cryptocurrencies such as bitcoin.

Ultimately, the global rise of blockchain and cryptocurrencies is set to change the way property is financed, sold and operated in Malta, and so revolutionise both the local and international real estate markets.

What is Blockchain?

Put simply, blockchain is a relatively new technology which maintains a ledger of transactions that is always up-to-date and is practically impossible to tamper with. Since it is decentralised, it is self-contained, self-sufficient and requires no middleman in order to make transactions of any size – thus reducing the risk of cyber-attacks or fraud, and increasing transaction transparency.

Originally created around 10 years ago to support the cryptocurrency bitcoin, it has since redefined the way in which transactions are made to such an extent that its uses now go well beyond virtual currencies, and into the processes at the very heart of the real estate market, for example.

How does Blockchain affect the real estate market?

There are several ways in which blockchain could mark a new frontier in the world of real estate – here’s just a few of them.

Smart Contracts

In an industry that has historically always relied upon the human element to complete transactions, blockchain represents an entirely different and potentially ground-breaking approach to the real estate market.

By cutting out the middle man, blockchain enables a smart contract to be completed solely between the buyer and the seller in an encrypted and secure environment, so that transactions may be done over a distance, in far less time, with a paperless legal process that poses a significantly reduced chance of fraud.

However, while blockchain removes all intermediaries from a transaction, this does not mean that it will replace the experts, agents and notaries currently employed in the real estate industry – indeed, it may even be used to make these people more efficient in helping buyers make what may well be the largest investment of their lives.

Liquidity

Perhaps the greatest revolution that blockchain offers to the real estate market is total liquidity. Whereas before a property investment might lock a buyer in for a number of years, through blockchain that buyer can enter into – and exit from – the investment whenever they wish.

The lack of liquidity of assets has previously tended to make real estate trade at a generally lesser rate than stocks or bonds, but blockchain in theory could change that particularly through tokenisation or unitisation, which enables buyers to trade ‘units’ of real estate online.

Tokenisation

In the past, in order to buy an attractive property investment, the buyer would already have to be wealthy, and have the capacity to wait before this lucrative asset can be liquidated. But with tokenisation, the rules of the game change radically in favour of those with rather more limited means.

Using cryptocurrency to split assets into tokens or units stored on the blockchain, tokenisation makes property asset ownership accessible to everyone, since any potential investor may resell their share of a high-end piece of real estate on the open market.

This innovation also means that people in different countries or tax brackets may now invest in lucrative property projects that they previously would not have had access to, or landlords could even sell a portion of their property.

Property Data

As per a promise of sale agreement, or a ‘Konvenju’ in Maltese, before a property may be sold it is necessary to check the history of the property in question, and that it is clear of any outstanding debts that may prohibit its sale. The process of determining this history has always been subject to a variety of record-keeping methods from online to printed – and so has historically been inefficient and time-consuming.

Blockchain could change this. If all property information, including any details of construction, damages, plan updates or improvements, was decentralised and stored on the blockchain, then it becomes transparent and immediately available to any potential buyers. Furthermore, it can even be used to store important documents relating to the property, to track energy usage or even manage smart locks on the property – the opportunities are seemingly endless.

However, in the short-term comes first the lengthy task of finding and inputting this much existing property data into the blockchain, so this change will not and cannot be immediate. But, over time, the technology could well take over from the antiquated property data storage methods of the past and signal an entirely different real estate process for the future.

To find out more about how blockchain could affect your property sale, purchase or lease, contact a member of the RE/MAX Malta team today.