Blockchain in commercial real estate

According to a 2015 World Economic Forum survey of 800 executives and information and communications technology sector experts, 57.9 percent of the respondents believe that 10% of the global gross domestic product (GDP) will be stored on blockchain technology by 2025.

Until recently, blockchain was known more as the technology powering Bitcoin. However, industry players now realise that blockchain-based smart contracts can play a much larger role in CRE, potentially transforming core CRE operations such as property transactions (purchase, sale, financing, leasing, and management).

Over time, blockchain adoption can have a broader impact, as it can be linked to public utility services such as smart parking, waste, water, and energy billing, and also enable data-driven city management.

The Deloitte report, 'Blockchain in commercial real estate. The future is here' explores the value proposition of blockchain technology and its applicability to property leasing and management, and purchase and sale transaction processes. It looks at key drivers that support the use of blockchain for real estate leasing and purchase and sale transactions. These include:

Need for a common database

Shared databases are critical for leasing and purchase and sale transactions. One of the key examples is a multiple listing service, which collates property-level information from private databases of brokers and agents.

Multiple entities can modify database

Transacting and managing real estate properties involves several entities, such as owners, tenants, operators, lenders, investors, and service providers, who provide, access, and modify a variety of information.

Lack of trust among entities

Many times, participants in leasing and purchase and sale transactions are new to each other and could be over cautious in due diligence and may even have data integrity concerns. However, blockchain can help reduce the risk through digital identities and more transparent record keeping systems for real estate titles, entitlement, liens, financing and tenancy.

Opportunity for disintermediation

Trusted intermediaries such as title companies can be disintermediated through blockchain, due to increased security and transparency in title management and auto-confirmation by government land registries.

Transaction dependence

Many real estate transactions have conditional clauses and can be executed through smartcontracts. For instance, the conclusion of a purchase-sale transaction could be dependent on loan approvals or title clearances.

As blockchain technology continues to evolve, it challenges the status quo and perhaps requires CRE companies to better understand the technology and revisit their existing business model, strategy, processes, and financial plan.

Blockchain technology has significant potential to drive transparency, efficiency, and cost savings for CRE owners by removing many of the existing inefficiencies in key processes. Hence, CRE companies and industry participants evaluating an upgrade or overhaul of their current systems should have blockchain on their radar as its demonstrated usefulness has the ability to bring significant value to the industry.