For real estate to compete effectively as an asset class, investors are demanding, and expecting, ever-greater levels of transparency – in terms of legal and regulatory enforcement as well as speedy and secure transaction processes. The costs associated with trading real estate are much higher than in other asset classes, often resulting in a wide bid-ask spread – the difference between buyer and seller pricing expectations. Furthermore, transactions are often carried out via time-consuming face-to-face interactions with various parties typically involved in the transaction process, e.g., lawyers, bankers and brokers.
Blockchain technology offers a means to improve transparency in the real estate industry, in particular, with Smart Contracts, which are essentially programs coded in the blockchain. When conditions specified in an encoded contract are met, the transfer of money or assets between parties is automatically triggered, reducing the costs and friction associated with these transactions.
Smart Contracts offer a means to streamline commercial real estate investment through a new form of securitisation. Smart contracts can enable investors to buy and sell shares of a building with rental income paid out to token holders.
"Blockchain works with any transaction or interaction where property rights and timing matters."