The leading international accounting firm Deloitte has announced a new blockchain report. The firm says blockchain-based smart contracts could “revolutionize” commercial real estate.
Deloitte says blockchain will work for leasing and selling real estate. Indeed, Deloitte says the technology is poised to take on 50% of all commercial rentals and sales.
What Are the Benefits, Per Deloitte?
Blockchain can remarkably improve title accuracy. Deloitte’s study confirms this. The report, titled Blockchain in Commercial Real Estate: The Future Is Here, praises blockchain for lowering the cost of deed recording; confronting title fraud; making title transfers faster; and doing it all transparently.
The use of smart contracts on blockchain creates verifiable proof of identities and ownership. A parcel’s title, once recorded on the blockchain, is correlated with a fraud-resistant token an owner can use as collateral. Buyers and lenders will know the title is free and clear — because no liens, claims, or modifications can be made to a title, nor can anyone transfer a deed, without an obvious notification on the app.
To do its work, blockchain provides:
- An irreversible and transparent ledger. Key materials — documents, sale conditions, deed restrictions, maps — are time-stamped on the chain. This simplifies title searches and all due diligence in transactions. Having the blockchain as a continual source of key information enables better decisions to lease, sell, and buy — even an efficient way to manage rental income.
- Resistance to fraud. Blockchain’s encryption, reports Deloitte, challenges “fraud related to liens, easements, air and subsurface rights, titles, or transfers.” And the anti-fraud protection can be applied on a national scale. (Deloitte notes that Ghana’s preparing to adopt Bitland to form digital title IDs for all parcels, showing location and title records.)
- An easier way to handle mortgages. For instance, smart contracts can execute conditional clauses (based on a final mortgage approval, or a title clearance, etc.). Mortgage costs will go down as mortgage lenders won’t have any reason to run extra title searches. And smart mortgage contracts can automatically channel regular loan repayments. Everything can be recorded and found on an app.
What can’t blockchain do? Some things will still need a human touch — like negotiating, or inspecting a building.
Making Title Companies Obsolete?
Our current real estate system is a slow, confusing, pricey paper chase. It’s full of people in the middle, asking for fees at every turn. In contrast, blockchain offers a paper-free experience, digitizing all activities right as the transaction occurs.
As for all the people in the middle, Deloitte claims:
Title companies can be disintermediated through blockchain, due to increased security and transparency in title management and auto-confirmation by government land registries.
Let’s unpack that.
As any real estate buyer has noticed, conventional deed recording and paper titles have some drawbacks. Most real estate transactions turn up title defects. One in four transactions needs extraordinary action to solve the problem. And about $1 billion per year goes to title fraud resolutions.
That’s why title insurers exist: because there are so many title defects. Now, that can change.
Blockchain-based identity verification and deed recording can simplify environmental and zoning clearances, deed transfers — even loan approvals. As title records become accessible, precise, and complete, the title insurance industry becomes less necessary.
The Upshot?
In Deloitte’s words, commercial real estate businesses “should have blockchain on their radar as its demonstrated usefulness has the ability to bring significant value to the industry.”
This transformation could take some time, but once major players get involved, there could be a cascade of change. Can the title insurance industry survive the disruption? No doubt, the major title insurers will look for ways to reinvent themselves in the blockchain world. Interesting times ahead.
Supporting References
Deloitte Center for Financial Services Perspectives: Blockchain in Commercial Real Estate – The Future Is Here. How Blockchain-Based Smart Contracts Could Revolutionize Commercial Real Estate.
Deloitte Center for Financial Services Report: Blockchain in Commercial Real Estate – The Future Is Here (PDF).
Arijit Sarkar for CoinTelegraph: Six Reasons Why Blockchain Makes Sense for Commercial Real Estate – Deloitte (Aug. 8, 2022).
Deeds.com: Real Estate Title Insurance: A Brief Explanation (Jul. 8, 2019).
And as linked.
Photo credit: Ahmad Faiyaz, via Pexels.