by Rajeev Lehar / co-founder KL Property Partners
Possibilities and threats of blockchain technology and cryptocurrency in real estate and property investing
For the last few years there has been a huge amount of focus on the blockchain technology and cryptocurrencies such as bitcoin and ethereum. Our company has been observing the developments in the multi-billion dollar industry to figure out what possibilities and threats it has to offer in property investments in particular.
The DNA of the blockchain technology is fascinating and at the same time daunting. Cryptocurrencies like bitcoin and ethereum have definitely been in the driver’s seat on the blockchain market and have already created a footprint. The Deloitte report here gives a great overview of what we are talking about when it comes to commercial real estate:
But let me briefly explain the possibilities our company sees in the real estate and property investment industries that can be enhanced by utilizing the blockchain technology, if applied correctly.
Consider the following:
2. Less risk of document forgery. Proof of ownership, proof of exchange, proof of transaction and proof of existence is where this technology is showing its strength. Previously, there have been many cases of forgery related to property documentation such as ownership, title splits and even evaluations, which can now be prevented to a certain extent. Traceability is most likely to be higher as all the property information remains unchanged during transactions throughout the entire lifecycle. This will also give a much better and more reliable database of historical transactions and will preserve the history of every deal.
3. Smart contracts ensure the transparency in transactions. Having direct peer-to-peer transactions done by blockchain technology assures security for all the counterparts. This can help deals become safer and more secure.
4. Reduction in transaction cost. Due to enhanced time efficiency and reduced costs on middlemen, we expect more flexibility in margins until the markets are coordinated properly. This might have a huge impact on the slow old-school property investment markets, and less impact in countries that already utilise digital technology.
With every possibility there is a challenge to overcome:
1. The transition of transferring information cannot be avoided and requires government's approval. Since this technology is based on decentralisation, it is seen as a threat and as a huge workload. It might take a while for some markets and countries to adapt.
2. Legislation regulations for cross-border transactions need to be in place. The International Monetary Fund (IMF) along with other financial organizations have called for global coordination on potential bitcoin regulation. Today, the rules vary greatly from country to country and individual regulatory agencies are not making it any clearer. At the moment, this brings additional risks to international investment projects.
3. Might reduce flexibility of different investment strategies, such as different ownership structures, business structures and tax efficient setups for portfolio investments. As we have not seen these type of complex deals before, it is hard to predict the outcome.
We will continue to observe closely the development of blockchain technologies in property investments. Striving to achieve the balance of being innovative and providing our clients with safe investment opportunities we might enter this vibrant market very soon.
KL Property Partners
KL Property Partners
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