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
By Michelle Bryant / Strategic Partner at KL Property Partners
Article review: First bitcoin homes sell in the UK
Unless you have been hiding under a rock or living on another planet you will be well aware of the phenomenon that is "Blockchain."
The digital ledger known as "Blockchain" in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly, enable transactions to be lightning fast at very low cost. It is now possible to buy and sell UK property with bitcoin enabling exchange and completion to occur at the same time.
I love change and am all for new sophisticated, slick systems especially in the world of finance and property. However, I cannot yet fully understand how we commence recording such transactions on a balance sheet and integrating them into a property portfolio?
It is actually happening right now and it is being predicted that this will be common place in the very near future.
But, back to the basics:
Bitcoin is volatile. Accountants are conservative creatures.
According to the media there are many UK sellers out there who are keen to accept bitcoin but really do they understand what they are potentially exposing themselves to?
I will be very interested to see how such transactions in the property industry further evolve and in what volume. I will be watching very closely to see how such transactions are treated for accounting purposes, how they are handled by all the necessary parties and how they will or won't be regulated.
This could be epic. Watch this space...
KL Property Partners
KL Property Partners
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