Today the Enterprise Ethereum Alliance (EEA) published a paper about Real Estate use cases for blockchain technology. Some might associate the EEA with private permissioned networks, but the term permissioned is mentioned just once as a short term alternative to using the public Ethereum blockchain. The paper outlines many of the potential blockchain applications in the property sector with an emphasis on tokenization, land registries and standardizing real estate data.
Project financing is one example of tokenization. Instead of needing deep-pocketed investors for a property development project, it might be feasible to tokenize a development and sell fractions in it. The other advantage is that if the investor wants out before completion, the tokens can be sold before the construction finishes. That’s provided there are willing buyers at an acceptable price. Another similar example is to create a syndicate of investors for a large development.
Using tokens for mortgages is something that’s already happening. The paper describes the potential for raising money from friends, relatives, or banks.
Owners of larger properties with many apartments could use tokens to release a portion of their investment. That’s an alternative to the current situation where the landlord would either have to subdivide the property title or take out a mortgage.
Blockchain tokens and marketplaces go hand in hand, so perhaps the most obvious use case is to create a marketplace for real estate tokens.
The document mentions the current REITs for investing in a property portfolio but contrasts it to the advantages of investing in tokens in specific properties. But we didn’t see a mention of the likely enterprise scenario of securitizing a portfolio of assets or mortgages and selling tokens in the package of assets. That’s an area currently being explored by Symbiont and others.
Data standardization is a common issue with blockchains because all the different parties need to share data. The paper argues that currently, the real estate market has become dependent on a few centralized portals and intermediaries that translate data formats. Standardizing data will enable decentralization.
Several land registries around the world are already exploring using blockchain. For jurisdictions which aren’t yet digital, the benefits are enormous. Not mentioned in the paper, but addressing fraud is a significant advantage. Where land registries are slow to process data, it’s possible for properties to be mortgaged multiple times. The paper points out that it’s critical to ensure the title is correct before incorporating it on an immutable blockchain.