The introduction of blockchain technology to the property market has made it easier for both the buyer and seller to know and understand what is happening at each stage, and why there might be hold-ups.
Not sure what blockchain technology is? Here’s everything you need to know, plus some pros and cons to consider.
What is Blockchain?
Firstly, it's not a particularly new concept. The potential in using blockchain technology to assist in property transactions was announced back in 2018. The tech can be used to transfer the purchase price for real estate transactions using established cryptocurrencies as well as through initial coin offerings. In layman's terms, it is a digital transfer in place of the long-winded sales process you would usually go through.
HM Land Registry recently did a trial of the blockchain prototype that took 10 minutes to run through end-to-end. The trial in real life took the original buyer and seller 22 weeks from start to completion. You can see why using blockchain technology is looking to be a very positive addition to the UK property market!
Blockchain technology has the potential to:
Open the market up to more potential investors.
Eliminate the lack of transparency there is around the buying and selling process.
Transfer fees, solicitors fees, exchange fees etc. may be a thing of the past.
The housing market may become more liquidated, which would mean it would be quicker to turn an asset into hard cash.
Transaction speed could significantly increase.
Gain a small piece, in a valuable pie!
Through asset tokenisation, you can convert an asset i.e property into a digital token that is tradable online.
By doing this, it adds significant liquidity to the real estate market. Currently, if you are looking to invest in a residential property in London, you need around £700k or more. At this price, the pool of potential buyers is limited. However, if the property was tokenised and you could invest in a portion of that token, it opens up investment opportunities to a bigger range of potential buyers.
The technology behind blockchain allows for total transparency between all parties, so no one is waiting for the go-ahead to complete certain aspects of a sale. Smart contracts then enable automation across the transaction, which includes the transfer of funds and updating the Land Register. Again, this effectively cuts out the middle man, making the process a lot quicker and less painful.
Blockchain technology allows for:
Quicker property transactions.
Increased trust in the transaction.
Higher levels of security.
Increased transparency for participants in the transaction.
Plus, using blockchain technology looks like it could show a significant reduction in property fraud and money laundering.
Whilst the pros seem very promising, it's always good to share any potential cons:
There is currently not enough evidence to suggest what the long-term effects may be if blockchain is successfully implemented across the wider housing market.
There are likely to be a few blockages as governments and organisations design the infrastructure for implementing this technology.
Solicitors and others with similar job roles in the property market could become redundant in property transactions, which would be a huge blow to the job market.
In summary, if blockchain were to be rolled out across the real estate market, it could get rid of one of the biggest problems in the industry - speed, time is money after all!
The more we find out about this exciting potential change in the market, the more information you will find here, so watch this space!
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Normette Homes specialises in property investment and tenant sourcing.