Blockchain technology and realty revolution
CHANDIGARH: The real estate sector is plagued by lack of transparency, which leads to fraud, lowers investor confidence in the market and increases the costs of carrying out due diligence before a real estate transaction can take place.
The blockchain technology has the potential to transform how the realty business is done by increasing transparency, eliminating title fraud and corruption.
Col RS Perhar (retd), executive council member, Internet Service Provider Association of India (ISPAI), and former member executive council, Asia Pacific Network Information Centre (APNIC) says, “Blockchain is a digital ledger that contains digital record of transactions. It is the next big opportunity for stakeholders to improve transparency and accountability in the realty sector. The government has to be at the core of this endeavour starting with digitisation of all land records and making ‘block’ of every record and transaction. These will be accessible to the public through public (freely available) and private (document owners) keys. Anybody can see property records through the public key, but will need owner’s private key to see what’s in it.”
Blockchain is touted to be the most coveted technology in Indian real estate sector. “The underlying principle of blockchain technology is the distribution of digital information in a secure and efficient manner which can be accessed, albeit with some restriction, but not copied. This technology will usher in greater transparency, efficiency and accuracy in the Indian real estate sector, which involves multiple parties, detailed due diligence and numerous transactions,” said, Anuj Puri, ANAROCK Property Consultants chairman.
HOW IT CAN HELP?
Blockchain has the potential to create, authenticate and audit contracts in real time across the world and without intervention from a ‘middle man’ which makes it attractive to many and that is why it could drive a new era of ‘smart’ contracts. “These contracts have instructions rooted in the transaction so that payment can only be taken as long as the instructions are fulfilled providing complete transparency to all parties and reducing the likelihood of payment disputes,” says Ramesh Nair, chief executive officer and country head of JLL India
Blockchain’s electronic recording system is bringing a change to paper-fueled world where real estate in particular can benefit. “One big advantage of a blockchain system is its ability to eliminate risks such as fraud. This in turn provides process integrity, transparency, high quality data, faster transaction and lower costs. More also needs to be done to improve awareness and understanding of how it works in the wider business world if blockchain is get the investment it needs to achieve its early promise. Like all new technologies there are unknown factors but overtime, it is believed trust will grow and adoption will take place,” says Nair.
Given the rise of online portals, buyers have easy access to search real estate properties ‘online.’ However, the subsequent stages of documentation, past records, due diligence, registration and final closure, pose a real challenge. “Blockchain technology, the next wave of digitisation, will make this process simpler. Simply put, post identifying a property, a buyer can access title records, encumbrances, property taxes, etc from government records. Further, using a passcode/private security key of the seller, a buyer (or his representative) will be able to access all previous property records such as maintenance payments, ownership, etc,” says Puri.
Once property is finalised, a buyer can share these records with bankers and mortgage can be arranged to post a digital due diligence. In addition, with digital signatures, payments can be transferred to the seller and the property can be registered in the name of the buyer. “All-in-all, a property transaction can be concluded faster, seamlessly and with limited manual intervention – enhancing the overall efficiency of the system,” Puri.
CHALLENGES
Blockchain is making an impression on the real estate world, but is still several years away from wide-scale implementation. The real estate industry struggles with highly regulated, complex and time-consuming systems. “If we look particularly at construction, building regulations have enforced minimum standards and contracts require certification from approved companies and individuals, which in spite of being important, creates large delays. Nevertheless, real estate companies will embrace the benefits of increased speed, lower cost and better security associated with blockchain in the near future,” adds Nair.
The real challenge comes from the government itself. “Unless the government realises great potential of the blockchain technology, the sector isn’t likely to benefit. Most of bottlenecks, corruption, lack of transparency and accountability comes from government mismanagement of the realty records and transactions. But if the blockchain technology is implemented systematically and true intentions, it can benefit the government also in terms of increases revenues,” said Col Perhar (retd).