The real estate market in India poses several challenges, particularly transparency and trust concerns between buyers and sellers. The transaction costs associated with the purchase of a property are also high. They include commissions and fees paid to real estate agents, lenders, brokers, inspectors, etc. However, since the outbreak of the pandemic, several technological innovations have revolutionized the industry and transformed the way one invests in real estate.
DeFi, or Decentralized Finance, is disrupting the real estate market by eliminating the hassles caused by intermediaries. Through blockchain technology, DeFi redefines how investors interact with financial products. It offers the benefits of automation through smart contracts and security. Moreover, it offers transparency, making the industry more inclusive and cost-effective.
DeFi meets Real Estate
Real estate is one of the most popular forms of investment in India. And the need to make it decentralized was much appreciated. Buyers often came across problems like high processing loan fees, lengthy approvals for mortgages, and scattered yields. DeFi helps resolve these problems and develop a more robust environment for users.
While real estate is a physical product, its use as an income-generating asset involves several processes that can be automated. DeFi optimizes real estate, transforming it into a lucrative investment option. Many decentralized applications (DApps) exist in the market. Lenders, investors, developers, property owners, and real estate agents can choose to hop on the trend as they please.
How DeFi impacts the real estate industry?
Real estate investments often involve complex contracts that lead to delayed closing and high fees. Smart contracts execute automatically after the pre-determined conditions are met. These automated contracts verify ownership, identity, and available funding. They eliminate the need for intermediaries. As a result, investors can save a lot of time, effort, and money.
Smart contracts can also automate real estate computations to the T. They ensure a fair play system for all stakeholders. As more individuals and offices adopt the concept of co-working, calculating the exact use of the property becomes tougher. Smart contracts automatically compute the usage and the price to be paid to the co-working owners.
It is not possible to break physical properties into smaller pieces. However, tokenisation enables dealers to digitize physical space. NFTs, or non-fungible tokens, are stored on a blockchain and certify the ownership of unique digital assets. When these tokens are allotted to physical assets, different portions of the asset can be sold to different buyers. For instance, a 5,000 square feet property can have over 100 digital versions and owners, each having 50 square feet or more. NFTs or tokenisation help to document fractional ownership on the blockchain. Based on the proportion of ownership, investors can earn from the property without physically dividing it.
The real estate sector witnessed growth from USD 690 million to USD 14.3 billion in terms of value that was tokenised between 2020 and 2021.
- Fraud prevention and security
One of the most prominent benefits of blockchain technology is reducing fraud. It does not allow data tampering and data stealing. No one can modify a single, central record, resulting in enhanced safety and security. Real estate investors transact with large amounts of money, especially cash. Security is a serious consideration. DeFi helps in reducing the chances of fraud.
With a historical centralized record keeper, one can face the challenges of data damage, loss, or modification. This can lead to serious complications for real estate investors as they do not have complete records to verify a property’s title, maintenance history, and insurance and tax information. Blockchain ensures that data isn’t destroyed, modified, or lost. It remains safe. Therefore, DeFi streamlines acquisitions, enhances investor confidence, and lowers costs.
DeFi and real estate could explore many more possibilities together. The technology is evolving at a rapid pace, and owners and investors can benefit significantly from the innovations in the space. If traditional financial institutions welcome decentralized alternatives, DeFi can truly change the face of the real estate industry. Investors of all categories can create a diversified portfolio and maximize returns. The industry could see disruptions like peer-to-peer mortgages verified on blockchain replacing traditional financing, fractional-ownership REITs denominated in crypto increasing accessibility, and tenants paying rent in tokens.
Views expressed above are the author’s own.
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