Understanding Blockchain Technology

Blockchain technology is a system of distributed ledger technology where data is stored and shared across a network of nodes. This system makes it difficult to change or alter the data. Therefore it’s secure, transparent and is trustworthy – this is particularly important in real estate where there are many parties involved. 

This concept is called decentralization and is quite different from storing data in centralized networks. Records stored in a centralized ledger can’t be trusted because they can be easily altered by the central authority. 

One important concept that makes blockchain tech possible in the real estate industry is the smart contract. Smart contracts are digital contracts that execute themselves when predetermined  conditions are met. For example, a property owner and a buyer can agree on a certain amount to be paid for a piece of property. Once the buyer pays, ownership is then transferred to them – no middlemen involved, and payment of exorbitant charges is ruled out.

Benefits of Blockchain for Real Estate Developers, Owners, and Investors

Smart contracts – rapid settlement

One of the problems in the real estate industry is the sheer number of paperwork needed for one transaction. Some of them include letters of interest, closing documents, offer sheets, and list agreements. This can take a long time to fill out and get documentation from the parties involved.

Instead of signing these manually, they can be digitized and made into lines of codes that can be tracked and executed when both parties (buyer and seller) fulfill their responsibilities. Once written, the contract becomes irreversible. So after both the developer and buyer have satisfied their roles, the property can then be transferred with fewer or no middleman.

This streamlines the acquisition journey and makes the transaction move faster.

Real estate crowdfunding

Developing real estate is difficult as it’s capital-intensive. Also, accessing loans from banks poses another issue due to the high interest rates.

One scheme that’s helped businesses raise capital to fund their projects is crowdfunding. However, crowd financing in Africa isn’t widespread, especially in the real estate sector. But thanks to the blockchain, property developers can now embark on a project and secure crowdfunding to finance it through domestic and international investors.

Investors from all over the world can invest in a building project and easily track ROI. Blockchain provides transparency for financial models like this to thrive in the real estate industry.

Ability to fractionalize real estate – real estate liquidity

Still on funding real estate, one of the most important ways investors can be able to invest in real estate properties is by getting fractional ownership. The concept of fractionalizing real estate ownership on the blockchain is called Real Estate Tokenization.

Tokenized Real Estate unlocks so many opportunities for both the property owners and investors. First, owners can sell parts of their properties without giving up all of them. Second, they can easily make money from their investment without waiting for long for one buyer to come along and buy it.

Everyday investors, on the other hand, can now invest in (and profit from) properties that originally would have been out of their reach. They don’t have to give up all their savings or borrow to buy a property as there are lots of properties to invest in when they’re ready.

This is how it works: property owners and developers can list their properties on tokenized real estate marketplace. Before listing a piece of property, they’ll be tokenized – split into fractions that can be bought by retail investors. Investors can then buy whichever amount of token they can afford.

In essence, blockchain technology and tokenization makes a highly illiquid asset like real estate more liquid. Hence, investors can buy fractions of a property on a marketplace and trade it like stocks on the marketplace whenever they want.

Example 1: Lakehouse in Oakland, California.

RedSwan CRE tokenized and raised equity for this project using blockchain technology

https://marketplace.redswan.io/property/1195

New Development

26 Storey building

270 units of apartment

Developer equity raised: $43,500,000 (44%) 

Minimum investment: $1,000

Status: Sold Out & Closed

Access to domestic and international investors

The blockchain allows for borderless transactions. Since investors don’t have to engage the services of lawyers and brokers before finding an investment opportunity in a country or another city, they can easily invest in any property in the marketplace directly.

African developers can get investment from investors across the globe. While a Nigerian investor can invest in a property in Kenya, South Africa, or even the United States.

The good thing is that investors won’t have to pay hefty fees or travel physically to visit a property (Blockchain builds such trust).

Transparency and traceability

Managing real estate projects can be cumbersome as there are many subcontractors to deal with and no efficient means to track the project, supply chain, and deliverables. Everything is done manually. But with blockchain technology, these processes can be streamlined and tracked to enable the faster execution of projects.

Also, just like there are marketplaces for freelancers and their reputation depends on their deliverables, blockchain can provide such a platform that will reward contractors for their performance. Also, smart contracts will handle the financials and automate contractual agreements. All these will ensure contractors deliver more quality goods and services.

Raise real estate capital faster and more efficiently

Putting all these together, you won’t have to find investors for your property/project. 

Some high-rise properties in Nigeria cost billions of Naira. Only 1% of Nigerians can afford such buildings, so selling them will be a Herculean task. But as stated earlier, tokenization will allow property owners to quickly raise funds to either complete their projects or recoup their money and begin other projects. This is possible because it’s easier to sell portions of a piece of property rather than selling a NGN 1 billion property wholly to one buyer.

Tokenized real estate marketplace have teeming investors looking for the next hot property. You don’t have to source investors – they’ll come to you. Simply list your property, and leave the rest for the marketplace. The platform will take care of the contracts and financial sides.

Example 2:  Nottingham Village, Houston, Texas.

https://marketplace.redswan.io/property/1197

Existing Building

317 units of apartment

Developer equity raised: $8,800,000 (80%) 

Minimum investment: $1,000

Status: Sold Out & Closed

Increased security by removal of human errors

When dealing with pen and paper, there are bound to be errors, fraud, mismanagement, and the tendency for documents to go missing. Blockchain fixes these.

Smart contracts replace paper documentation. Once a smart contract is written, it becomes immutable, eliminating any potential for fraud. Secondly, investors will be able to track the history of the property to know the original owner and history of ownership changes made to the property. These increase investor confidence.

GenZ and Millennial’s advantage 

Real estate tokenization has opened up opportunities for the Millennials and  Gen Z who are more digitally inclined. Their generation understands trading and investing through the blockchain more than the older generations understand stock trading. Tokenized real estate provides them a better alternative than cryptocurrency which is characterized by high volatility. Real estate is stable and appreciates in value.

Tokenized real estate enhances access to different kinds of real estate properties

Unlike before when it’s only institutional investors and high net worth individuals that have access to quality classes and kinds of real estate. Tokenized real estate has removed barriers of entry. 

Retail investors can now have affordable access to different kinds of quality real estate. 

• High Rise residential buildings
• High Rise office or mixed use buildings
• Hospitality – Hotels & Resorts 
• Industrial warehouses
• Retail Buildings – Malls
• Student housings 

You have access to multiple domestic and international tokenized real estate. 

Conclusion

Blockchain technology has a lot of potential to revolutionize the continent. As such, RedSwan is making real estate investing affordable and accessible for everyone. You can now own a portion of a valuable high-rise property without buying the whole of it. As a real estate developer or property owner, you can enlist your real estate on a tokenized real estate marketplace to raise equity from investors.

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