Can Blockchain Technology Aid Real Estate Transactions in Canada?
We all have that friend or family member who talks about cryptocurrency and blockchain. It might seem like they are speaking a foreign language as they go on and on about diamond hands, exclusive NFT drops, and PFP projects. But the technological movement at its root is not about monetary gains or trading. This is because blockchain has evolved past simply underpinning cryptocurrency.
It's about building the financial infrastructure of the future.
The palpable excitement in the space is built off the foundation that powers billions of financial transactions and the endless number of applications in the real world where blockchain technology could be viable. As real estate industry professionals, we must read between the lines of code and see the potential for technological improvements in the market.
In an industry that continues to deal with fraud, blockchain technology can help through the implementation of smart contracts, creating a more comprehensive system for real estate data storage, and creating more opportunities for fractional housing investment in Canada.
Let’s get into it.
What is Blockchain Technology?
To put this in perspective, blockchain is an encrypted, tamper-proof record-keeping system. Every asset or record is stored on a block. A box that contains and ensures every record has a unique identifier. Every block is linked to a longer chain. If the block does not sync with the blocks before and after it, the entire chain becomes invalid.1
You can’t “hack a block” without disrupting or “breaking” the larger chain. Thus accuracy, tracking, and movement of funds are guaranteed without the need for a middleman.
Real Estate Fraud in Canada
With real estate fraud being a growing problem in the country, can you see how blockchain technology (Figure 1) can be a major game-changer for real estate transactions? Let’s make the picture clearer by looking at recent and past events.
On January 14, 2022, Peel Regional Police released a search for an Ontario lawyer wanted for mishandling over 7M dollars in trust money held for clients to pay off mortgages.2 Go back farther to August 2012, and you can find the story of Zhang Gaunqun.3 A student that arrived in Montreal with 23,800 Euros from various sources and foreign locations. Through online wire transfer, this amount increased to millions over a brief period and the money was then laundered into real estate. This makes the origin of the funds much more difficult to track and the purchase of illegitimate properties difficult to stop.
Let’s look at how blockchain technology can aid real estate transactions in Canada.
The Implementation of Smart Contracts
A smart contract is a self-executing contract between a buyer and seller written directly into lines of code on the blockchain. Therefore, all the agreements and conditions outlined are distributed across a decentralized chain of blocks. The programming of the code controls the execution of the contract and transactions within are trackable and irreversible.4
In other words, it is a “computerized transaction protocol” that executes the terms of a written contract. It allows trusted transactions and agreements to be carried out without the need for a “central authority, legal system, or external enforcement mechanism.”
Revisiting the recent case of the Ontario lawyer who defrauded over $7M dollars in trust funds for mortgages, it is clear to see how smart contracts can help. Organizations that implement them can automate various parts of real estate transactions with full reliability. More specifically, smart contracts can empower the automatic release or transfer of funds when certain conditions are met. This avoids fraudulent activity while holding funds in trust or requiring a human to manually begin the next action.
A More Comprehensive Form of Data Storage
The infrastructure of blockchain technology means it can facilitate more in-depth kinds of data than currently available in real estate transactions. In the future, residential homes and commercial properties can have unique identifiers on the blockchain. Like the way a Vehicle Identification Number (VIN) number works with a car, prospective home buyers can learn about past owners, any serious damages, or if there have been any repairs. The blockchain does not lie, so there would be no way to hide or conceal any potential information that would impact a sale of a home.
On the other hand, homeowners could use the unique identifier to service future repairs with greater accuracy and transparency while recording any improvements to the home automatically.
Fractional Real Estate Investment in Canada
Due to the surging year-over-year costs of residential homes across Canada,5 investment and homeownership have become a runaway train for most young Canadians. Another reason homes are becoming harder to reach is that for the most part, homes can only be bought and sold in complete units.
But blockchain technology real estate investment can change that.
In 2018, a condominium in Mississauga went up for sale for 35 Bitcoin ($445,000 at the time).6 The same number of Bitcoin today would be worth around 1.6M. It was a bold move from someone who believed in Bitcoin’s future. But it was the start of something bigger.
Imagine the possibilities of being able to tokenize a property and sell portions, like crowdfunding. Prospective homebuyers could liquidate or re-mortgage the whole property and open the door for much smaller real estate investments. In fact, this week, a start-up named Realblox launched one of the world’s first blockchain-based real estate tokenization platforms. According to the release, “their technology allows retail investors to share ownership in global real estate investments, without incurring expensive costs and going through complicated transactions.” 7
With the ever-present risk of fraud in the Canadian real estate industry, blockchain technology can be applied to several use cases to improve trackability, transparency, and reduce the risk of fraudulent actors having their way. The infrastructure is no longer a pipedream, as real-world applications exist today and will continue to be developed into the future.
What does this mean for homeowners, home buyers, and home sellers? If anything, it simply represents the opportunity to get involved in a burgeoning industry. To learn about something that is clearly making an impact in the lives of millions across the planet. It invites all participants in the homeownership journey to realize the potential of something faster, safer, and more reliable than traditional means. Change is good, even if it is a process sometimes.
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