Blockchain: The Future of Real Estate Transactions

The relative illiquidity of real estate assets, compared to other investment vehicles such as stocks and bonds, has long been one of the biggest drawbacks of being a real estate investor. A combination of factors, such as high capital requirements and tedious documentary processes — among others, make it extremely difficult for property owners to sell or dispose of their assets at a fair price and in a timely manner. Often, real estate owners — on top of high transaction fees — are faced with a tough decision to either sell at a deep discount or wait at least three to four months just to be able to dispose of their property. It is this illiquidity problem which C Estates Inc., a real estate startup established in 2018, plans to solve through the introduction of a blockchain powered online platform. This new exchange system, which is expected to launch before the end of 2019, would essentially allow the users to buy and sell property with a simple push of a button (SEE: Soon you can buy a property using tokens, Business World).

How would a blockchain powered real estate exchange in the Philippines look like?
According to a recent press release made by C Estates Inc.’s Chief Executive Officer (CEO) Teru Sumida, the proposed platform will utilize a process more commonly known as tokenization in order to solve the illiquidity problem which plagues the Philippine real estate market (SEE: Blockchain based real estate platform to launch in PH this year, The Philippine Daily Inquirer). Tokenization, in layman’s terms, is the process of representing a certain transaction or asset in terms of digital blocks or tokens, also known as tokens, to be placed in a blockchain. C Estates plans to utilize these digital tokens in order to represent ownership in certain real estate assets such as land, houses, condominium units, office spaces, etc.

For example, a certain 1,000 square meter (sqm) house and lot for rent located in the heart of Metro Manila might be represented in the online platform using 100 digital tokens — with each token representing a 1% ownership in the actual real life property. These tokens could then be bought and sold through the platform at an agreed upon price. In addition, any rental or other income arising from the property would then be distributed to the holders of the token just like a dividend. In essence, a virtual token, representing part ownership in a certain real estate asset, would be similar to a share certificate, which in turn represents part ownership of a certain corporation. Extending this analogy even further, the proposed platform of C Estates Inc. could then be described as a “stock exchange” just for real estate assets in the country.

Another key feature of the exchange is its innovative utilization of the blockchain technology, which is described by Don and Alex Tapscott as an, “Incorruptible digital ledger of economic transactions.” It is incorruptible due to the fact that the information is recorded and validated simultaneously by the millions of computers connected to the internet. Once the information is verified and added to the chain (thus the term blockchain), it can no longer be changed. This feature of the blockchain increases transparency and virtually makes fraud almost impossible (SEE: Democratizing the real estate industry using blockchain technology, Manila Bulletin). If successful, C Estate would be the first company in the Philippines to use the up and coming blockchain technology for real estate transactions.

For more information about blockchain (SEE: What is Blockchain Technology? A Step by Step Guide for Beginners, blockgeeks.com)

What are some of the benefits of utilizing blockchain technology in the Philippine real estate market?
Through this innovative blockchain powered real estate exchange, C Estates hopes to accomplish two objectives. (1) First, the blockchain based exchange will make real estate assets more liquid by reducing the time it takes to sell property. (2) Second, the platform will increase the profitability of investors by minimizing transaction costs.

Blockchain technogy will improve real estate asset liquidity
According to the top management of C Estates, it currently takes three to four months on average for a real estate investor in the Philippines to sell property (SEE: C Estates all set to tokenize real estate industry in PHL, Business Mirror). The platform can help remedy this situation by dividing the property into smaller and more affordable tokens — which would be much easier to sell to other investors and market players. In addition, selling tokens rather than the property itself takes much less paperwork. The founders of C Estates claim that through their platform, real estate owners can sell their property in as fast as one day.

Blockchain technology will minimize transaction fees
Currently, transaction fees — consisting of real estate agent‘s fee and other legal expenses — can eat up as much as 10% to 15% of the selling price (SEE: Global Property Guide). These fees make it much more difficult to profit from real estate. The proposed platform can again help remedy this problem through the use of blockchain technology. Since the transactions will be decentralized, there will essentially be no middle man that has to be paid. As a result, the selle will get to keep most — if not all — of the selling price. C Estates estimates that, by using the platform, transaction fee will be reduced to 2% — which is just enough to cover taxes.

Is this the future of real estate transactions?
The founders of C Estate Inc. hope that their innovative blockchain powered real estate exchange platform would someday be the gold standard for real estate transactions in the Philippines. If their platform is able to deliver exactly as they advertised (meaning, one to two day selling time with minimal to no transaction costs), then the market would surely take note and begin shifting to blockchain as well.

(The cover photo is taken from the C Estate Inc. company website, https://www.cestates.io)