Digital currency might be the ultimate fame game for blockchain technology but the cutting-edge DLT technology is fast making big waves with another revolutionary application as well- smart contracts. These are state-of-the-art digital contracts that work based on conditioned programming. Being a blockchain application, the smart contracts are backed by all the major next-gen features of blockchain that make it a valuable addition to several industries. Real estate is one such key industry where smart contracts have proven to be a great addition. Put simply, smart contracts have brought more efficiency, speed, transparency, and safety to real estate transactions and processes. Check out more at Multibank.io.
We will discuss in detail how smart contracts are helping the real estate industry. But before that, let’s have a few words about smart contracts.
Smart contracts
As mentioned above, smart contracts are a kind of blockchain application powered with versatile real-world use-case potential. These are automatic self-enforceable contracts that work on the principles of conditioned programming. It implies, the contracts automatically execute an agreement or transaction immediately after the pre-set conditions have been met by the participants in the contract.
It’s to note here, smart contracts are empowered by the game-changing features of the blockchain technology-
Decentralization- processes transactions or contracts in a direct P2P environment without the involvement of a central intermediary
Transparency- All contracts or conditions or terms embedded into smart contracts are easily visible to all involved parties
Encrypted security- Smart contracts can assure optimum security for all data embedded into it through graphy protection
Immutability- No data entered into smart contracts can be altered or manipulated
Real estate companies can use smart contracts for creating contracts for all kinds of real estate activities, such as purchase, sale, rent/lease, and so on.
Smart contracts used for these real estate processes might include these following conditions-
- Payment deadline
- Amount to be paid
- Installment
- Discounts
- Penalties
- Contract duration
- Security deposit
The smart contracts will automatically process transactions once the conditions are fulfilled. But, if the conditions are not fulfilled, the contract will get dissolved automatically.
How do these contracts help the real estate businesses?
Faster and more affordable transactions
This is certainly one of the most significant ways how smart contracts benefit the real estate industry.
If you have been acquainted with the realty industry, you must be aware that the property-related transactions could be exorbitantly pricey. Closing fees tend to shoot up the costs given the involvement of several intermediaries like brokers, lawyers, banks, and so on. On the other hand, the red tape protocols cause lengthy delay to the whole transaction.
Well, the smart contracts relieve the real estate scene from all these hassles, thanks to its decentralization attribute. Operating on a decentralized infrastructure, the smart contracts remove the need of intermediaries and facilitate direct transaction- thereby eliminating both delay and high costs.
Removes miscommunication and improves trust
Smart contracts help to ensure complete transparency about the entire contract. This way, every single clause and condition of the contract is always visible to every single member involved in the contract. This “transparency” quotient automatically eliminates risks of miscommunication and misunderstanding- and boosts up the “credibility” quotient among all parties.
Complete data protection
This is another major area where smart contracts have proven to be invaluable for the real estate industry.
All the processing or transaction related data entered into the smart contracts will be guarded by cutting-edge encryption. The encryption factor, coupled with the decentralized framework of the smart contracts, makes data hacking almost impossible.
Another factor is any data entered into smart contracts cannot be manipulated. Thus, when you will process your real estate contracts or documents into smart contracts, you will be assured that the data will always stay intact- nobody, including you, would be able to alter any part of the data.
Helps in fractionalization
Smart contracts help to introduce easy fractionalization to the realty sector. The concept of fractional ownership offers a window to pool funds (by multiple investors) to purchase a property. This is especially important in case of high-end properties where it might be difficult to attain a single buyer.
Smart contracts facilitate fractionalization by enabling division of properties into multiple fragments that could be sold individually. Besides, these advanced contracts allow umpteen sums of fragments to make the property accessible for a large host of willing investors.
Fractionalization is one prime area where smart contracts enjoy an upper hand over the traditional contracts and processing systems in the real estate industry.
Improved liquidity
The smart contracts also help to elevate the real estate industry through the benefit of improved liquidity.
Low liquidity has traditionally been an issue with the realty sector. Reasons were many , ranging from lengthy transaction process , entry barriers, confusing outreach, higher holding periods, exorbitant fees, and so on.
But, we have already discussed how the smart contracts can assure faster, more streamlined, and more economical transactions and processing. It has also been mentioned that smart contracts help to bring easy fractionalization in real estate property division which is another factor that can improve liquidity in the real estate scene.
And how will liquidity help the real estate sector? Well, low liquidity is a big barrier to market entry. Smart investors always look for investment opportunities that can offer them room for high liquidity. In other words, higher levels of liquidity is one of the biggest pulls for investors for any industry, be it currency or real estate. Thus, improved liquidity would bring in more investors to the real estate sector and eventually scale up the industry to greater heights.
Wrapping up
So, you have quite a long list on how smart contracts would prove to be immensely helpful for the real estate sector. We will end the discussion here with another small but extremely helpful advantage of smart contracts for the real estate industry. The smart contracts help to eliminate the paper-based contracts through their all-digital infrastructure. Digitally-stored contracts are beneficial for the environment and also stay unaffected by any catastrophe or physical attack.
