The real estate industry is dying. A few months ago, Gary Keller (founder of Keller Williams) said that the current market is “the most confusing I’ve ever seen” in his 40 years of doing business. In the last year, we’ve seen countless major industry players and public companies go through massive layoffs or disappear entirely. A few recent examples:
- Zillow, Redfin, and eXp stocks are down 82-95% from recent highs.
- Opendoor, Compass, Offerpad, and Doma are each now worth less than the amount of capital they each raised, collectively making over $2 billion in venture capital disappear.
- Reali and REX shut down this year after raising over $400M combined
- Better.com has had four rounds of layoffs and keeps delaying its IPO
- There have been massive layoffs at Ribbon, Flyhomes, Homeward, and more.
Needless to say, the outlook at the moment is grim.
No bull, no success
I’ve been building real estate technology for most of the last decade and am close with countless people who have been directly impacted by the downturn — it’s terrible. But if I’m brutally honest, some of this feels like chickens coming home to roost. It’s no secret that the real estate industry is highly protectionist, bureaucratic, and in many ways, still operates much like it did in the 1850s.
Unfortunately, the industry revolution that so many venture-backed real estate companies pitched to jack up their valuations is revealing itself to be little more than a rehashing of traditional (and arguably predatory) business models that can only perform in a raging bull market.
One of the greatest problems that plagues the space (which our team has experienced over and over again) is gatekeeping of real estate data. This results in homebuyers, sellers, and owners being in the dark about their most significant asset, while making rapid innovation in the space nearly impossible. For the largest asset class in the world, this is unacceptable.
Fortunately, there is hope — blockchain.
A Brief History of Blockchain and Real Estate
To be clear, by blockchain, I don’t mean the crypto fraud of Sam Bankman-Fried or cartoon turtle NFT ponzi schemes. I’m referring specifically to the decentralised technology and infrastructure that is powering the next wave of global innovation.
Real estate has long been talked about as one of the most obvious real-world use cases for blockchain technology.
The conceptual foundation for blockchain technology stretches as far back as 1979, when computer scientist and mathematician, Ralph Merkle, released a paper detailing a system for recording digital signatures. Satoshi Nakamoto mined the first bitcoin in 2009, and soon after, applications of blockchain technology and real estate began to appear.
In 2016, Bitfury created the first-ever blockchain land-registry system in partnership with The Republic of Georgia and years later the first major real estate asset was tokenised through Ethereum.
During the pandemic, investment in blockchain skyrocketed. As a result, dozens of new Web3 real estate companies have emerged, ranging from digital REITs and DeFi lenders to fractionalised ownership marketplaces and metaverse ecosystems.
Additionally, many legacy companies and organisations began blockchain pilot programs including real estate developers and mortgage lenders. Some have even started accepting cryptocurrency as collateral, deposits, or down payments.
Use Cases for Real Estate and Blockchain
Data recorded on a blockchain is immutable, which ensures the reliability of that information. Blockchain technology speeds up peer-to-peer transactions and improves transparency, while eliminating third parties and middlemen.
The potential is truly limitless when applied to an industry as opaque, archaic, and slow as real estate. To show you what’s possible, here are three use cases that I like to highlight:
#1: Real estate tokenisation and fractionalised investing
For many Millennials who are confronting their second major recession during their peak career earning years, the promise of homeownership seems to be slipping from their grasp. I’m a Millennial, I’ve been renting for almost 15 years — this is very real and scary.
When you tokenise a piece of real estate, you convert the value of the real property into tokens which can be fractionalised. This in turn, “brings the benefits of the stock market — with its low barrier to entry, high liquidity and quick transaction times — to real estate, which many prefer as a less volatile and familiar investment.”
Fractionalised ownership will allow more individuals to participate across socio-economic classes by making the asset class more affordable. This democratisation of property ownership has many long-term benefits including combating discriminatory zoning laws, gentrification, and ensuring that community members have a voice in how their neighborhood grows and develops.
Some great teams to watch in this space include Homebase, Lofty and RealT.
#2: Streamlining the transfer of property ownership
Blockchain’s distributed ledger technology allows users to record and process transactions immutably and immediately without involving third parties.
We’ve already started to see examples of companies selling real properties as NFTs. While there are a myriad of municipal hurdles to clear before instantaneous transfer becomes a scalable reality, there’s a lot of good work being done. The amount of time, money, and frustration that can be saved with blockchain technology solutions should not be understated.
Transactions can be settled immediately, enabling more seamless global asset distribution.
Even countries like Australia, which has a robust electronic property settlement system (PEXA), still suffer from a host of inefficiencies due to this intermediary between the parties and the record of the transfer in the Torrens system – the current land title system.
Some great teams to watch in this space include Roofstock OnChain, Parcl, Propy and CougarDAO.
#3: Providing homeowners with invaluable data about their properties
Earlier, I mentioned how one of the largest problems with the real estate industry is the inaccessibility of data.
Blockchain oracles connect smart contracts to information from the outside world and offer a solution to the fragmented and siloed nature of real estate data.
The oracle is the infrastructure that verifies, authenticates and relays information from external data sources, primarily using channels such as APIs, proprietary data feeds and internet of things (IoT) feeds.
By assembling the corpus of real estate data on-chain, we can establish a reliable source of truth for information about homes and all real-world assets (RWAs). Once the data is put together, normalised, and made easily accessible, anything is possible — faster approvals, auto-refinancing mortgages, DeFi lending, instantaneous title checks and property rundowns, more accurate underwriting, the list goes on.
Oracles also open up opportunities to individual consumers, not just companies and organisations.
Our team built an app that allows any homeowner to claim their property and begin adding data to it to earn rewards. The rewards can be used to unlock premium data about their home like estimated property valuations, solar potential, ownership history, ADU/Airbnb potential, climate risk, etc.
Moreover, homeowners will be able to monetise their data — receiving direct and repeated payments for their unique property information like appliance details and maintenance history. I’m firmly of the mind that if you own your home, you should own its data, too.
A great team to watch in this space (shameless plug) is the Blockchain Home Registry.
Real Estate Blockchain: The Future of Real Estate, On-Chain
It’s not lost on me that right now, December 2022, is not blockchain’s most favourable moment. It’s been an incredibly shaky year and a lot of unchecked power and negligence has left untold numbers of people broke or worse, while fundamentally compromising faith in the entire industry.
That said, blockchain is an inevitability. Soon more and more industries, services, and teams will begin incorporating the technology and eventually it will be just as foundational and ubiquitous as the internet or the cloud.
The hype phase is at its end, the con artists are being rounded up, and the teams building products and services that provide actual value using blockchain technology are ready to start making a real impact.
The real estate industry is anaemic at best, dying at worst. Blockchain has the potential to fundamentally disrupt (or revolutionise) the entire real estate ecosystem while keeping individual home buyers, sellers, and owners at the centre of it all.
I’m excited for what comes next.