Blockchain Could Revolutionize the Middle East Real Estate Industry
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Blockchain technology has the potential to transform the Middle East real estate industry by increasing liquidity, reducing transaction costs, and enhancing transparency. The UAE is leading the adoption of blockchain for real estate transactions, aiming to create a secure and efficient platform for property transfers. Additionally, blockchain can facilitate democratized financing through the tokenization of real estate projects, attracting global investment and streamlining processes.
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Blockchain Could Revolutionize the Middle East Real Estate Industry
- 1. Blockchain Could Revolutionize the Middle East Real Estate Industry Dr. Ehsan Bayat
- 2. Blockchain Could Revolutionize the Middle East Real Estate Industry Interest in investing in Middle Eastern real estate is growing across the world for a number of different reasons, from new government policies that make it more feasible to purchase than ever before to shifts in currency that have made property more affordable. Many nations in the Middle East and North Africa are focused on expanding their real estate industries as a way to balance declines in oil-based income. These shifts are transforming the face of real estate transactions in this region. More changes are coming in the near future, as the market grows increasingly digital. Blockchain technology is poised to become more widespread in real estate transactions in the Middle East in the coming year. The United Arab Emirates has positioned itself to become a global technology hub and thus far has been actively adopting blockchain technology. From Dubai, which intends to use blockchain for all government documents by 2020, this technology will likely move to other parts of the region and set a new standard for buying and selling property.
- 3. What Is Blockchain Technology? Since its inception, blockchain has quickly changed the nature of online transactions. Through blockchain, digital information can be distributed without being copied. While the technology initially surfaced in relation to Bitcoin, communities around the globe have expanded its use beyond its applications to a cryptocurrency. Blockchain provides a layer of security to a variety of transactions, whether they are monetary or not. Transactions may involve records, contracts, and other documents. The blockchain process starts when someone requests a transaction. The transaction request is transmitted to nodes, which are essentially computers that comprise a larger network. The nodes collectively validate the transaction and verify the status of users using specific algorithms. Verified transactions are combined into blocks of data that are then added permanently onto the larger chain of data in a way that is permanent and unalterable. Blockchain is revolutionary because it has a unique robustness, sort of like the Internet itself. Since blocks of information stored across a network are identical, no single computer can control the data, and no single point of failure can radically affect the information.
- 4. How Can Blockchain Technology Be Used in Real Estate? Each year about $900 billion worth of real estate transactions occur around the world. While this number may seem impressive, it is important to think about the fact that real estate is an illiquid asset. An investment of time and other resources is necessary to undertake transactions. Blockchain has the potential to significantly increase the liquidity of real estate by bringing it into the e-commercespace. Real estate fintech using blockchain can create secure, guaranteed platforms for quickly performing real estate transactions involving leases, mortgages, and deed transfers. In the Middle East, the cost of completing real estate transactions stands at about 5 percent of the total property cost, largely due to the time and expense of trading these illiquid assets. The regulatory burden of these transactions remains high because of the need for transparency. However, blockchain can offer similar—or even better—transparency without the same slow processes. Blockchain technology could end up increasing confidence in real estate purchases in countries that lack transparency and/or efficiency.
- 5. What Are the Specific Blockchain Applications in the Middle East? One of the primary benefits of using blockchain technology in real estate transactions is that it creates a decentralized and unchangeable ledger, which makes property rights transfers immediate and indisputable. The transfer of ownership could easily expand beyond deeds and include the right to build, occupy, and more. Importantly, blockchain also protects the privacy of the individuals involved while creating a public record, which would help to transcend much of the uncertainty involved in real estate transactions in the Middle East. A lack of trust remains a major issue in leases, mortgages, and sales in the real estate realm. Blockchain provides smart contracts through self-executed code that can address this issue. Conditions of a given deal are coded into the contract and recorded on the ledger involved. Adding these conditions to the contract would overcome many of the hurdles built into real estate transactions in order to engender trust and save on intermediary fees involved with both sales and leases.
- 6. What Are the Specific Blockchain Applications in the Middle East? Another application, although one that is not as immediately apparent, is to democratize the financing of real estate projects and make them more easily divisible and, therefore, tradeable. Blockchain can enable initial coin offerings, which are also known as token sales. These transactions generate cryptocurrency and involve them in the transaction. The ability to tokenize real estate means that projects could be divided into shares, or tokens, that are purchased and sold by investors. The first transaction of this sort occurred in early 2017 and raised more than $400 million in capital for a real estate project. The only hurdle to creating this type of transaction in the Middle East is government regulation of the tokens.