The real estate sector in India is all set to see an exponential growth spurt. Consultancy firm CIRIL predicts the real estate market to grow to approximately Rs 65,000 crore by 2024, and projects it would contribute to 13% of the country’s GDP by 2025.
Real estate investments with the promise of high returns have always been an attraction for investors. However, venturing into this sector is fraught with risks, considering the numerous scams associated with it and the cumbersome and time-consuming paperwork involved.
Double selling property and selling non-existent pieces of real estate are only some of the numerous kinds of fraud perpetrated on gullible buyers. Moreover, the absence of unique ownership records, the amount of time and money needed to verify documents, the difficulty to track tampering of records at any given stage of a long chain of transfers are other pain points that put off potential real estate investors.
It is here that blockchain technology can make a difference. A digital ledger that cannot be mutated, updated or tampered with, and one that records all transactions across the network is a fool-proof way of stemming fraud as well as limiting paperwork.
Blockchain’s use of smart contracts not only provides a secure and efficient alternative to paper-contracts but also reduces cost and transaction time. Smart contracts are self-executed when a set of agreed upon conditions are met, saving time, energy and costs, and offering security through its immutability.
With blockchain, registration and transfer of property is transparently reflected in the system for verification. This includes the entire chain of transfers right from the first owner to the last. As such, buyers need not rely on outside sources for document verification.
Moreover, considering all transactions are required to be approved by all parties across the chain, it is impossible to clandestinely add, or permit access, to new players, thus reducing the risk of fraud. Other benefits include saving commissions and fees, as well as time, by eliminating middlemen and intermediaries.
Real estate has generally been the preserve of the big influential players. However, with blockchain, small investors can take a bite of that pie in the form of fractional ownership. This revolutionary investment concept allows small players to own a piece of a high value asset through tokenization, without having to worry about scams.
In order to achieve this, many loose ends in the specific area of real estate need to be tied up. For example, land records come under the purview of states; and each state has its own set of laws pertaining to it. The Revenue and Panchayati Raj departments oversee land records and the Record of Rights is updated by the revenue department once any land related transaction is approved. The multiplicity of rules, the time and energy required, and the number of arms and levels of government involved for land transactions can prove to be a challenge for blockchain to work smoothly.
Moreover, a major shift towards blockchain can be disruptive and several questions need to be answered before it can get going: will digitization render the sub-registrar’s office, the repository of all property transactions, redundant? How will stamp duty payment be made through blockchain? What if a third party needs to legally peruse the documents in a blockchain?
The Central government has made its vision of making India a leader in blockchain technology clear. In December 2021, the Ministry of Electronics and Information Technology (MeitY) released its National Strategy on Blockchain with the aim to create digital infrastructure for blockchain, promote research and development in the field and advance digital service delivery to people and businesses.
While this has set the ball rolling, implementation poses formidable challenges. For example, many regions in the country still lack an internet connection and experience frequent electricity failures. The dearth of skilled manpower and lack of awareness of the technology among the common man pose other roadblocks.
Clearly blockchain adoption cannot be achieved in isolation. All stakeholders must work in tandem for it to succeed: The Central government by giving the required policy and regulatory push to accommodate blockchain; state and local self-governments by easing out unviable local rules; real estate developers by spreading awareness about the technology’s benefits; early adopters by appraising lawmakers of peculiar legal challenges that they have encountered, and so on.
Blockchain in real estate has only begun to take baby steps in India, and it is important that all stakeholders — central, state, local governments and real estate developers — come together and align themselves to unshackle its true potential.
(By Mouttou Viramouttou, Co-founder & Chairman, Brugu Software Solutions)