Varun Mohan is contributing immensely to democratizing the commercial real estate investment segment. With more than a decade of experience, he possesses exceptional asset management skills and insights to maximize returns in real estate. Presently, Varun is spearheading Definite, an innovative prop-tech platform in the Commercial Real Estate segment. His extensive leadership skills and expertise in the domain works on all important growth aspects of the company, acquisition of the asset, business development, technology development, and coding of the platform. With his strategic thinking, Varun is working aggressively on his business plans to become a disruptive player in the Proptech segment.
Blockchain is proven to hold the potential to revamp every business vertical. The technology has given a clear indication that it has various applications beyond cryptocurrencies and can be the right weapon to tackle the prevailing industrial challenges. The Indian real estate sector has been long resistant to technology. With the outbreak of the COVID-19 pandemic, it appears to have received an unprecedented push in embracing new technologies. From smart cities to smart offices, technology has revolutionized the operational aspects of the commercial real estate segment. Whether it is comparable lease rental rates, the price of a commercial property, or valuations, technology has successfully met the stronger demand for transparency in the segment.
In today’s hyper-connected and digitized world, keeping up with the accuracy and authenticity of the information becomes challenging. With the emergence of Proptech startups and technological advancements, information related to commercial properties is increasingly becoming available across different digital channels. However, a significant portion of this information lacks transparency and inaccuracies that create possibilities for fraud.
Before the adoption of technology, commercial real estate witnessed the scope of evolution and disruption. Embedding Blockchain technology – a digitized ledger that stores and makes information immutable, in CRE addresses challenges in the acceleration of the sector. Until recently, Blockchain was only recognized as the technology empowering Bitcoin / Cryptocurrency. However, its potential is beyond finance and playing a larger role in storing information about an asset on a ledger, instantly available to any stakeholder on any network. It is transforming core operations of CRE including sale, purchase, leasing, financing, and management of an asset.
Key factors driving the use of Blockchain in CRE
The onset of the pandemic has resulted in the use of a multitude of technologies by forward-moving CRE companies. The industry players are assessing the capabilities of these technologies as each of them has its unique characteristics that eliminate growth and efficiency challenges. Similarly, companies need to identify the pre-requisites for adopting Blockchain, specifically in leasing and purchasing, and facilitating sale transactions.
The conventional CRE sector relied on a shared database. It usually collates information from private databases of brokers and real estate agents which is critical for leasing, purchasing, and sales transactions. Further, managing CRE involves several entities such as owners, tenants, investors, intermediaries, etc. who can access and modify information, increasing the concerns of inaccuracy. The integration of Blockchain technology increases security and transparency in record keeping of CRE.
Optimizing CRE transactions (Sale, purchase, and management)
Conventional CRE has continued to face challenges due to the dependency on legacy technology systems that hampers progress. The insufficient property search process, time-consuming paper-driven tasks, complexity in managing lease traditionally, and absence of real-time data affect the entire CRE sales/purchase process. Considering the financial uncertainties unfolded by the exacerbating impact of the pandemic, Proptech companies, and CRE owners are capitalizing on the opportunities of Blockchain technology to alleviate existing challenges in the segment.
Improving property search process
Traditionally, CRE brokers, tenants, buyers, and owners use multiple listing services including online aggregators to search location, property, value, and rates. These platforms are typically subscription-based, lack standardized processes, and involve human intervention. This results in the inaccuracy of the information and makes the entire property search process inefficient due to fragmented property listings.
To improve the property search process, stakeholders in CRE are leveraging the potential of Blockchain-based listing services that distribute data across a peer-to-peer network. This allows brokers to have a sense of ownership of data and increase customers’ trust. The enhanced technology provides clear details about the property while creating efficiency and reliability in the property search process.
Expediting the process
Purchasing a CRE is a time-consuming process that requires a significant number of days in due diligence – whether assessing financial, environmental, legal, or prices. Further, purchasing or renting a CRE is a long paper-driven work that has limitations to flexibility in customization. Additionally, finding the history of ownership and evaluating the maintenance activities create risks for errors or loss of information. As a result, the offline diligence and financial evaluation process become longer and more inefficient.
The preferences for digital transactions are growing at a fast pace. CRE stakeholders can use Blockchain technology to develop digital identities of the property and consolidate information such as vacancy, tenant profile, pricing, legal and financial details, etc. This eliminates the existing challenges of time-consuming paper-driven work and expedites the diligence and financial evaluation process. Furthermore, it also reduces transaction time, enhances data security, and offers less scope of manual errors and duplication of the verification process.
Easing complexity in lease and cash flow management
In CRE, the management of lease and cash flow is based on the dependency of landlords, tenants, and other vendors. It requires several payments and transactions that need to be executed and tracked regularly. This calls for the rigorous need for accounting, compliance, and cash flow management.
The Blockchain technology in CRE offers an opportunity to create smart contracts that enable easier, transparent, and efficient property and cash flow management. It addresses several challenges by making a set of promises in a digitized form including protocols that both parties need to follow. Since there is no scope of morphing, Blockchain technology offers transparency in lease terms and transactions. As a result, there is instant settlement and management of cash flows, simplified property management, and faster reconciliation of payments.
Faster and smarter decision making
Presently, the CRE sector is plagued with outdated processes. Further, the information related to properties is scattered on different data sources. This results in redundancies, duplication of records, and inefficiencies. Considering the conventional CRE systems, there is no availability of real-time data, impacting the decision-making capabilities of real estate stakeholders.
Blockchain technology acts as connective tissue between CRE companies and other technology systems. It provides a shared database to all parties while enhancing data quality and also enabling real-time data records. As a result, CRE stakeholders can harness the power of predictive analytics and draw real-time insights for smarter decision-making.
Simplifying property title management
The current paper-based property titles pose several challenges for CRE stakeholders. The concerns about authenticity, accuracy, and other information related to titles complicate property title management. Usually, in all CRE transactions, there is at least one title defect that needs to be corrected before transferring the title. This involves heavy costs to be incurred by parties during the transaction.
Using Blockchain technology, digitized property identity including its history, location, and title details can be created to reduce fraud and simplify title management. CRE stakeholders can rely on such digital identities for title assessment and any change made in the data can be updated across networks. As a result, the title check process is simplified with improved transparency on ownership data.
Efficiency in processing of financing & payments
The conventional property transfers and transaction processes are time-consuming. It involves multiple channel partners and an extensive documentation process. Typically, a commercial mortgage is the process of about three months and it requires extensive paperwork which lacks standardization of data. This makes the entire process of financing and real estate payments more complex and risky for all parties.
As a solution to this challenge, Blockchain-enabled digital identities and smart contracts can reduce inefficiencies in the process. Further, it can increase transparency in the real estate transaction process and simplify loan application, documentation, diligence, and servicing stage. A smart contract document is accessible to all parties involved in the process while making the information complete and immutable. As a result, the whole process becomes efficient with faster payments, improved security, lower costs, and increased transparency.
What’s next?
Though Blockchain technology has disrupted the finance sector dramatically, it is still at a nascent stage in the CRE sector. The technology has the potential to drive efficiency, transparency, and optimize costs and still, the entire real estate transaction process cannot be automated. In many scenarios, intermediaries and parties in CRE would still like to meet for contractual obligations and assessment of the property. Thus, to make the process efficient, Blockchain technology should be implemented correctly and its usefulness should be able to bring significant value to the CRE sector.