5 reasons why Real Estate is long overdue for a major disruption!
At the recent Lendit Fintech USA Conference in San Francisco, the theme was very different from previous years. If you have ever attended past events, it would not have escaped your attention.
Yes! you guessed it, the event was dominated by Blockchain Technology, Digital Banking, Fintech and Cryptos. For us to see this was pure validation.
Traditional business models are in for a major disruption.
This brings us to our “why”. Why are we so obsessed with the changes taking place in so many industries and markets? Why are we all in?
If there is one thing that we all understand better than anything else, its’ Real Estate. It touches us all. We own or rent Real Estate. Our work places are buildings owned by investors. Where we bank, drink coffer, eat our lunch or fill our prescription are buildings, all owned by investment firms.
The value of Real Estate worldwide is approx $217 Trillion. In a new report, the London-based real estate advisor Savills (SVLPF, -1.46%) has tallied up the value of all global property, including commercial and residential property and forestry and agricultural land. By the firm’s count, it comes to a whopping $217 trillion total, and residential property makes up about 75% of the total value.
So is it the sheer size of the market that makes this assets class such a compelling proposition for disruption? That could be one reason. One of the biggest arguments against Bitcoin is that it has no real value underpinning it and that it is purely speculation. For that argument alone Real Estate has always been seen as having the underlying collateral that making us all feel somewhat “secure and safe”.
Now back to our 5 reason why we feel that Real Estate is long overdue for a major disruption.
1: Private Equity is sitting on $1 Trillion in “dry powder”
Why is that a problem? To understand this in simpler terms, Money managers, you trusted with your money could not find anything worthwhile to invest in, thus leaving a gaping $1 Trillion on the sidelines. At the same they continue to raise more Capital to invest on your behalf.
In 2017 Private Equity raised another $450 Billion. Now that is good and bad. Unless this money is put to good use, investors will lose faith money managers.
2: Cost of each transactions remains at around 10%
How is this possible? Are we not expected to constantly drive down the cost through efficiencies in technology! When it comes to Real Estate, apparently not. From agents sales commission 5-6% plus a bunch of fees such as Title Insurance, Escrow, Appraisal, Home Inspection, Loan Origination along with miscellaneous fees all bringing the average cost to around 10%.
3: Legacy Systems incompatible with each other
Legacy systems on separate ledgers are incompatible. No one has end to end visibility or knowledge of transaction status. Delays within the pipeline are often hard to drill down ownership or reasons for delays. The entire process can takes weeks or months
4: Labor Intensive – Too Many People
Countless intermediaries, brokers, agents, gatekeepers and 3rd parties are involved. The process is prone to errors. It is labor intensive and highly inefficient despite the repetitive nature of each transaction. Current systems lack the ability to authenticate participants and their authority to make representations.
5: Five Trillion Pages of Mortgage Documents
In residential mortgage alone, mortgage documents are on average 500 Pages across approximately 10 Million transactions each year totaling 5 Trillion pages. 40 Trillion pages of decision critical documents are required to be archived for 8 years for record keeping and auditing. Auditing these documents is not only a legal requirement but a logistic nightmare for regulators. Its hard to imagine what would happen.
These problems have been around for decades. So why are so many people now choosing to address these problems?
When it comes to disrupting traditional industries, it is no longer a choice. It is inevitable. The bigger the size of the market, the more likely it will become a target for disruption.
Bitcoin is a fraud”, JPMorgan CEO Jamie Dimon
Jamie Dimon has called Bitcoin a fraud, comments he later retracted in his recent interview with CNBC. While Bitcoin grabs all the headlines, it is important not to confuse Bitcoin with Blockchain. In other words what ever happens to Bitcoin and whether it “blows up” or not, the technology underpinning Bitcoin is real and it is hear to stay.
Blockchain Technology is beginning to mature and show signs of use cases, especially in Real Estate. Recently formed Forbes Real Estate Council made this bold prediction.
Blockchain is the next frontier of the real estate market, making inroads at a fast clip.
As Entrepreneurs, we must decide the paths we choose to take. The path of least resistance is almost always better and easier to gain acceptance. Applying Blockchain Technology to decades of inefficient legacy systems to reduce friction, lower costs and deploy more Capital faster, makes perfect sense.