Blockchain Technology in Real Estates

Introduction

In recent years, the Indian real estate market has noticed the rise of blockchain technology. The Indian real estate industry involves numerous transactions, stakeholders, and extensive due diligence. To perform these operations effectively, accurately, and transparently, India has to improve its current system. This is where blockchain technology comes into play. 

The foundation of blockchain technology is in the efficient and safe distribution of digital data. This digital data can be accessed, but it cannot be duplicated. These characteristics make the technology ideal for India's impending digital real estate revolution.

 

What is Blockchain Technology?

Virtual currencies are based on blockchain technology. Blockchain is a transactional ledger. Blockchains are time-stamped collections of unchangeable data records that are monitored by a network of computers and not held by any one organisation. Using cryptographic techniques, each of these informational squares (i.e., a block) is secured and connected to the others (i.e., a chain). Every block, except the genesis block, contains the hash value of the previous block. The hash serves as the foundation of the blockchain. It was made using the MDA (Message-Digest Algorithm), SHA-1, and SHA-2 algorithms (Secure Hash Algorithm).

 

Blockchain and Real Estate

Around the world, real estate transactions are typically cumbersome and bureaucratic. The blockchain has the potential to do away with the need for middlemen, disrupt current identity verification procedures (through digital IDs), lower the risk of fraud (by creating incorruptible, digital ownership certificates for each property), and track the regulatory compliance of the property. Once a transaction is complete, it is immutably recorded in a distributed ledger, leaving very little room for question or manipulation (similar to how Bitcoin transactions are now done).

 

Benefits of Blockchain in Real Estate-

1. Easily accessible

High-value real estate deals are done offline, entailing a protracted registration, verification, and documentation process before one could become a property owner. Many would-be investors have been put off from investing in the real estate industry by this arduous process. Blockchain technology, on the other hand, will it easier to connect buyers and sellers via a secure online platform. Along with institutional investors, it will also make it simple for numerous ordinary investors to purchase real estate. Blockchain enables the tokenization of properties, allowing real estate assets to be traded similarly to stocks.

 

2.     Smart Contracts

A smart contract is a traditional contract that is stored digitally. The effective transfer of funds following the contract's terms and conditions is guaranteed by this smart contract, which can be kept in the block. The failure to get the property specified in the contract or the blockage of funds put into real estate projects are two of the most frequent grievances made by real estate investors. The assets are stored in a block using a smart contract until the property developers meet the requirements for transferring the asset. The money is given back to the buyer if the item or property doesn't live up to the terms of the contract.

 

3.     Removal of Middlemen

Blockchain technology will make property search processes easier, thus removing the need for real estate brokers. To complete high-value deals, buyers will no longer need to contact banks and attorneys. By doing away with middlemen and the associated superfluous expenditures of commissions, registration fees, and service fees, blockchain will successfully overcome one of the main obstacles in real estate investing.

 

4.     Tokenization of Real Estate Property

Assets can be tokenized and customised using blockchain technology to satisfy the appropriate criteria for free transferability of ownership, dividends, legal compliance, and so on. Real estate transactions may take place online if properties were tokenized, doing away with the requirement for buyers and sellers to physically interact. Through the use of technology, middlemen like as real estate brokers, legal experts who can enforce contracts, and government authorities who grant title clearance will no longer be necessary. 

5.     Quick Transactions

Transactions can be completed quickly and efficiently without incurring additional costs.

 

6.     Transparency

Blockchain offers an indisputable and censorship-resistant method for data sharing. It offers a tamper-resistant database as well as one that can be shared.

 

Law on Blockchain Technology in India

Blockchain technology and its numerous implementations are not governed or regulated by any applicable laws in India. The smart contract, which enables two parties to engage in an agreement by validating the contract through digital signatures, is one of the key components of the blockchain, nevertheless. In India, practically all documents can be signed electronically thanks to the Information Technology Act of 2000[1]. (Notarized paperwork and Registered Property Sale Deeds are the exceptions.) According to section 65B of the Evidence Act of 1872[2], electronic signatures may also be used as evidence in court to support the existence, legality, and proper authorisation of a contract.

 

However, the admissibility of Smart Contracts before Indian courts under Section 88A[3] of the Indian Evidence Act is substantially in doubt because there is no legal authority to certify electronic signatures made by Blockchain hashing technology.

 

Mutual consideration is required for the contract to be legitimate, according to Section 25[4] of the Indian Contract Act of 1872. On the other hand, a smart contract can still be carried out by code even without mutual consideration from both parties. Indian courts won't offer the person that was wronged protection from suffering damages in such a situation.

 

Therefore, even though Indian Law permits the operation of electronic contracts, the validity of smart contracts is still up for debate.

 

Hurdles to Blockchain Technology in India

The biggest hurdle in the use of blockchain in real estate in India is the lack of a centralized law governing it. India's virtual currency laws are now being created and updated. A multi-stakeholder government committee is set to deliver its report on the legal treatment of virtual currencies, and there is an ongoing Supreme Court case challenging the RBI's related circular. The government has made several pro-blockchain claims in various news releases and papers but has consistently issued warnings about the dangers of virtual currencies. There are several other impediments to its application, like- 

 

1. Digitization of Land Records- The lack of digital records of the land and clear titles is the main barrier to implementation. The existence of existing authenticated and digitalized land records is a need for blockchain technology. Real-time updating and verification will be possible, however as a starting point, the digital data must first be hashed and added to the block. Except for the State of Karnataka, the digitisation of land has been left dreadfully unfinished in all states.

 

2. Titling of Land Records- After the land records are digitalized, titling will also need to be "finalised." The Rajasthan Urban Land (Certification of Titles) Act, 2016[5], which provides a provisional certificate for titles that must be challenged within a specified period after the issuing, serves as a model. The government guarantees the buyer's reimbursement if a third party successfully contests the title in court.

 

3. Testing of Technology- The technology still needs to be scaled for implementation across all of India. Since property transactions are less common than, say, digital payments, they will be on a private blockchain where high-level security exists without needing a high volume of transactions at low latency. However, it still needs to go through a pilot to identify any technical issues that may arise when it is implemented on a national level.

 

4. Untrained Government Staff- The government employees are currently unable to implement this technology in the required manner.

 

5. Illiteracy- The entire procedure cannot simply be carried out on a blockchain platform due to the lack of 100 percent literacy among the populace. There is also a lack of digital literacy and access to the internet and smart devices. 

 

A Pathway Forward

 

These difficulties can be set aside if we act upon some of the suggestions listed below- 

1. Law for Certification of Titles- It will be necessary for the relevant government to pass legislation that follows the model of Rajasthan law. The statute may provide that all court actions must be concluded within two years. The timescale for finishing the digitization of the remaining land records in addition to these titling certificates can roughly be the same.
2. Pilot testing the technology- It is necessary to locate a district that is entirely digital and to contact the relevant service providers by enlisting the aid of technology professionals. In order to perfect the remedies to potential issues, learning from the pilot needs to be thoroughly laid out.
3. Training of Government Officers- For the transition to this new system, ongoing training of government officers is required. The concept of technology must be made commonplace to the officers, and they must feel at ease using it. To get people to accept this shift, a consistent effort and top-down leadership will be necessary. 
4. Need for Dual System- There should be a dual system in place, which gives people the choice to use online services while gradually getting rid of the lengthy procedure of submitting paper paperwork at government offices in order to access any service. Blockchain enables those who want to directly benefit from a quicker, more effective system to do so.

For those who find it difficult to adjust to the new technology, the land agents and brokers—who are present in the current system as well—can assume the position of service providers of registry utilising blockchain. To safeguard the interests of the underprivileged, these agents can be controlled through regulations and required registrations. Literacy, and especially digital literacy, will catch up with time; in the meantime, these temporary solutions must be used.

 

Conclusion

Blockchain is a revolutionary technology that is revolutionising several industries where there used to be a centralised authority. To benefit from the benefits that technology has to offer—benefits that weren't possible ten years ago—governments must cooperate with it. The governments of many countries, including Sweden, Honduras, the United Kingdom, and others, are experimenting with the technology. Sweden is even running a blockchain land register pilot. India should follow suit and implement blockchain in order to protect its residents' property rights. The problem is difficult to solve and to overcome the inertia that is impeding India's modernization of land records, the government will need to interact with its officials at a pace never seen before. However, if implemented properly, blockchain might provide all the promised advantages and be the panacea for India's problems with property records administration.

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