Digital currency and its future in the real estate sector

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Ever since the digital currency has received a nod from the Government during the budget 2022, it has become the talk of the town. Everyone is concerned about what impact it could have in different sectors and what future does it hold in India. According to the Ministry of Finance the digital currency will boost the digital economy. For many CBDC (Central Bank Digital Currency) is same as Crypto currency; however it is not the same. Unlike, Crypto currency the CBDC is backed by the Central Agencies.

Many businesses want to use the digital currency such as Bitcoins or Ethereum owing to their advantages. However, there is hesitation in using the same as there is no formal backing to these and the value could go down at any point. Therefore, a CBDC could overcome these very bottlenecks and prove to be an effective solution to all the problems listed above.

Just like other sectors the real estate sector is also not lagging behind when it comes to using digital currency as a mode of transaction. Many countries across the world are experimenting with digital currencies to be used for different services including real estate. Recently, as per the report printed in Forbes the mayor of Miami proposed allowing people to pay property taxes or city fees with crypto currency. Shortly after, a Miami penthouse sold to an anonymous buyer for $28 million — paid entirely in crypto currency, making it the most expensive known residential crypto real estate transaction in the U.S. to date.

Innovations in technology coupled with lockdown during pandemic have forced the real estate to come up with innovative ways to reach out to the buyers. From virtual and augmented reality to purchase virtual land and invest in the metaverse the real estate world has been marching very fast towards the digital future.

So how exactly will digital currencies affect the real estate sector? Digital currencies generally use the blockchain technology which are said to have many advantages and opens up many opportunities in the real estate sector. Following are some of the pros of using digital currencies using blockchain technology in the real estate sector.

1)      Emergence of new platforms and marketplaces– The real estate market has traditionally been listings connecting the buyers with the sellers. However, with digital currency there is a likelihood of newer markets emerging.  It enables online trading of the real estate in the easier and faster way. By tokenizing real estate it can be bought and sold much like stocks on an exchange and the transactions can be done mostly online.

2)      Smart Contracts- Digital currency using block chain offers great speed via smart contracts which do not require intervention of the third parties. These contracts are equivalent to that of paper contracts, it allows the parties to store and maintain the information related to the deal and also disallows any modifications to the same.

3)      No intermediaries– Real estate has mostly been the sector where banks, brokers, and lawyers remain part of its entire eco system during the whole transaction however with digital currency the same would be changed as this technology would facilitate more transparency in the process and also maintain the ledger of the transactions thereby reducing the cost of transactions and buyers and sellers getting more value out of their transactions. This will also make the whole process much faster as it would cut down a whole lot of back and forth during the transaction.

4)      Liquidity –Real estate is considered more of an illiquid sectoras the sales takes a lot of time to conclude and therefore with the introduction of digital currency which uses the block chain technology they could be traded as tokens allowing faster transactions.

5)      Reduction in corporate surcharge– The introduction of digital currency in India also comes with an additional advantage for real estate owners as there is a reduction in surcharge from 12% to 7%, something positive for the developer community.

6)      Real time transfer of money– Unlike online payments which take lot of time to process and are delayed due to bank holidays or weekends the digital currency is real time transfer of money.

7)      Faster transaction– Since the transaction is real time the transaction can be done real quickly. Also limited to no involvement of brokers, banks, lawyers also makes the transactions faster.

8)      Fractional or part ownership– Digital currency using block chain technology also allows for partial or fractional ownership of the real estate as the investor does not require investing the entire amount but can own a partial stock. This also cuts down the maintenance costs of the real estate as it is jointly shared by the investors

9)      Seamless transfer across borders-Digital currency also makes international transfers much easier therefore investors wanting to invest in the real estate market of other countries can make quick transactions and also because of more transparency they are more secured about the deals.It is conceivable for an Indian buyer to pay its American seller on a real-time basis in digital dollars without the need of an intermediary. This payment would be final as if cash dollars are handed over and would also not require that the US Federal System is open for settlement. Time zone difference would no longer matter in currency settlements.

10)   Transparency–Unlike the traditional transactions the digital currency enables more transparency in the whole buying and selling process. We all know how the lack of transparency in the financial institutions gave rise to the 2008 real estate crisis in the World. Therefore, bringing in digital currency could mean more transparency and lesser corruption in the system

11)   Cost – With the removal of intermediaries there is also the reduction in the overall cost of the real estate deal. There is an overall saving of professional fees and commissions, along with other costs such as inspections costs, registration fees, loan fees, and taxes associated with real estate. These costs even vary depending on the territory that has jurisdiction. Therefore, with the use of digital currency the same could be eliminated completely as these procedures are taken care of by the system itself.

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