Inefficiencies in Traditional Real Estate
The global real estate market, the largest asset class in the world, has long been characterized by a set of deep-seated, systemic inefficiencies. The industry is now at an inflection point where these long-standing challenges are being met by transformative technologies.
To appreciate the scale of the disruption underway, it is essential to understand the foundational problems that make the real estate sector ripe for innovation.
- Lack of Liquidity: Unlike public equities or bonds that can be traded in seconds, a real estate transaction can take weeks or even months to complete. This lengthy process involves numerous steps, from negotiations to due diligence, to financing, and legal/regulatory issues. This inherent illiquidity locks up vast amounts of capital for extended periods, limiting an investor's ability to respond to changing market conditions, or personal financial needs.
- High Entry Barrier: The high capital requirements for market entry creates an exclusive investment class, reserving one of the most
historically reliable avenues for wealth-creation for high-net-worth
individuals and institutional investors. The average person is unable to participate in, or benefit from, direct property ownership.
- Fragmented Data: The current lack of a single, immutable source of truth for property records exposes the system to risks, including accurate asset performance, title fraud, encumbrance disputes and regulatory issues - creating a pervasive lack of transparency. This data fragmentation makes it impossible to gain a holistic, real-time view of operations, asset performance and legal issues without resorting to time-consuming and error-prone data aggregation and reconciliation; thus, creating an environment where establishing trust is time-consuming and expensive to verify.
- Intermediary Tax: The traditional real estate transaction is a complex process orchestrated by a host of intermediaries, including real estate brokers, lawyers, banks, escrow agents, property appraisers, inspectors and title insurance companies. While these actors provide essential services within the existing framework (e.g. legal complexities, facilitating financing, verifying ownership, etc.) their involvement introduces significant friction, cost, and potential for delay. The combined "intermediary tax" levied on every transaction can amount to a significant percentage of the property's value, extracting value from the transaction from both the buyer and the seller.
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