New decentralized technologies make it possible to trace funds on blockchain. In this article we will discuss some fraud cases in the real estate sector and how blockchain can prevent fraud. 

If one searches in Google for the following combination of words “real estate fraud” (in inverted commas to make the search more precise), 718,000 links are displayed. Replacing “fraud” with “scam” returns 286,000 links. Now if you replace the word “scam/fraud” with Ponzi, you get 8,890 links. Switching languages, if you type “real estate fraud” in Spanish, Google displays 95,300 links. In Chinese, the number of links would probably reach very significant figures after the recent debacle of the largest Chinese developers, which has unleashed a domino effect on the real estate and banking sector. This could go on and on, and surely in each language more and more links would be added to expand the above figures. 

While not all Google references refer to specific cases of fraud, many of them are educational on how to prevent fraud or many others replicate information from other links, the figures show the urgency and interest in the issue, and that there is a widespread and high impact problem worldwide. Considering that a house or an apartment is the most expensive investment a person makes in their lifetime, one can measure the enormous economic and social impact of fraud, bankruptcy or illiquidity of real estate developers on the lives of millions of individuals and families. 

Recent international emblematic cases: 

• Evergrande-China: the world’s largest Ponzi scheme, with debts of USD 300 billion to 171 banks and 121 other financial companies, plus debt to hundreds of thousands of Chinese citizens who risk never receiving their homes. 

• German Property Group (GPG)-Germany: a Euro 1.4 billion real estate fraud that promised more than 2,000 investors double-digit returns on the redevelopment of historic buildings in Germany. 

• Woodbridge Group-USA: a fraud based on a business model that involved loans from private investors documented in promissory notes promising high monthly interest rates. The fraud amounted to USD 1.3 billion, leaving 8,400 victims. 

The underlying counterparty and credit risk in many real estate transactions can be reduced by using blockchain technology. Funders no longer rely on trust or trusted third parties to avoid funds diversion and thus ensure the success of their projects, Read more…