Looking beyond the hype that surrounded the Bitcoin boom, Ruban Selvanayagam, from UK-based sell house fast specialists Property Solvers, briefly explores how blockchain – cryptocurrency’s underlying technology – may be exactly what the global real estate industry needs.
What is Blockchain?
Fundamentally, blockchains are made up of records (i.e. ‘blocks’) that are inseparably formed into a chain structure by means of cryptography.
These blocks form part of a decentralised and distributed ledger which can be used to facilitate the transfer of various forms of value. The data on the blockchain is authenticated by consensus within the computer code itself. There are, therefore, no middlemen or biases involved. The data stored on the blockchain cannot be changed or removed.
Blockchain and Real Estate
Within the real estate industry specifically, the most promising application of blockchain is through what are known as ‘smart contracts’. These are digital protocols where all aspects of even the most complex contractual agreements are rendered self-executable in a secure manner, provided specified conditions are met.
Informally referred to as ‘triple entry bookkeeping’, smart contracts have the potential to revolutionise the archaic processes that govern how properties are bought and sold.
Specifically, once a real estate transaction is agreed, the terms of the sale and all the key information pertaining to the property are digitally sent to a network as a ‘block’. This would include the name of the current of the owner / future buyer, legal description of the property, underlying finance secured against the property (mortgages etc.), third-party consents. This immutable block permanently exists on the chain.
These ‘property blocks’ have a unique identification and are validated before being stored on an entirely open-sourced, peer-to-peer by means of ‘nodes’ – or interconnected servers.
Blockchain Applications in Global Real Estate
In recent years, there have been several recent examples of how blockchain technology is streamlining the real estate transaction process:
- Across the US, there is a growing emergence of blockchain-driven real estate companies. RealBlocks, for example, enables investors to buy into fractional property interests with relatively little hassle. Harbor is also tokenizing property assets including private REITs, funds, building and land ownership. SmartRealty uses smart contracts to manage rental properties from start to finish;
- In April 2019, the UK’s Land Registry successfully tested a prototype blockchain to legally transfer ownership of a property in Kent (South East England). Forming part of an extensive testing period, the Digital Street initiative sees conveyancing, mortgage lenders and other industry professionals collaborating to establish best practice;
- In the same month, universal real estate platform Propy completed on two sales using Japanese Yen. Users of the platform can transact with various fiat and cryptocurrencies;
- In July 2019, one of Brazil’s largest construction companies Cyrela cut down the time of a housing transaction to just 20 minutes using IBM Blockchain technology. The plan is to introduce regulation that will enable all notary offices across the country to use blockchain and thereby remove the heavy, manual bureaucracy that characterises the real estate system;
- The Kenyan government has been using distributed ledger technology to distribute affordable housing units under the aim of eradicating problematic issues common amongst developing economies such as fraud, falsification and double ownership.
Moving Forward
It’s certainly too early to cite blockchain as the panacea that will resolve the core inefficiencies of the real estate industry.
Nonetheless, it’s arguable that there has never been a technology that demonstrates the ability to significantly decrease transaction times, create notable cost savings and ameliorate the highly illiquid nature of the asset class – all without compromising on transparency.
It will be interesting to observe where the continued experimentation and real-time roll out takes the industry.
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