If you’ve been following the hype, blockchain has been claiming to do everything from cutting down on paperwork to putting lawyers out of jobs and creating a new paradigm of trust online. Can the technology really revolutionise how property is bought and sold?
A blockchain is a way of organising data, in an encrypted ledger synced between a network of computers, often thousands or more, making the ledger virtually impossible to hack.
There are any number of blockchains on the internet, with one example being the notoriously volatile cryptocurrency bitcoin. Bitcoin, like all cryptocurrencies, is underpinned by blockchain technology – yet as much as cryptocurrencies have grabbed the headlines, blockchains have much wider applications outside finance.
Most relevant to the property industry is the “smart contracts” feature built into some blockchains, such as Ethereum. Smart contracts are self-executing exchanges triggered when computers validate that contract conditions are met, removing the need for intermediaries involved in that validation, say, of identification or a property’s address – and the associated fees of conveyancing or escrow companies, for example.
“In U.K. property, the greatest advantage of blockchain is the creation of smart contracts, which minimises the paperwork and the time spent in title exchange,” says Maria Grazia Vigliotti, founder of blockchain consultancy Sandblocks Consultancy.
Trusted buying and selling
Last year, a £700,000 retail space in Trowbridge became the first property in the UK to be sold via smart contract. The transaction occurred on clicktopurchase, a blockchain platform run by real estate agency Singer Vielle. Eleven seconds after the offer was accepted and contracts digitally exchanged, the transaction was recorded in the clicktopurchase blockchain.
“A blockchain allows reliance on data,” says Neil Singer, CEO of clicktopurchase. “Because the data doesn’t need to be checked, many third-parties can be removed from the process, speeding up the transaction.”
Clicktopurchase has recorded around £200m in sales, including an auctioned property from Savills Ireland. “People who are interested in transparency of process are interested in what we do, because what’s recorded on the blockchain can’t be changed,” Singer says.
The perfect land registry
Governments in several countries are considering blockchain for their land registries, traditionally maintained through multitudes of documents requiring certification by human hand (often not successfully).
The HM Land Registry plans to test blockchain in a drive to digitise property records. “A land registry on blockchain offers efficiencies because data would be in machine-readable form [versus PDFs] and can be validated by computers,” says Vigliotti, who is also CTO of SESO Global, a startup building a blockchain land registry in South Africa.
In Sweden, the land registry is in the process of being migrated to blockchain – when complete, it is expected to save taxpayers up to €100m by reducing municipal hours spent on paperwork, and lowering the potential for fraud.
In fractional investment
Blockchain startups are also launching in the real estate space with a particular trend for issuing initial coin offerings (ICOs) backed by shares in property.
Evareium is currently releasing an ICO of 150 million Evareium tokens at parity with the US dollar. Its aim is to raise at least US$90 million to invest into properties in Dubai and the UAE, and other countries in the Middle East, North Africa and South Asia later in the year. Investors get a stake in these properties which they can trade on the Evareium blockchain. Similar startups include BitRent and the Dubai-based Etherty.
“This is an innovative way of fundraising – versus private equity or loans – and the blockchain offers a secure way to log shareholdings.,” says James Nichols, founder of the property crowdfunding platform Transcendent Real Estate. “It’s too early to say but if it works well, I expect ICOs will cement as a strong fundraising route for real estate companies.”
The near future of blockchains for property
According to Deloitte, the majority of real estate companies are now aware of blockchain, with a minority starting to work it into their business model, including the U.K.’s largest property company, Landsec.
For companies considering a leap onto blockchain, there’s plenty to figure out. Some companies, including clicktopurchase, use private blockchains, where the ledger is shared among computers within the company. Others build onto a public blockchain, most popularly Ethereum, where data is validated by a vast global network.
Where a private blockchain can be built to a company-specific format, there are server and implementation costs such as IT skills investment; a public blockchain offers a means to try out the infrastructure for a smaller maintenance fee, but can be inefficient if the network’s computing power can’t keep up with its global database. In both cases, a lack of consumer adoption may mean the fees saved don’t outweigh these costs.
Some clear use cases for blockchain may lie in commercial real estate. Blockchain could be the basis to give each property a digital identity that aggregate all records in its history – past owners, repairs, operating costs, surveys – which would reduce paperwork and manpower for due diligence processes.
Large real estate firms with strict conveyancing requirements could also benefit. “Recording documentation at every stage of a sale onto a blockchain would be helpful for proving compliance,” Vigliotti says. “The question is, how often will you show proof?”
For rentals, a blockchain could track and streamline payments between tenants, contractors and landlords. Midasium is a startup developing smart tenancy contracts built on details such as rent, frequency and property condition. The contract triggers regular payment from the tenant; on lease termination, the security deposit is automatically returned after adjustment for repair charges.
Yet many companies might not reap one of the main benefits of the blockchain – trustable records of transaction. “If a process is bad, migrating onto a blockchain won’t make the process good,” Singer says. “Businesses that already have secure, efficient digital processes may want to examine whether they need to invest in blockchain now.”
The keyword might be “now”. Though the jury is out on the full extent of its powers, as companies in tech and real estate continue to feel out the blockchain hype, there’s a good chance that someday, blockchain will be the base of so many apps that it’s as invisible as using the internet today.