News

May 18, 2019June 9, 2019

Blockchain in commercial real estate: The future is here

How blockchain-based smart contracts could revolutionize commercial real estate

In this updated and expanded version of our report, we reveal how blockchain technology can advance leasing, as well as purchase and sale transactions in commercial real estate. Explore the time and cost benefits of blockchain, as well as increased security and transparency that the technology could drive across the purchase and sale process.

Blockchain technology: the next big thing in commercial real estate

Blockchain technology has recently been adopted and adapted for use by the commercial real estate (CRE) industry. CRE executives are finding that blockchain-based smart contracts can play a much larger role in their industry. Blockchain technology can potentially transform core CRE operations such as property transactions like purchase, sale, financing, leasing, and management transactions.

Download our report ” Blockchain in commercial real estate” to learn more.

Benefits and opportunities of blockchain technology

Is blockchain right for your business? To find out, we find it helpful to consider your processes, and ultimately your goals, needs, wants, and your pain points. Do you strive for more transparency, less risk, streamlined processes, or a unique platform for sharing?

Our overview below provides more information on how blockchain can benefit your business. Overall, the blockchain technology should meet certain prerequisites for it to be relevant. Once companies identify a process that is ready for blockchain technology, they should evaluate costs and benefits. While doing so, they will potentially benefit from assessing the extent of overhauling existing systems and interoperability with the various technology systems used by different stakeholders of CRE transactions.

us-why-consider-blockchain.jpg (1100×1208)

Blockchain opportunities and challenges

Our Blockchain in commercial real estate report takes a deeper dive into the ways blockchain technology can create opportunities while alleviating some of the existing challenges. We look at six use cases for improving the leasing and purchase and sale process through the use of blockchain:

Improve property search process
Expedite pre-lease due diligence
Ease leasing and subsequent property and cash flow management
Enable smarter decision-making
Transparent and relatively cheaper property title management
Enable more efficient processing of financing and payments

Unlock the potential of blockchain technology

Blockchain technology has significant potential to drive transparency, efficiency, and cost savings for CRE owners by removing many of the existing inefficiencies in key processes. CRE companies and industry participants evaluating an upgrade or overhaul of their current systems should have blockchain on their radar as its demonstrated usefulness has the ability to bring significant value to the industry.

June 7, 2017June 9, 2019

2019 The Year Of Massive Changes For Real Estate With Blockchain

Traditionally, real estate has been a bit stagnant and stubborn to changes. However, Forbes reported that it is fast catching up with the rest of the world due to technological disruption. A lot of processes are being added every day, thanks to artificial intelligence (AI) and blockchain-powered platforms.

These technologies do more than just add value and efficiency to the different processes in the industry. It also brings an opportunity to improve the industry by providing services which were previously unavailable, such as bringing more entry-level investors in real estate. Real estate agents and other participants in real estate will need to shape up fast if they don’t want to be left in the dust.

Business models are being improved day by day with the entry of blockchain and AI in real estate. Alex Rampell, a general partner at Anreessen Horowitz, said that home-buyers and sellers are growing accustomed to the changes bought about by the rapid technological development. On-demand deliveries and quick resolution are now the processes new real estate players are becoming used to.

The world’s heavy reliance on data is one of the many reasons why blockchain is currently becoming a fast-rising phenomenon. Everyone’s data has always been used by corporations in forging a path towards where they wanted to go. The Next Web reported that this makes data more valuable these days, even more, valuable than oil.

Data is being used in many ways than just for decisions. Google, Amazon, and even Yelp! need them for major products–Google maps, Amazon Prime, and Yelp’s public reviews and commentary platforms all have used for data. This isn’t including data for social media posts which ‘influencers’ and people with a heavy reliance on them need.

Blockchain is a critical development in making sure that these data can be used in proper ways. The platform is also a good area where data can be used in a secure and transparent environment. The public can easily access these data, while criminals can be kept on their toes by transferring one block of data to another should one block become compromised.

Real estate is starting to recognize the importance of data as well as placing processes on easy access through blockchain. The argument for removing the human process will always be there, but for the time being, real estate agents are needed in order to ‘train’ the AI to accept processes just the way they should be done.

May 18, 2017June 9, 2019

How Blockchain Technology Could Disrupt Real Estate

Blockchain technology could have a major effect on the real estate industry, from property purchasing to due diligence to title management. We identify the early adopters and potential impact.

The real estate industry is undergoing a digital transformation.

While historically a “pen and pencil” business — often relying on inefficient and archaic methods for doing business and keeping records — technology has begun to help reshape the expanding global market.

Blockchain technology, especially, is feeding into this transformation (in ways similar to how the emerging tech is disrupting other long-established industries like banking and insurance).

The decentralized-record-keeping technology, which is designed to instill trust in the authenticity of digital transactions, could be used to create efficient solutions for both commercial and residential real estate — from buying property to conducting due diligence to enabling crowd-sourced investments, and more.

Some big incumbents are already betting on the tech: Real estate giant RE/MAX has entered into several partnerships to explore blockchain use cases, while Hilton Worldwide has begun using a blockchain-based property management system.

In this analysis, we dig into how blockchain technology could transform the real estate industry, and the areas where we’re already seeing its impact.

Why blockchain tech could benefit the real estate industry

Blockchain technology offers a form of shared record-keeping which is designed to be difficult to tamper with. Blockchain technology operates through decentralized peer-to-peer platforms, building resilience against the spread of corrupted information and boosting resistance to fraud.

See our explainer for more on how blockchain technology works.

Blockchain technology has the potential to address many challenges within the real estate industry, including:

Improving trust and transparency: Blockchain technology offers a verifiable and censorship-resistant option for sharing information (such as valuation details).
Reducing siloed databases: Real estate processes would benefit from secure and tamper-resistant shared databases that compile data and documents from various different stakeholders in one place.
Making transaction processes more efficient: Most real estate transactions are still conducted through wire transfers and require costly verification processes that can take days to complete. Blockchain-based transactions could enable a streamlined process which delivers quickly and reduces costs.
Limiting the use of intermediaries: Many intermediaries — from brokers to escrow companies — could be rendered obsolete by blockchain-based approaches, as records could be stored, verified, and transferred using blockchain technology. Removing the need for intermediaries could dramatically reduce costs and save time.

Areas of real estate being transformed by blockchain technology

We consider several areas that could benefit from the use of blockchain technology below, from due diligence to financing systems.

PROPERTY SEARCH PROCESS

Currently, the most common method that brokers, owners, buyers, and tenants use to store and access property listings are through third-party platforms such as Zillow.

Zillow’s platform. Source: Zillow

These platforms tend to be subscription-based and can command high fees from users. Moreover, there is a lack of standardized processes and often poor communication between the platforms.

This causes property data to frequently be inaccurate, dated, or incomplete. Further, the data can be fragmented across multiple listing platforms, which introduces inefficiencies.

Blockchain technology can fix these problems by allowing a property listing to exist on a single decentralized database.

With data distributed across a peer-to-peer network, brokers would be able to have more control over their data, as it would be more difficult for it to be interfered with by any third parties. Market participants could access more reliable data at a lower cost.

Imbrex is a real-world example of a blockchain-based property listing platform.

Source: Imbrex

Imbrex’s real estate marketplace is built on the Ethereum blockchain. Buyers, sellers, and other agents can use the platform for free, earning rewards for contributing data and helping to maintain the marketplace.

Data is encrypted and stored on a blockchain, which means Imbrex does not control it and cannot alter it — contributed data is controlled solely by the listing party.

Imbrex is reportedly planning to launch smart contract-enabled transactions using its own cryptocurrency.

Imbrex’s platform. Source: Imbrex

DUE DILIGENCE AND FINANCIAL EVALUATION PROCESS

Physical paper documents for proof of identity are still the norm today. This approach requires the commitment of significant time and effort for due diligence and financial verification.

This manual verification process also increases the likelihood of errors and can involve multiple third-party service providers. These factors can be costly and slow down the due diligence process.

Using digital identities on the blockchain, this entire process can be taken online in a secure manner — increasing efficiency, lowering costs, enhancing data security, and reducing the chance of manual errors.

For example, a real estate property’s digital identity could consolidate information such as vacancy, tenant profile, financial and legal status, and performance metrics.

A digital blockchain-based solution is currently being developed by Lantmäteriet, the Swedish land authority, in collaboration with blockchain startup ChromaWay, Swedish telecommunications giant Telia Company, and several real estate enterprises.

Its goal is to digitize contracts for sale and property mortgages that are authenticated by blockchain technology.

This solution streamlines the process of transferring property titles while also adding some layers of security. All parties involved in the process, including the buyer, seller, real estate agent, the buyer’s bank, and the land registry, have their own digital identities.

Each can use a single application to securely send and sign official documents using blockchain-verified smart contracts. All actors can view the associated documents and information, with verification of the steps that have taken place during the process.

ChromaWay announced that it had completed a full transaction on the platform in June 2018.

A demo of ChromaWay’s application. Source: ChromaWay

Other organizations around the world are also making blockchain real estate strides. Bank of China Hong Kong (BOCHK), for example, stated in mid-2018 that it processes 85% of real estate appraisals using its own private blockchain.

BOCHK’s General Manager of Information Technology Rocky Cheng Chung-ngam said, “In the past, banks and [real estate] appraisers had to exchange faxes and emails to produce and deliver physical certificates. Now the process can be done on blockchain in seconds.”

PROPERTY MANAGEMENT

Property management is highly complex, with many stakeholders involved — including landlords, property managers, tenants, and vendors.

Most properties are currently managed either offline through manual paperwork, or through multiple software programs that generally don’t integrate well with one another.

Through the use of a single decentralized application that uses blockchain-backed smart contracts, the entire property management process, from signing lease agreements to managing cash flow to filing maintenance requests, can be conducted in a secure and transparent manner.

In residential real estate, for example, a landlord and tenant could digitally sign a smart contract agreement that includes information such as rental value, payment frequency, and details of both the tenant and property.

Based on the agreed upon terms, the smart contract could automatically initiate lease payments from the tenant to the landlord, as well as to any contractors that perform periodic maintenance. Upon termination of the lease, the smart contract could also be set to automatically send payment of the security deposit back to the tenant.

One business developing a blockchain-based property management system is Midasium. The company has built a private blockchain to execute smart contracts.

This allows traditional contracts, such as mortgage agreements and tenancy contracts, to be brought onto a blockchain to establish a history of agreements and financial transactions that can be traced and audited.

Creating a tenancy contract with Midasium. Source: Midasium

All data, except for public information like property location, is confidential and encrypted. The intended goal is a reduction in legal, accounting, and transaction costs, as well as a decreased risk of fraud and corruption.

AQUA is another enterprise that offers a blockchain-based property management system, except its application is specifically for hotel and resort management.

The AQUA PMS application is a blockchain platform designed for inventory management, task management, and maintenance management. The service is seeking to help customers reduce operational costs and response times.

AQUA PMS is currently being used by Hilton Worldwide.

TITLE MANAGEMENT

At present, property titles are often paper-based, creating opportunities for errors and fraud. Title professionals find defects in 25% of all titles during the transaction process, according to the American Land Title Association.

Any identified defect makes it illegal to transfer a property title to a buyer until it is rectified. This means property owners often incur high legal fees to ensure authenticity and accuracy of their property titles.

Moreover, title fraud poses a risk to homeowners worldwide. US losses associated with title fraud reportedly averaged around $103,000 per case in 2015, compelling many property buyers to purchase title insurance.

These title management issues could potentially be mitigated by using blockchain technology to build immutable digital records of land titles. This approach could simplify property title management, making it more transparent and helping to reduce the risk of title fraud and the need for additional insurance.

Some companies and governments around the globe have already implemented blockchain technology for the title management process.

For example, blockchain startup Ubitquity offers a platform for land titles to be stored on a public blockchain, where they could be less susceptible to theft, corruption, damage, or fraud.

In 2017, the company partnered with the Brazilian Cartorio de Registro de Imoveis (Real Estate Registry) to establish pilot programs.

Source: Ubitquity

Ghanaian blockchain company Bitland has been working on a similar solution for Ghana, where it is estimated that almost 80% of land is unregistered, according to Forbes. Those that possess unregistered land find it more difficult to prove legal ownership, increasing their exposure to the risk of land seizures or property theft.

Bitland is seeking to create secure digital public records of ownership on its blockchain platform, with the aim of protecting land owners from title fraud. Bitland has expanded to operate in 7 African nations, India, and is also working with Native Americans in the US.

Real estate giant RE/MAX has also been exploring blockchain use cases.

RE/MAX partnered with blockchain company XYO Network to explore using blockchain technology to build a decentralized online land title registry in Mexico.

XYO Network’s first project with RE/MAX involves tying location coordinates to unique digital tokens that represent land titles. As a property changes owners so will the digital token (with the transaction being recorded on a blockchain), establishing a transparent history of land ownership.

SafeChain is another enterprise leveraging blockchain technology in the title management space.

The company helps title agents verify client identities, bank account ownership, and securely transfer wire information. Its platform seeks to reduce losses from fraud and bring down operational costs.

FINANCING AND PAYMENTS SYSTEMS

Due to the extensive documentation required and the involvement of various intermediaries, existing modes of financing and payments for property transactions are currently slow, expensive, and opaque. These issues are especially pronounced when a property is financed through a mortgage and when international transactions are required.

The current process for mortgage approval for residential properties takes on average around 30-60 days to complete, according to the National Association of Realtors. For commercial real estate — which is more complex to process than residential real estate — the time it takes to get approved can be even longer, often requiring around 90 days.

This process could be simplified and made more transparent when blockchain technology is applied. For example, verifiable digital identities for properties could allow a reduction in both due diligence and loan documentation time, thus speeding up the mortgage approval process.

Source: Blockchain Technology Labs

The borrower and lender could also use blockchain technology to execute an immutable smart contract-based loan document, fully accessible by all legal parties involved. Adoption of blockchain technology could save the US mortgage loan industry up to 20% in expenses per year, according to a report published by Moody’s Investor Service, which would amount to $1.7B in annual savings.

ShelterZoom is a startup aiming to streamline real estate transactions by putting all the processes on the Ethereum blockchain.

Real estate agents, buyers, sellers, and renters can view offers and acceptances on the platform, which also allows access to property titles, mortgages, legal documents, and home inspection reports.

ShelterZoom has partnered with over 90 brokerages around the world, including RE/MAX Revolution in Boston, Massachusetts. The platform is scheduled to go live in 2019.

ShelterZoom’s platform. Source: ShelterZoom

While there are many blockchain-based payment solutions out there, one of the most established is Ripple.

Ripple connects banks and payment providers on RippleNet, its private blockchain, seeking to provide a payment platform for transferring money globally.

Source: Ripple

One use case for Ripple is facilitating cross-border real estate payments. All parties involved in a real estate transaction can be connected on an online platform, view past transactions between parties, and make payments.

Ripple claims that its approach allows transactions to be secure, quick, and low cost — a compelling proposition compared to the high fees and multi-day wait associated with traditional international payment systems.

REAL ESTATE INVESTING

Real estate investing has historically only been available to those able to put down large sums of capital — especially in regard to commercial property and multifamily housing. Additionally, real estate investing often involves expensive intermediaries such as fund managers, further raising the barrier to entry.

However, blockchain technology it looking to disrupt real estate investing by providing a way to decentralize the process through crowdsourcing and tokenization.

Tokenizing real estate assets refers to a process in which a property owner can offer digital tokens that represent a share of their property. Using a blockchain to track these investments, with each transaction being time-stamped and immutable, makes it possible to limit the risk of fraud.

This approach makes it easier to establish a market for property “micro-shares,” creating the potential for a property to effectively have numerous co-owners with a stake in potential returns.

There are many blockchain-based real estate investment platforms that currently exist, though most are still in the development phase.

One that is more established is BitofProperty. The Singapore-based company has built a blockchain-based crowdfunding platform that allows users to invest in both residential and commercial rental properties. Users receive monthly income from the properties they have invested in.

Properties listed on BitofProperty. Source: BitofProperty

Another example is Brickblock, a smart contract platform which is seeking to use tokenized real estate to help developers raise capital for projects.

Brickblock has received almost $6M in funding from Finch Capital and has several partnerships, including with JTC Group, solarisBank, and Peakside Capital. The platform has not yet gone live to the public.

Challenges

While blockchain technology could help solve many problems within the real estate industry, there are always challenges that come along with transitioning to an emerging technology that has not yet fully matured.

It is important to note that blockchain technology is still in its early stages, and full adoption across the real estate industry comes with its own set of challenges.

REGULATION

Navigating complex regional regulations around the globe is a key issue that faces the adoption of any new technology, blockchain-based platforms included.

Source: Lisk

For example, some blockchain-based real estate investment platforms do not allow investors from the United States to participate because the relevant regulations tend to be strict and cause additional administrative overhead for the sale and trade of tokens. It is therefore easier for these platforms to simply prohibit Americans from participating, even with the loss of a huge market of potential investors.

Moreover, not all states and countries recognize smart contracts as legally binding, which poses a huge threat to parties that may not be aware of this — especially when it comes to contracts representing sizable investments like properties and titles.

The regulatory hurdles that come along with blockchain technology are holding many enterprises back from adoption. Though some movement is taking place in this area.

Arizona Governor Doug Ducey signed a bill into law in March 2017 that made smart contracts legally binding. As of October 2018, 17 US state legislatures have either passed or are considering laws related to blockchain adoption, according to Deloitte. It is likely this trend will continue to spread across the US and the world.

SCALING

In the real estate industry, there are millions, if not billions, of global transactions made every year. This requires networks that can handle large transaction volumes quickly and efficiently.

However, Ethereum can only currently handle about 15 transactions per second, and Bitcoin only around 5 transactions. In comparison, Visa claims it can process over 24,000 transactions every second. A transaction bottleneck would pose a major issue for large-scale real estate enterprises that require ultra-fast processing times.

However, Ripple has claimed that its XRP token could theoretically process around 50,000 transactions per second — roughly double the amount of Visa. The blockchain startup has also stated that it already processes up to 1,500 XRP transactions per second, indicating that slow transaction speeds are not necessarily inherent to the blockchain approach and may dramatically improve over time.

Source: Ripple

INTEROPERABILITY

Many different blockchains exist, and most of them are unable to communicate or work with one another. This lack of standardization, or interoperability, is a challenge in the blockchain sphere as a whole.

A rental company, for example, may wish to use the public Ethereum blockchain to execute lease contracts, but would prefer to keep tenant data and rent rolls on a private blockchain. Or an enterprise may begin using one blockchain solution, and later find a better solution for their needs and decide to migrate.

To keep the past transaction histories protected, the second blockchain would need a way to reference the first blockchain — and this is currently not possible due to lack of interoperability.

There are a number of organizations working to solve this challenge, including Interledger, which aims to create a protocol for enabling payments between blockchain networks. A solution to enable cross-blockchain transactions would be beneficial, but blockchain platforms may have to introduce shared standards to fully address the interoperability issue.

Source: Interledger

WIDESPREAD ADOPTION

As blockchain is still an emerging technology, most people still don’t fully understand what it is, how it works, and what its uses are.

Widespread adoption of blockchain technology is still some way off, especially as many industries have yet to fully explore its potential applicability. In the real estate industry, it could be a while before a majority of businesses feel confident enough in blockchain technology’s capabilities to adopt it for day-to-day operations.

Until then, early adopters may find themselves with an advantage over those that lag behind, potentially creating opportunities to intensify competition and for new industry trailblazers to emerge.

Conclusion

There is a long road ahead before blockchain technology reaches maturity.

Companies are still experimenting with its applications, and many issues remain to be addressed as the general public continues to learn how to use and understand the decentralized technology. Moreover, blockchain technology must overcome the somewhat negative image it has gained from speculative cryptocurrency bubbles, with some projects amounting to thinly-veiled get-rich-quick schemes or even outright fraud.

Yet, it is clear that this emerging technology has the potential to disrupt many industries, including real estate.

With industry leaders and governments exploring and implementing blockchain applications in the real estate space, it’s possible that this old industry may be one of the first to make the leap into a decentralized digital world.

April 15, 2017June 9, 2019

Why blockchain will drive the real-estate revolution

Advances in blockchain innovation mean that the real estate sector no longer needs to rely on dusty documents and traditional sales processes, because property titles, insurance, ownership transfer and escrow processes are all moving onto the blockchain. While buying a property will not be as quick and easy as buying a book from Amazon, for now at least, the world of real estate from home buying to property investment is about to be transformed.

Why change traditional house buying?

An EY report published earlier this year pointed out that residential real estate markets with their agents, brokers, attorneys, mortgage lenders, appraisers, title companies and more, form an expensive, time-consuming web. Current due diligence processes, looking into property titles, for example, can take weeks and, in some cases, months.

The constraints of the traditional real estate processes often include mistakes in land registry records, disjointed and inefficient systems of tracking within the sales process, lack of transparency, high and sometimes unnecessary fees, and even fraud. For both home buyers and property investors, money is wasted, and profits squeezed. Sometimes at the end of it all the sale falls through.

The current systems are operating at almost curmudgeonly levels, so it is not surprising that this industry is ripe for change.

Blockchain, the irresistible force

Enter blockchain. Blockchain is an encrypted electronic record of data on a distributed ledger where information is shared simultaneously and stored over a vast number of computers. The technology has the ability and flexibility to streamline business processes within the real-estate sector and much more.

One aspect with massive scope for change in this sector is the legal process. With its many third parties, time delays and lack of transparency, the legalities involved in buying property will be drastically simplified with blockchain.

For example, in the verification of property titles; a title record for a property could be used on the blockchain in the form of a smart contract. Smart contracts do not require a trusted third party and, when a property is bought and sold, the details are encrypted and added to the record. This means that there is a clear, accurate and immutable history of property titles over time which can be accessed instantly.

Innovation creates new approaches to real estate

This is not just hype. Some national land registries are starting to use blockchain, including the Swedish Land Registry, which is piloting a scheme and has reported positive feedback. Now in its second year, Digital Street, a UK Land Registry project, is exploring the use of blockchain technology and smart contracts.

The aim, of course, is to bring greater transparency, speed and trust to property transactions, which will improve the system and bring much-needed liquidity to the market.

But blockchain will also contribute to increased liquidity in other ways too; such as fractionalization of property. This is a radical new approach which is gaining momentum — being able to own units or tokens in residential real estate – and it opens up the market to people who would otherwise not be able to invest in this sector.

This form of tokenization will have a huge and far-reaching impact on the market. Property could be bought and sold at the touch of a button. But where does all this change leave the real-estate agents? Undoubtedly, their roles will change, but there is no sign of them disappearing any time soon.

With so many new concepts being developed, real-estate agents will have a broader range of roles and will be more productive in helping homebuyers through the process and offering investors sophisticated and tailored advice on their fractionalization investment options. There will still be a vital role for them to play.

Blockchain not only will improve the current processes of buying and selling property, but it will also revolutionize our traditional attitudes towards real estate. How we live, how we choose and pay for our accommodation and how we invest in real estate are all up for grabs.

April 7, 2017June 9, 2019

Putting Real Estate on the blockchain

Much is being said about how emerging blockchain technology stands to be a major disruptor in the global real estate space. But will its adoption be slowed by its association with cryptocurrencies, which have undoubtedly had a volatile run since their inception within the last ten years? Alarmist headlines may deter populations of more developed economies, especially, to adopt the many other proposed uses for the technology. But in rapidly developing markets like China, Singapore, and Southeast Asia, there seems to be a surging enthusiasm and recognized demand to apply it to everyday business challenges, real estate transactions included. Could the Asia-Pacific region, with its initial forays into blockchain uses, be the gateway to the greater global trust that this consensus-based technology will need in order to prevail?

Advancing Perceptions Beyond Crypto-Currencies

Blockchain technology can be a hard concept for the average person to grasp, which can be a major obstacle to any new technology’s widespread adoption. However, the same could once be said for the internet, and although most people still wouldn’t be able to explain how the internet works, they have no problem today trusting the infinite user-friendly apps that allow them to tap into it. Blockchain proponents would envision a similar fate for their own technology.

(You can go here for an excellent primer on cryptocurrency and the underlying blockchain technology that is pertinent to this article.)

For the 10,000-foot view…a blockchain is a decentralized and ‘trustless’ database capable of facilitating direct peer-to-peer transactions without the intermediators that traditional transactions have typically required. Verification is achieved by a consensus of the distributed nodes resident on the chain, each maintaining its own protected ‘copy’ of the database. Cryptocurrencies are but one type of asset transaction that can be managed on a blockchain. In that instance, the blockchain acts as a digital ledger capable of transferring funds directly between entities (in the form of cryptocurrency native to the particular blockchain), thereby removing banks as the traditional verifier and trusted third party to the transaction.

The Bitcoin blockchain is the figurative patriarch of the blockchain family and likely what comes to mind to most of the general public at the mention of ‘blockchain’. That’s not necessarily good news for acceptance of the technology given the volatile valuation of bitcoins in the past twelve months. Bitcoin increased nearly 1,900% from its value at the beginning of 2017 to its all-time high of US$19,783 per bitcoin in December 2017. It’s since plummeted about 80% from that figure (US$3,964 as of this writing), and November 2018 saw the worst monthly decline for bitcoins in the last seven years.[1] Every other cryptocurrency has essentially followed suit. Several have experienced internal strife within their communities, resulting in ‘forks’ – the descriptor for when a blockchain breaks into a different variation of its original.[2] There have also been several high-profile hacks and thefts, increasing perceived associations with illicit organizations and stoking the fears of potential investors that centralized governments will reign-in the technology with over-regulation.[3] With these factors taken together, it is no wonder that many are inclined to wait-out blockchain development or write it off altogether as just another fleeting technology fad.

But it is important to understand that a blockchain is not intrinsicly linked to cryptocurrencies; it is merely the underlying technology allowing cryptocurrencies to be exchanged between members. As mentioned earlier, a blockchain can be designed to support any type of transaction. While the founders of Bitcoin prioritized the relative simplicity of tracking financial transactions, those blocks that assemble the chain can be packaged with a multitude of other data if so designed. That conceptual variation enables such inventions as ‘smart contracts’, and unalterable registries, for example. Once assembled and collectively verified by a consensus of the network’s nodes, these blocks become an immutable part of the digital record. That is exactly what later varieties of blockchains have set out to do, Ethereum being the pioneering blockchain in that regard.[4]

This has unleased nearly limitless possibilities for uses across many industries where transactions are prominent, real estate obviously being a major candidate. Just as blockchain users are assigned a unique digital ID, any real property has the potential to be assigned an ID that has a permanent and tamper-proof digital history attached to it (Think of it like a Vehicle Identification Number that allows you to look up the accident and service history of a car you are looking to purchase.). It would be akin to a global title system for real property; something like a record-keeping ‘courthouse’ for the world.

Real property could be tokenized and exchanged on the blockchain, just as any other asset or commodity, allowing for an easy splitting of interests and ownership ‘slices’ of real estate. Here are a few examples of what this could portend for the industry:

Simplified, reliable and transparent property searches; a reduced reliance on brokers and/or Multiple Listing Services that may present biased or fragmented information.
Underwriting and due diligence processes reduced to a matter of minutes.
Sales and lease agreements entered via smart contracts that are instantaneously recorded.
Automated payments and cashflow management by smart contract between tenants, landlords, contractors and/or service providers.
Advanced property data analytics when combined with Internet of Things (IOT) technologies, improving owner decision-making as well as property transparency and valuations.
Introducing greater options for shared property ownership through asset tokenization, reduced barriers to trans-nation investments, and increased liquidity within the real estate asset class as a whole.

Asia a Real Estate Blockchain Bellwether?

A 2018 JLL Asia Pacific report titled Clicks and Mortar: The Growing Influence of Proptech describes some of the unique demand drivers and challenges shaping Asia’s approach to emerging property technologies, to include the blockchain. Here’s how it cites Asia could enjoy more rapid technological change relative to other regions[6]:

The rapid urbanization and boom of megacities. 40 out of 47 countries with fastest population growth rates are in Asia; 20 alone are in China. The result will be a wider pool of users having more diversified needs that start-up technology firms can fulfill.
The rise of the middle class and millennials. Asia’s middle class will account for 65% of the population by 2030 (up from 46% in 2015) and US$38 trillion in consumption (from US$10 trillion in 2015). By 2020, 50% of the population will be millennials. These factors will account for major changes to spending habits in the region. High priced markets will find younger consumers more open to flexible ownership and leasing structures that technology can provide.
Improved technology savviness among consumers. Asia accounts for 50% of total internet users in the world and tops the world in growth of smartphone traffic to the internet. Online shopping is booming in the region and paving the way for ‘an Amazon-like experience when shopping for real estate’.
Selective support from governments. Japan is one of the first countries to legalize Bitcoin, and along with India is making some of the most accelerated adoptions of blockchain technology. While China has taken a harder stance against cryptocurrencies, it has been much more supportive of alternative blockchain uses.

The report acknowledges that much of the regional consumer behavior in property purchasing has traditionally leaned towards human interactions for better trust. However, that is likely to be overshadowed in years to come by the demographic changes described here. Additionally, many developing markets, such as in Southeast Asia, suffer from major issues with title security that are a hamper to real estate investment and should highlight the problems with reliance on traditional human interactions that many supposedly favor. As one Director at a prominent Hanoi firm puts it:

“Property transactions are generally quite chunky, so traditionally it takes a lot of time, paperwork and fees to complete transactions. This creates liquidity and transparency issues in the real estate market. Blockchain has the potential to be a game changer. By digitalizing transactions, time and costs are reduced whilst transparency and security increases. Although the application of blockchain is in early stages worldwide, I believe Vietnam has the potential to quickly follow this global trend, as the population is young and eager to embrace new technology whilst policymakers are aggressive and forward-thinking.” (Matthew Powell)[7]

Even developed economies such as Japan suffer from chronically inaccurate land registries and records of ownership. That is why the Government of Japan recently began experimenting with select cities digitalizing property records on a blockchain with hopes that the trial will be successful and implementable across the country within the next five years.[8] On November 30^th, MicroSoft Japan announced a major partnership with a nascent blockchain startup called LayerX with intentions to aggressively accelerate the technology.[9] With measures like these and its commitment to the smart regulation of digital currency, Japan is poised to be at the forefront of any future blockchain boom.[10]

Several tech startups in the region are also leading the way with innovative and exciting uses of blockchain technology in the real estate space:

i-house.com is Hong Kong-based and through its Asset Tokenization Offering (ATO) allows fragmented ownership to the property rights of large investment properties, essentially employing similar advantages of REIT ownership down to the individual property level, and making asset transactions light, efficient, and transparent through the use of their smart contract.[11]
REIDAO is a Singapore technology firm that registers real estate with its own Ethereum address where users can visit and retrieve information about the property, including its ownership details. The website for the firm’s short-term rental project, CrowdVilla, states that it will ‘change the paradigm in using real estate assets as a community. Using blockchain to create an open and transparent way of recording digital assets, CrowdVilla will revolutionize the timesharing model in real estate.’[12]
Real Estate Doc (RED) is another Singapore-based firm targeting the commercial real estate leasing market. In describing their platform, their website claims ‘by shifting leasing operations to the blockchain, users can significantly eliminate paperwork, save time, streamline work processes, enjoy heightened security through data encryption, lower legal and banking charges, and minimize fraud.’[13]

The socio-economic character of Asia Pacific is placing the region at the leading edge of this new wave of technology. Professionals and innovators in Western real estate markets may want to take note. Their relatively stable markets may not be screaming quite as loudly for some of the advantages that blockchain technologies could herald, yet there are undoubtedly some ground-shifting changes on the horizon with successful maturing of the technology and its universal adoption. It will likely take more persistent education and successful demonstrations for many to override the image of blockchain technology from the flashy yet tumultuous birth of cryptocurrencies to the more mundane yet practical uses of the future. Once those attitudes shift, though, look for the blockchain to rapidly change the way we all do business.

References

[1] Oimet, Sam. (2018, December 1^st) Bitcoin Price Ends November with Worst Monthly Decline. Retrieved from https://www.coindesk.com

[2] Van Wirdum, A. (2018, November 14^th) When the Fork Forks: What You Need to Know as Bitcoin Cash Goes to War. Retrieved from https://bitcoinmagazine.com

[3] Bloomberg. (2018, September 20^th) The Latest Cryptocurrency Exchange Hack is a $60 Million Theft at Japan’s Zaif. Retrived from http://fortune.com

[4] “Ethereum’s core innovation, the Ethereum Virtual Machine (EVM) is a Turing complete software that runs on the Ethereum network. It enables anyone to run any program, regardless of the programming language given enough time and memory. EVM makes the process of creating blockchain applications much easier and more efficient than ever before. Instead of having to build an entirely original blockchain for each new application, Ethereum enables the development of potentially thousands of different applications all on one platform.” Retrieved from https://blockgeeks.com/guides/ethereum

[5] Kiger, Patrick J. (2018, October 10^th) Developing Blockchain Technology Has Potential to Aid Real Estate Transactions. Retrieved from https://urbanland.uli.org/

[6] Clicks and Mortar: The Growing Influence of Proptech. Retrieved from http://www.joneslanglasalle.com.cn

[7] Savills Vietnam (2018, September 11^th) How Will Blockchain Effect sia Real Estate Market? Retrieved from https://www.retalkasia.com

[8] Iesho, Ashour. (2017, June 27^th) Japan to Trial Blockchain for Real Estate Records. Retrieved from https://bitcoinist.com

[9] Suberg, William. (2018, November 30^th) Microsoft Japan Parnters with With Startup to Increase Domestic Blockchain Uptake. Retrieved from https://cointelegraph.com

[10] Bambrough, Billy. (2018, June 27^th) Japan’s Next Economic Boom will be Bitcoin and Blockchain Fueled. Retrieved from https://www.forbes.com

[11] https://i-house.com

[12] https://reidao.io/

[13] https://realestatedoc.io/

April 1, 2017June 9, 2019

Barclays and RBS show efficiency gain in a blockchain real estate pilot

Key banking sector players Barclays and Royal Bank of Scotland (RBS) have jointly used the blockchain technology in a real estate transaction, where they have demonstrated key efficiency gain. The banks conducted this blockchain real estate pilot using Corda, the enterprise blockchain platform from R3.

The effort assumes significance since it caters to the question of efficiency in the real estate sector. Banking transactions in this sector also require a high degree of data privacy, therefore, the use of an enterprise blockchain makes this pilot even more important.

The real estate sector often acts as a key driver for economic growth. It’s a large sector, e.g., the real estate revenue in the US will reach $535 billion by 2022, as a Statista report indicates.

Despite the big money involved in real estate, the sector is plagued by inefficiencies. For e.g., banking transactions in this sector take considerable time, as experts state.

A large amount of paperwork, too many intermediaries, and systematic inefficiencies cause a delay in real estate-related financial transactions. The technology solutions in vogue here certainly need improvement.

Given this context, it’s not surprising the blockchain real estate use cases are increasingly attracting the interests of the stakeholders in this sector. Blockchain offers decentralization, moreover, its security features like data encryption and consensus algorithm protect data against tampering.

Blockchain smart contracts are autonomous pieces of code that are transparent, while their execution is irreversible. They can make contract administration easier.

Blockchain can reduce the number of intermediaries, and eliminate fraudulent transactions. These factors make blockchain real estate use cases increasingly important.

The importance of the Barclays/RBS pilot

Barclays, the multinational financial institution headquartered in London, and RBS, the retail baking giant headquartered in Edinburgh (Scotland) have embarked on an important pilot project. They are trying to make real estate transactions more efficient with the power of blockchain, while also addressing the data privacy concerns.

Public blockchains like Bitcoin and Ethereum are open networks, where anyone can join. While this enhances the case of decentralization and open network that blockchain had promised, these networks aren’t quite viable in heavily regulated industries.

Take the case of the financial services industry, which is subject to stringent data privacy regulations. An open blockchain network where access control isn’t possible isn’t quite the right solution for such industries.

Banking transactions, including those concerning the real estate sector need data privacy, and this is where enterprise blockchains come into picture. Enterprise blockchains enable access controls, moreover, they ensure that only the people with the right authorization can view sensitive data.

Barclays and RBS have chosen R3 Corda, also called Corda, an enterprise blockchain framework from R3. Corda offers access control, data privacy, and scalability, therefore, this open-source framework is a good fit for enterprises, especially banking and financial services institutions.

Barclays and RBS are jointly building a blockchain platform using Corda, catering to the real estate transactions. Their testing so far has already demonstrated efficiency gain. Their platform has completed transactions in less than three weeks, in comparison to the three months it would take using the current technology solutions.

A new dawn for blockchain real estate use cases?

The pilot by Barclays and RBS is delivering efficiency gain, tamper-proofing of data, and data privacy, which are key requirements in the real estate sector. Will this proposed platform transform the way the real estate sector operates? We need to wait and watch.