It is being hailed as one of the most significant tech trends of the decade along with driverless cars, drones and Google Glass. (OK, maybe not the last one). But I have been trying to figure out what it really means for property and those of us working within it.
To briefly summarise what blockchain technology is:
"The practical consequence […is…] for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate."
In essence, it is an “incorruptible digital ledger of economic transactions” according to Don and Alex Tapscott. Blockchain shares thousands of pieces of information, hosted by millions of computers simultaneously, so that all records are kept public and easily identifiable. But the really smart bit is that each piece of code that stores the information is recognised and verified by each of those computers, and for new information to be added to it, they all have to verify the change. This prevents fraud and makes it is the safest form of data storage thus far created.
Currently known as the foundation by which Bitcoin is created and recorded, Blockchain will radically alter the way we store data, and how much trust we can place in that information. For the property market – which is still working on a systems of leases that hasn’t altered in over a century – this should result in massive change.
But what does it mean for the real estate sector?
Reducing the time spent on title transfers
So what is out there – title transfers would seem to be one key area. Blockchain would greatly reduce the cost of verifying titles, removing the need for manual data collation and research from experts such as insurers among others.
Title insurance protects the financial interests of the owner or lender during a property transaction against any losses that might occur because of title issues. These may include defects such as lien, mortgage or judgment. The introduction of blockchain could hypothetically remove the need for hours of research as a file could be loaded onto a computer via blockchain, and verified by numerous sources as a permanent record. Goldman Sachs reports it could potentially save $2-$4 billion per year in title insurance premiums.
The currently low tech process, is not only outmoded but still susceptible to corruption and confusion. In a digital world it seems thoroughly analogous. And, furthermore, —the World Bank reportedly stated that that 70% of the world’s markets currently lack access to land titling. This obviously prohibits the ability of those in the markets to co-ordinate and have sufficient trust around property transactions.
Full transparency on people
Screening processes at present aren’t watertight – and if you’re renting, using Airbnb or leasing your building to someone then it’s likely you’d want to know a little more about them than their sort code and account number. The rapid verification of references would not only reassure landlords and tenants but expedite the entire renting process, while also removing a key function of agents.
Companies, such as Airbnb, are investing in using blockchain to make these processes safer for all parties. The technology can be used to build user profiles compiling criminal records, reviews and other information about both parties. The user profiles could become a universal trusted form of identity – much like a more advanced version of credit scores – which could be potentially exported to other platforms. Customer reviews would be rendered in permanence, verified by other users, and become a trusted source of information in a way that is simply impossible in the current market.
The ability to have access to this information would allow people to have the critical information they require at their fingertips with minimal time and expense spared. Furthermore, both parties in a rental agreement would benefit from smart contracts, i.e. contracts that are automatically updated e.g. terminating a lease by a certain date, flagging breaks or ensuring automatic access at the current juncture. This also might include the automatic payment and verification of rents, along with other associated costs such as CGT. The technology would add significant transparency to the landlord/tenant relationship, noting down the historical correspondence and actions from the negotiation process onwards and, again, removing the need for references and financial checks.
Blockchain can also act as a source of pooled actions and verified data that would expedite the process of buying and selling. As amends are made to a lease and negotiations are made on both sides of a deal, blockchain tech would act as a permanent record of every action.
Blockchain allows a vast, distributed ledger where people, worldwide, can move, manage and store any kind of asset – including property – in a fraction of the time that it currently takes.
Transacting any form of property can take several months – the paperwork, transferral of funds, title transfers – which can sometimes be deterrent.
This also removes the requirement for a “third party” in the transaction, as long as the buyers and sellers are proceeding across an agreed set of rules, both sides have a transparent and trusted record of progress, which will introduce huge efficiencies around time and costs.
Furthermore, for international investors looking to enter a new market it will improve visibility thereby potentially opening up emerging markets that hitherto were too opaque to operate in. JLL reported that the top 10 most transparent markets in the world accounted for 75% of direct investment globally, and blockchain would open a plethora of investment opportunities that would have previously been deemed too risky.
So will real estate move over to blockchain?
The system allows companies to operate much faster, cheaper and with much more security against cyber-attacks alongside the benefits of lower error rates, less risks and a lower capital requirement – and these principals spread far and wide throughout the industry with a host of benefits. This might include the proliferation of fractional ownership as a blockchain approach would facilitate the verified investment in a small proportion of a much larger development – an element of the market which is only available to investors of scale.
Blockchain could overhaul the transactional element of the industry, moving towards a completely transparent future, and radically reducing the chances of fraud while also speeding up processes which have remained centuries-old blocks to progress.
So, my bet would be on a move to blockchain in the relatively near future, a transition that will create genuine disruption – for the good – in an industry that has always been reluctant to change.
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