Blockchain technology has countless applications apart from cryptocurrency. Across the globe, governments, organisations and individuals are scrambling to figure out the smartest ways they can incorporate this innovative technology into their operations to increase efficiency and profitability.
Blockchain is particularly well suited for use in the property industry, which has been plagued with problems ranging from illiquidity to fraud. Blockchain has the potential to solve these problems and countless others. Let’s take a look at 3 of the ways in which blockchain technology is poised to change the property industry forever:
1. Land Registries Will Use Blockchain to Transform the Processes for Land Registration and Property Sales
In October of 2018, the government of the United Kingdom announced that the HM Land Registry is partnering with the Methods software company for the purpose of investigating how blockchain technology could benefit the registry’s operations. Other governments and land registries around the world, including Sweden’s, are also actively working to incorporate blockchain into their operations.
Of the group of public officials who are implementing blockchain, the Dubai Land Department appears to be furthest along in the blockchain integration process. The Dubai Land Department is now using blockchain to record all of the country’s property contracts and lease registrations. It is also linking these documents with the Dubai Electricity and Water Authority and various other utilities.
We have yet to realise exactly what the long-term effects of these implementations will be. In the long run, it is likely that blockchain will bring about a significant reduction in property fraud and money laundering as land registries and government entities adapt the technology more broadly. In the short term, there may be some hiccups in getting to that point as governments and organisations design the infrastructure for implementing the technology on a broader scale.
2. Tokenisation Could Greatly Increase Liquidity in the Property Markets
Writers here at The Fintech Times have already posted a great deal of information about asset tokenisation. This concept is directly applicable to the real estate markets, and assets such as properties could be tokenised.
Tokenisation brings multiple advantages. One of the most significant of these is the possibility of adding significant liquidity to the real estate markets. Historically, real estate has been notoriously illiquid. This is particularly the case for desirable high-end properties in cities around the globe.
Under current conditions, buying a residential property in London typically requires an investment of £700,000 or more. In Sydney, Australia, the median price for residential real estate is upwards of $1.1 million AU. In San Francisco, California, the median price for residential real estate is $1.61 million US. At these price points, the pool of potential buyers for the properties is relatively small.
Tokenisation brings multiple advantages. One of the most significant of these is the possibility of adding significant liquidity to the real estate markets.
Furthermore, actually completing a real estate deal to buy one of these properties is cumbersome and inefficient, involving multiple middlemen. If those properties were to be tokenised and sold to multiple investors, the buy-in price could be far less than it would be if the property were to be sold to a single buyer. This could open up attractive investment opportunities to a much broader range of investors.
Similarly, if tokenisation were to become commonplace, property owners would have more options. Selling houses outright would remain an option; however, tokenisation would also give each property owner the capability to sell a portion of their house as well as keeping a portion.
3. Solicitors and Title Insurance Could Become Redundant in Property Transactions
Here in the UK, it’s typical for a solicitor to perform due diligence in a real estate transaction to ensure the seller of a property truly owns it. The solicitor also affirms the title of the property is clear.
In the United States, title insurance is a commonplace purchase when a property changes hands. Although title insurance is available in the UK through multiple purveyors, its use is not as widespread here as it is in the USA.
In either case, blockchain is likely to significantly reduce the need for the involvement of solicitors or the need to purchase title insurance when completing real estate transactions. In October of 2017, Michael Cross at the Law Society Gazette reported that blockchain facilitated the quick and efficient sale of a commercial property in Trowbridge — without the need for a solicitor or title insurance. The “shared ledger” nature of the blockchain technology ensured that the transaction was recorded in a tamper-proof manner. Given the presence of the irrefutable digital file, no solicitor was needed to check it. Mr. Cross also points out that land registries themselves might be made redundant in the long term.
These are not the only ways that blockchain will change the property industry in the future. However, these are shaping up to be 3 of the most significant changes that are apparently fast approaching. All 3 of these aspects have the potential to dramatically change the property industry in the coming years.