Blockchain technology could have a large impact on how real estate is transacted.
Last week I spent the week at MIPIM, the largest conference in world dedicated to real estate. The conference is focused mostly on traditional real estate, but a portion of it was dedicated to what is often referred to as PropTech in Europe. What’s most interesting to me is how companies are applying technology to real estate and one of the big opportunities is bringing blockchain technology to real estate.
The session I enjoyed the most was dedicated to this, titled “Blockchain: What are the opportunities & challenges of peer to peer real estate?”. Although the general consensus was that we are still early when it comes to widespread adoption of blockchain for real estate there were several interesting takeaways.
One of the panelists was Achim Jedelsky, who works for Daimler Real Estate, a division of the auto company. The company is currently looking at what improvements can be made for existing processes, including transactions. While it was clear they are only exploring a few use cases internally and he didn’t get into specifics it’s interesting that a company that focuses on automobiles is exploring blockchain. Daimler is a company that may not strike you as an innovative company, but they are clearly forward thinking even in their auto business having recently invested in auto finance startup AutoGravity.
One of the companies focused on blockchain applied to real estate that is making more progress is velox.RE. Founder Ragnar Lifthrasir spoke on the panel explaining his company’s open real estate platform that includes property transfer, recording, and payments. He is also the Founder & President of the International Blockchain Real Estate Association which aims to help the real estate industry adopt blockchain technology.
One of the keys to the adoption of blockchain for real estate is to demonstrate the cost savings and reduction of risk. As larger companies start to adopt the technology Ragnar believes the rest will follow. Chicago’s Cook County is currently running a pilot program with velox.RE for transferring and tracking property titles as well as filing liens. The press release of this announcement outlined three reasons why blockchain technology is appealing:
a permanent, immutable public record that is immune to well-funded nation-state attacks.
a path towards paperless land transfers and so-called “e-deeds”.
reduced costs for offices across the country that want to upgrade electronic document processing systems.
While we may be still some time away from public adoption Ragnar noted that larger firms with a significant amount of units or properties can still use the blockchain to track their portfolio internally as a first step. On their website they invite those who own five or more properties to test out their platform.
For boutique real estate investors or even homeowners there is also an opportunity on a smaller scale to increase the efficiency and lessen the cost of the home buying process. For instance, closing costs can be reduced by reducing the friction that is currently involved in real estate transactions.
Panelists also highlighted the opportunity of the technology being applied to crowdfunding. There are three perceived benefits:
Accepting bitcoin for payment will allow for investments from across the world, big and small
Payments can be automated to investors in the property
The blockchain can provide proof of real estate ownership
Another topic brought up was the application to emerging markets. Oftentimes we read about how blockchain could help these markets and how the emerging markets may be the early adopters of blockchain technology, but there are challenges as well. The blockchain is a distributed system that is verifiable, but in the developing world it’s actually much harder to get started. Some countries have corrupt governments and the government is needed to prove the initial ownership of property. Ragnar said that in these circumstances you have no choice but to work with the local governments, but property owners could also begin to use the software even though it initially wouldn’t be legally binding. As property owners begin to adopt it, they can bring in the government to bridge this gap who may have no choice but to eventually participate.
Ultimately, the applications of blockchain for real estate is going to depend a lot on the local market and adoption needs to be done with the government when required. Ragnar provided an example of the current situation in the US where conveyance is separate from recording which means that they can start using blockchain for part of the transaction process. He shared that the blockchain can also be used for transactions when multiple signatures are required. This can be done by issuing multiple private keys to various stakeholders such as a notary, the property owners, the buyer etc.
Olivier Selles of Bouygues Immobilier spoke of other applications of blockchain. One example he gave was tracking information related to solar panels on buildings. Since most people find it difficult to perceive the value of solar panels, the blockchain can help certify the production and also help in tracking electricity as a currency.
We still are very early when it comes to blockchain implementations, particularly in real estate, but applying the blockchain to real estate holds a lot of potential. Many companies are exploring use cases internally and are also doing external proof of concepts as shared above. Transacting real estate has traditionally been a slow and time intensive process but technology will eventually make the process more efficient, reducing costs for all involved.