As we’ve mentioned before, the blockchain will revolutionise a number of the daily routines we go through today. Mundane actions will be optimised and digitised, especially data points that don’t change often. One clear cut case is your digital identity. Identity verification is a massive stumbling bloc in most businesses and government agencies, and requires time and effort to get it right. Due Diligence is a must in today’s world, yet this process can be optimised heavily with the implementation of an identity blockchain, one that would store a non disrupted chain of all identifying factors about a person, that can only be accessed using the private key that the person only controls. In an ideal world, this can be optimised further to store a biometric identifier that cannot be stolen, replicated or lost.
We are still a way away from having a completely digital solution or framework, but the latest advances in blockchain legislations in Dubai and Malta have paved the way for a regulated framework for private and public entities to work in. One area which will benefit greatly from the implementation of a Distributed Ledger Technology and Decentralised Application would be the real estate industry.
Real Estate on The Blockchain
Real Estate is one of those industries that affects so many different people in so many different roles, that the amount of human effort required in both the transfer of title and the lease of property is overly complex. Based on a paper released by Deloitte, the process is typically broken in 7 distinct steps, and 5 of these could be optimised by distributed ledger technology.
Step 1. : The MLS, or property listing software
Having worked in the real estate industry in Malta for many years, I can assure you that a property management system is a complex one for real estate agents, especially when hundreds of agents in different offices are sharing the same database and making changes to it on a regular basis.
Imagine now that there exists a distributed ledger that creates a unique block for each property that has ever been listed with the agency, whilst also creating a new block for any new property. When any changes are enacted on the listing, it is automatically registered in the blockchain and acts as both a log as well as a history of the property.
Now, if the local government had to also form part of this property information ledger, then property history, proof of ownership, and most pertinent information can be easily accessed by a trusted individual who is given the key to the property information (like an estate agent or notary). This in its own right will make the listing process of properties almost instantaneous!
Step 2. Evaluations and Pricing
Through the information readily available on the properties digital identity, valuations and pricing become a science rather than an estimation. These valuations can also be made available through the MLS and thus allow potential buyers to see peer reviewed valuations and make up their mind on possible bids.
Step 3. Viewing and Bids
Although there are many tools and applications that can be used to help in creating more optimised viewings of properties, we will not get into these in this discussion as most of these technologies run fine without the need for blockchain.
Step 4. The promise of Sale (Konvenju)
This is where the blockchain starts to shine. On initiating a “promise of sale” agreement, a smart contract (or a smart legal contract) is drafted and attached to the blockchain, typically to the amount of the deposit required. As with conventional agreements, a number of conditions are set forth by the buyer, the seller and local regulations. Examples of these include the architect’s approval, bank loan approval, due diligence on the buyer, the seller and the property, proof of ownership and root to title and anything else required by law.
Step 5. Researches and Due Diligence
Now suddenly we have a number of processes all running simultaneously and most need to be initiated by the buyer or by the notary or solicitor. Yet when we look into it in depth we can actually automate many of these processes by using an integrated blockchain. Smart Identities have all the personal level due diligence inbuilt into it, blockchain bases title-registry already has all the information about the property including root to title. Once the bank loan process is initiated the bank can be an endorser, same as the architect. Remember we spoke about Corda in the previous post. Well here as long as all the endorsers who are involved in the smart legal contract give their consent, then the contract has reached all its conditions and can be completed thus releasing the deposit on the property in
Step 6. The signing of Smart Legal Contract
Once the initial deposit smart contract is completed, then a smart legal contract can be drawn up for the transfer of the property. This is reviewed by all parties, and also if required will also have tied in with it a smart contract for the issuance of a bank loan. This smart contract allows for the transfer of funds from the bank to the seller whilst allowing the title to transfer from the seller to the buyer, whilst giving the bank the option to exact a special hypothec on the property in case of a default on the loan.
Step 7. The transfer of title and completion of Sale
The bank initiates the transfer of funds from their account if needed to that of the buyer through the smart contract initiated before, and in return, the seller transfers the possession of the property to the buyer.
The registrar is notified to initiate the transfer of title to the buyer with a hypothec on the property in favour of the bank. The registrar validates the transfer of the property title on the blockchain and a new permanent block is created, making it official and irreversible. The updates are sent through the property registry system that the property is no longer owned by the original individual and therefore listings could be automatically updated, whilst also removing the previous owner’s information from the system as per GDPR requirements.
Signing the Smart Contract
Fractional Ownership and Investment – Tokenised Real Estate
Another scenario in real estate is the establishment of fractional ownership within a very liquid environment. Many companies are currently creating tokenised property assets that represent fractional ownership in a real asset. These can be speculative or based on rental income, but all require there to be a completely trustless scenario, which unfortunately without the implementation of a government accepted property blockchain might cause some concerns. More trust based technologies like Creda would alleviate part of this, as each fractional asset transfer would be backed by a trusted partner or institution, and any change in ownership would have to be made through the same endorsers.
This would mean that any property could be tokenised and traded like a stock or share, and would make the market much more liquid, whilst allowing savvy investors to invest in real estate around the world, without having to go through the normal requirements for foreign investment in a country. This is both an ideal scenario for the decentralised ethos, but must also be foolproof when it comes to Due Diligence and Identity verification for Anti Money Laundering reasons, and therefore requires either an internal verification process or, as mentioned before, a smart identity blockchain.
Continue Reading about blockchain:
- What is Blockchain?
- Why is Blockchain Important?
- What is a Crypto Currency?
- What is an ICO?
- Are Cryptocurrencies and Tokens the same?
- Can Blockchain be used without a Coin or Token?
- Blockchain in Use (Real Estate)
- Will Blockchain replace banks? (Part 1 – Banking and Finance)
- Will Blockchain replace banks? (Part 2 – Blockchain Adoption)
- What is Distributed Ledger Technology? (Coming Soon)
- What is the future of Blockchain? (Coming Soon)
If you want to learn more about Blockchain Technology, Cryptocurrencies, ICOs, Distributed Ledgers, Smart Contracts or other fields related to the technologies, contact me using the contact page, or leave a comment below.
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