Blockchain for real estate – Rome wasn’t built in a day
The real estate community is increasingly aware of the significant potential that blockchain holds for its industry. Numerous successful trials and several Initial Coin Offerings (ICO’s) have been announced and the surge in new applications, working examples of the technology and new business models has only just begun.
A call for realism in blockchain expectations
Although the property market is thriving and there is a temptation for major players to focus on the more immediate quick wins, we are seeing a definitive breakthrough of PropTech innovations in the market. Blockchain is on the agenda of the CEO of almost every real estate company. But blockchain is not necessarily the solution for every item on the agenda.
Thanks to innovative technologies such as blockchain, data driven real estate management is in “acceleration” mode and with this, the role of real estate professionals is facing radical changes. Two factors that must not be underestimated are: the current quality of data held by real estate companies and the incentives of the current “powerhouses” to limit data sharing. The transparency issue is a long-standing, pre-blockchain obstacle in the real estate sector, and remains a tough nut to crack. The attitude of leading agents in the market towards this point has to change and it is inevitable that at some stage they are going to have to share confidential data with other players in the life cycle as digitisation continues. Parties who are not willing to share their confidential data, in a secure and trustworthy way, may see economic disadvantages from such behaviour in the future.
Silo-thinking in data handling
Privacy, data ownership, exchange of data based on international agreed standards and improvements in the quality of data are going to be the major issues in 2018 and the years ahead. International efforts, such as the research, started by IREDEC, late 2017,1 is a necessary and important step for the adoption of blockchain in the real estate industry. The purpose of the IREDEC is to identify a core data set for different real estate processes and perform a complete mapping exercise between existing standards to ensure alignment for the agreed upon data set. Another important research, conducted by the RICS2 gives insights as to how building-related data, including physical, performance and financial information, is currently being captured and managed by key sector representatives. The main conclusion is: ‘While the report lists an encouraging number of good practice examples and public and private initiatives, the overriding message of the survey findings is that the fragmentation and silo-thinking that the sector is known for also translates into the way it handles its data. The report concludes that in terms of effective data capture and subsequent management of that data, the sector still has some way to go’.
Promising use cases
Blockchain is still in its early days for the real estate industry. The limited scalability of blockchain, lack of standardised and easy to exchange data are challenges that need to be tackled in order to make mainstream adoption possible. Despite this observation, we’ve seen several promising uses of blockchain around the globe:
- Digitised purchasing of real estate via Bitcoin
- Tenants paying sums due under their leases (rent, service charge, insurance, etc.) in Bitcoin
- Peer2Peer asset trading
- Transfer of ownership
- Crowd ownership and or finance of real estate
- Rental contracts via blockchain
- Real estate data exchange platform
- Self-executing smart buildings
Of course, some of these solutions aren’t mature at this stage or don’t comply with the existing rules and legislation, as with many new developments. It’s going to take effort, time, vivid examples, perseverance and the creative minds of the innovators amongst the pack in the upcoming years to progress this.
Federated Real Estate Data network (FRED)
For the real estate industry we envisage a federated real estate data network, FRED. FRED represents a federated, distributed network for exchanging real estate information between administrative systems (FRED members). FRED members would all manage their own information and communicate directly with each other via an Application Programming Interface (API) that allows them to exchange structured information/data.
In order to increase trust, FRED members use a second medium (blockchain) to validate whether the information provided information is truthful. Most blockchains are ledgers that simply keep track of transactions, giving them the authority to tell if a transaction is valid or not. FRED proposes a layer on top of a blockchain, giving it the authority to tell whether a real estate transaction is valid or not. It tags each blockchain transaction with enough information for other FRED members to understand the semantics behind the transaction. The advantage of using blockchain technology in this way is that we can rely on its transparency, immutability, ease of transfer and inability to be counterfeited, to transfer digital tokens with unprecedented security and ease.
FRED would make information sharing across organizations not only easy, but secure and verifiable.
Blockchain is rarely, if ever, a solution in itself, but it can be used as a building block. API’s are another building block. Generating structured information based on unified definitions and taxonomy, thus reducing the time taken to manually enter information is considered the best route. Instead of sending documents in human-readable format (word, pdf, excel), a connection via a system with each counterparty with API’s needs to be in place. This makes the exchange of information possible without the manual interference of a human being.
We believe blockchain is set to make a positive contribution to the world of real estate, in terms of uniformity, efficiency, and transparency. Exciting times with great opportunities lie ahead. Some will say that this is hype or that reality won’t to live up to expectations. This pessimism is caused by unrealistic short-term expectations from uninformed or misinformed people, and the selection of poor examples to demonstrate the benefits. In the meanwhile, keep exploring, stay curious and remember, Rome wasn’t built in one day!
- IREDEC is an initiative led by seven non-profit organizations: FIDJI (France), INREV (Europe), IPF (Great Britain), gif (Germany), OSCRE (North America), REDEX (Netherlands) and the RICS.
- RICS, November 3 2017, Global Trends in Data Capture and Management in Real Estate and Construction.