Blockchain and real estate

REINZ and the Real Estate Institute of Australia (REIA), in collaboration with RMIT University’s Blockchain Innovation Hub, released a ground-breaking new report showing how blockchain technology could be used in the New Zealand and Australian real estate sector.

The report Blockchain: Opportunities and Disruptions for Real Estate, examines how blockchain technology might be used in the real estate industry to enhance processes by reducing friction in complex transactions, broadening service offerings, facilitating tokenisation, increasing transparency and improving information flows.

The report doesn’t prescribe how blockchain should be used in the industry — or even that it should be used. It looks at the opportunities blockchain technologies provide and their potential applications in real estate over time.

What is blockchain?

‘Blockchain is the architecture that enables users to transfer value digitally.’

The technology records transactions and tracks assets in a network — like a ledger — and allows digital information to be recorded and distributed. Because blockchain is secure, decentralised, immutable (unchangeable), and transparent, it is difficult or impossible to change, hack, or cheat the system.

A simple example is Bitcoin, where everyone connects and transacts on the blockchain.

The appetite for blockchain in real estate

There is huge scope for blockchain technologies in real estate. However, while blockchain technologies may support efficiency when conducting real estate business, they’re unlikely to replace the person-to-person interactions and engagements that are the cornerstone of our profession.

Blockchain applications in real estate are still in their early days and we know regulatory systems tend to lag behind the advance of technology. So, while regulatory bodies get a feel for the fundamentals of this technology to develop regulations for transactions, we’ve seen many start-ups try and fail, and a growing number try and thrive — real estate transaction platform Propy being one example. Others such as Hutly are turning real estate forms into smart contracts via their asset management platform.

What has blockchain got to do with real estate?

There are challenges to blockchain adoption, and it may not be the right fit for now. However, it brings fresh opportunities for the real estate profession, including some of the following.

Smart contracts

The contracting process is more complex in real estate than for Bitcoin, with multiple actors and processes involved for the average transaction. However, smart contracts are one area blockchain technologies can introduce efficiencies to real estate processes.

How? By using smart contracts on a decentralised blockchain, the process of writing, authenticating and auditing agreements can be executed in real time. Blockchain-based smart contracts could also present an alternative to record land titles. And by moving documentation into a decentralised and secure ledger could be a more efficient way to manage land ownership, increasing transparency and ensuring that records are not manipulated or lost.

Information flow

There are many parts and many systems in real estate business, which often mean siloed data and difficulties transferring data from one to the other — creating transactional friction. Blockchain technology poses a solution to this by applying some of the principles of decentralisation.

Tokenisation

Tokenisation is the conversion of the value of an asset such as property into a fixed number of liquid tokens. Property asset tokenisation could support new investment vehicles enabled by blockchainbased security, with increased speed and efficiency that allow investors to invest in property assets anywhere in the world.

Tokenisation allows ownership rights to an asset to be transmitted and traded on a global and secure digital platform. Automating the tokenisation process with blockchain may improve access to the real estate market by enabling ownership models such as fractional ownership. It opens the door to more inclusive property investments through the trading of affordable shares (fractional values of a property asset). Real estate tokens can be traded transparently facilitating liquidity of the asset, and — importantly — support faster, cost-effective transactions.

Final word

Blockchain applications in real estate are still in their infancy, and decentralised real estate markets are unlikely to be a shortterm reality. REINZ recognises the need to raise awareness of the opportunities blockchain technology offers to improve current systems to ensure readiness in a quickly evolving market.

The report also looks at future directions enabled by blockchain technologies, such as extended and augmented reality to support virtual property tours and property in the metaverse.

You can find the full report on the REINZ website under reports.

The report focuses on blockchain applications relating to real estate buying and selling processes, such as:

▪ asset management — loan and mortgage securitisation

▪ project financing — payments, leasing and real time accounting

▪ property management — investor and tenant identity

▪ land and property registries

▪ urban planning — property development and construction.

Summary of proposed advantages of smart contracts and blockchain in real estate:

▪ Utility: digitised real estate assets can be easily used in other markets without complex overheads and costs

▪ Liquidity: real estate assets can be global from inception, creating more liquidity in markets

▪ Efficiency: automated payments such as rents, etc. can be integrated with existing systems

▪ Risk management: on chain derivatives and hedging place/region related risk. Facilitates a user to hold a balanced portfolio of stocks, crypto and real estate that doesn’t have to be that big. (Unlike real estate investment trusts, properties can be chosen by the user and not bundled in an opaque way)

▪ Provenance: blockchain provides an immutable ledger and can track provenance along the supply chains from real estate asset construction, an audit trail of ownership and updates on full transaction history.

Blockchain is also touched on in REINZ’s Megatrends report in megatrend 2: digitisation. The report suggests that blockchain should be embraced by the sector to provide greater transparency and trust — particularly important for younger generations.