“This changes everything.” That’s how Apple introduced the original iPhone in 2007. But it could just as easily apply here and now to the blockchain and its potential to enable transformative innovation in a variety of industries.
The most mature proposals for blockchain-led innovation are in the banking and financial services sector and cyber security, with viable solutions also emerging in supply chain management, insurance, and healthcare.
One sector that’s been less discussed is real estate. It’s an industry that can be opaque and committed to self-preservation rather than consumers’ best interests. More than just enhancing or streamlining established processes, blockchain will — if supported by legislative innovation — enable new models that could make housing more affordable and accessible.
A typical “vanilla” residential property sale involves at least eight stakeholders: the land registry, a buyer and a seller, their respective lawyers and mortgage providers, mortgage surveyors, and estate agents. And that’s assuming a “chain-free” transaction, without other buyers and sellers involved. The process can drag on unnecessarily as the various stakeholders figure out who needs to do what when to advance the transaction to its next stage.
Blockchain can make the process more transparent, increasing trust on all sides and reducing bureaucracy. Self-executing contracts or “smart contracts” can assure all required steps have been executed before money is transferred, released from escrow, or repaid to the bank, or before any titles are transferred. The distributed qualities of blockchain mean parties would no longer be reliant on a single “source of truth” (typically a lawyer), increasing trust, lowering costs, and speeding up transactions.
It’s not hard to imagine some intermediary roles diminished or even vanishing altogether once buyers and sellers can more clearly see and approve actions and those intermediaries are no longer the sole key-holder in moving things along.
Incremental ownership for renters
The UK government’s “shared ownership” scheme helps first-time buyers get on the property ladder by purchasing part of a property and paying rent on the remaining value. Renters can buy additional equity in the property as and when they can afford it, a process known as “staircasing.”
Blockchain could open up this ownership model — currently only applicable to a small number of properties and accessible only to buyers meeting strict criteria — to all buyers, smashing the traditional own/rent dichotomy. The attractions for both sides are evident: the original owner enjoys a steady rental income without having to worry about void periods, rental fees, or property management costs; the renter gets a place they can call home, knowing it’s theirs to decorate and improve as they see fit. Smart contracts make this possible: Payments automatically adjust with the level of ownership, recorded on the blockchain ledger, and ongoing valuation of additional equity can also be automated.
A market for fractional property ownership
Currently legal and practical restrictions prevent homeowners from selling, say, 0.03 percent of their property to a friend to raise some funds, or a buyer from rewarding family and friends who supported them financially with stakes in the property, as in equity crowdfunding.
Some startups — including Brickvest and, to an extent, Property Partner — are already looking to make fractional ownership of property a reality, albeit not on the blockchain. A blockchain-powered online ledger could overcome complications by securely and reliably tracking the size and value of individual stakes in the property in the same way as stock in companies is recorded on exchanges.
Clarifying property rights and releasing capital
Perhaps the biggest impact of blockchain on real estate could be establishing property ownership rights in countries that either lack a centralized land registry or where the registry is at risk of fraud or otherwise not generally trusted.
Having titles on property that unambiguously and immutably assert ownership rights is vital. It enables the release of significant amounts of capital into the economic ecosystem as mortgage lending becomes viable. The powerful checks and balances inherent in blockchain by virtue of its distributed nature makes it ideal for unlocking economic development in markets where trust in governing bodies may be lacking. A Swedish startup called Chromaway is beginning to address this issue, running trials with the Swedish land registry.
It seems unlikely, however, that significant changes to the mechanics of home ownership and the wider real estate industry will be achievable by disruptors alone. Laws will have to change to allow technologies to facilitate new models of ownership safely and reliably. And collaboration between blockchain innovators and industry incumbents will be necessary to ensure the benefits are accessible at scale. At a time of growing concern in the Western world about a generation being priced out of home ownership, technological disruption that might make property more accessible for all should be watched with great interest.
Eyal Malinger is an investment director at venture capital fund Beringea; he has a strong interest in the “proptech” sector. He was previously head of corporate development and corporate venturing at UK property services company Countrywide PLC.