Blockchain Technology Powering PropTech Revolution
The race to become the world’s first Smart City has begun and is becoming increasingly more exciting with wider applications of disruptive technologies. It seems that the term „Smart City” is well-known and popular across various media, but is important to stress that the general idea behind this concept is to boost the quality and performance of urban services, reduce costs and resource consumption, and to engage more effectively and actively with the city’s inhabitants. The technological background of this shift includes solutions such as artificial intelligence, blockchain, smart infrastructure, solving sustainability issues and smart mobility. Take into consideration a very simple example: in the morning, you hop into your car, drive from the outskirts of the city downtown, use an app to find parking space, leave your car — and the same app shows you what public transport to take for your further journey, at the same time handling issues such as tickets and payments.
Throughout the world, several leading cities have emerged, to name New Delhi in Asia or Helsinki in Europe. Undoubtedly, the king of the race is Dubai, establishing Smart Dubai as the leading governmental agency propelling the move to become the world’s first blockchain-powered smart city in a very short period of time: by 2020. The road map for this task is vast: Dubai is swiftly introducing tech-savvy solutions to all aspects of its citizens’ life, from smart economy and smart mobility to smart environment. Stemming from the government’s digital focus, the most prominent market is also falling under this trend: Dubai’s real estate landscape. The city’s drive to become the global hub for blockchain technology is now being fuelled by the transformation of real estate, leading over 200 developers standing behind 200 projects at various stages of development. To cite Seda Tutu, „The Dubai government has elaborate plans to use Blockchain across the board, from parking tickets to land and title deeds.” Taking into account all the tech initiatives taking place in Dubai, the full incorporation of „many shades of blockchain” is only a matter of time, pushing changes in relations between investors, buyers and developers.
The art of blockchain in real estate
If you haven’t spent the last year or so hiding on an inhabited island, you have definitely heard about the key characteristics of DLT (distributed ledger technology) and its most prominent representative: blockchain. Real-time, immutability, removal of the third party (aka the middleman) to name a few. This said, we will not go into vast and detailed descriptions of the technology, but venture into exploring the potential blockchain holds for the real estate market and its participants.
Where does blockchain benefit the real estate sector?
What are the opportunities in real estate?
Improving the hunt for property
The majority of owners, tenants and buyers are usually forced to use many listing services to gain access to data that answer the following questions:
- Where is the property located?
- What are the average prices of property and leases in the area?
- What facilities are connected to the property and what are the property’s features?
This search often involves going through many websites, often with dispersed data, then defining ownership and related issues by reviewing land and mortgage registers. The latter poses another challenge: there is virtually no guarantee that the data provided is up-to-date and accurate. And this is precisely where a blockchain-based network comes in. A blockchain-based service would make it possible for data to be sent through a peer-to-peer network, allowing for all participants to have better control over the information circling around. This would allow for clear details on the property location, what are the average buy or rent fees in the neighbourhood, and clear data on the history of ownership.
Digital due-diligence and evaluation
Usually, in even the most simple transactions, a significant amount of time is spent on due diligence activities. This includes reviewing legal, financial and environmental issues to assess the price. Often, this also concerns time-consuming and costly construction reviews and expertise. The more complex the transaction (for example involving multiple properties) the bigger the due-diligence process and the more prone it is to errors and mistakes. Often, the same steps in the process are repeated by both the buyer and the seller, especially if there is a mortgage involved. The growing preference for digital transactions suggests that creating digital identities reflecting actual properties would allow for consolidating information on ownership, vacancies, financial and legal history as well as performance measurements in a single place in digital form. So, let’s go a step further and combine blockchain’s characteristics with digital identities. To ensure accuracy of the stored digital data, all participants of the network (the blockchain), such as owners, lenders, investors, could participate in the process of confirming if the inserted data is accurate, similarly to nodes confirming transactions on the bitcoin blockchain. Again, you can see that in this system, no task is repeated, thus significantly shortening the entire process.
Let’s put assets in a token
Firstly, let’s define the process of tokenization: putting it simply, this means converting rights to a real world asset into a digital token on a blockchain, which can be traded like a cryptocurrency on a digital exchange. A typical process in the field of real estate involves various intermediaries (a simple example would be notary services), each one generating their own costs and most often lengthening the road to finalization of the transaction. Asset-backed tokenization holds strong potential to change how we do business in this area. Most importantly, one token can be divided into much smaller units, similarly to bitcoin, where each coin is divided into satoshis and there are one hundred million „satoshis” in one coin. Secondly, creating real estate assets in the form of tokens makes it possible to create a 24/7 marketplace for real estate, where anyone can buy, sell and rent property at any given time of day or night. Again, let’s dig a bit deeper into the issue. A perfect example of the potential of tokens are multi-let commercial properties, where a token would be equivalent to a right in the property’s earnings from tenants, or ownership of a number of tokens would give the right to a parking spot and so on. As mentioned before, a blockchain also holds the potential to use and execute smart contracts, so a token may also contain built-in information on the title to it, changes in ownership and act as a voting tool in management of a particular building.
From theory to practice
For every stakeholder on the technology market, as well as for those just observing the transformation, it seems that all benefits of using blockchain technology have been covered and much has been said. Of course in many areas the ideas are still in the Proof-of-Concept stage, and this is due to many reasons, among them legal regulations, and the pace of digital transformation. This, apparently is not the case in Dubai. Earlier this year, Evarei Management announced it had secured the rights to acquire the first 20 million dollar real estate portfolio in Dubai. At Gitex Technology Week in October of this year, the Dubai Land Department launched the blockchain initiative in the global real estate sector, operating under the motto: „Simple, Secure, Fast”. Incidentally, these three words perfectly sum up all the characteristics that blockchain stands for. The system is based on a secure database that records all real estate contracts, among them lease registrations, linking them to DEWA, (the Dubai Electricity and Water Authority), different types of property related bills and the telecommunications network. The whole system integrates data on tenants, and this links with a check-up of residence visa’s validity and Emirates Identity Cards, at the same time allowing for conducting payments electronically, eliminating the need for any paperwork and personal visits to government entities. In a press release issued on 6 October Dubai’s land register said, “The technology will allow investors residing in Dubai and around the world to verify property data that is backed by timestamp signatures, enhancing the accuracy of data, the credibility of investment transactions and the transparency and clarity of the market.”
What comes next?
So, up to this point we have covered both the general idea behind blockchain in real estate, as well as the existing and functioning solutions within this sector. But now comes the question: why shouldn’t we go a few steps further and integrate each blockchain network into a larger system? This is precisely what Dubai is so effective in doing, making use of blockchain to foster and grow a system where the citizen’s everyday „journey” from leaving home, going to work, running errands and returning home is done on one large, integrated platform of services that makes the entire, everyday „end to end” journey simpler, less costly and less time consuming. Again, imagine the basic concept: smart, secure and fast. Then think about the regular day-to-day activities you do. Paying apartment or home-related bills, commuting from the house to work, activities and meetings (often requiring transport to many different locations outside of your standard workplace) and other things done in spare time. Now, imagine that your tenant information is stored in one place, from the same place you can pay your rent, water and electricity bill, as well as others. Then, by using yet another module of the system, you can check how it is best to get to work, an app navigates you to the best parking space and executes an automatic payment. Gone are the days where you needed to waste time by paying a paper ticket or measure the hours for which you would need to leave your car. And if you need to pop out for a meeting? Well, the very same blockchain system could tell you if there is available parking space at your destination and guide you to it. If not, then integrated with public transport or taxis, it could guide you to your destination by other means of transport. Surely, ten years ago it would have sounded like a futuristic vision. Today, it is not only a vision but an already happening reality. The reality of a city done the smart way.
 Blockchain gaining traction, Khaleej Times, available at: https://www.khaleejtimes.com/blockchain-gaining-traction