Real Estate meets Blockchain in Japan
Real Estate may be the world’s oldest asset class but it is still its biggest. According to British real estate company Savills, the value of global real estate in 2015 reached USD 217 trillion, about 2.7 times the world’s GDP, equivalent to about 60% of global assets.
Furthermore, real estate makes up a large portion of the economy of most countries: in the US, the National Association of Homebuilders indicated that housing’s share of gross domestic product stood at 15.4% in the fourth quarter of 2017, a remarkably steady figure since the mid 2000's.
However, real estate transactions are among the most complicated and time consuming ones. Therefore, it is not surprising to see new technologies being applied to real estate, such as virtual reality (to enhance walkthroughs), artificial intelligence (to better match landlords and tenants) and now blockchain.
Japan is one of the few countries where cryptocurrencies are regulated and this forward looking stance has contributed to foster a supportive environment for the development of blockchain-related technology. Listed Japanese real estate company Ruden Holdings published a report last month on a test it conducted to execute real estate transactions via a settlement platform using the NEM protocol for smart contracts and simulating payments via Bitcoin. Given the strict legal requirements of Japan’s regulatory regime for cryptocurrencies (defined as “virtual currencies” in local legislation), the test transaction had to take place through a regulated exchange, in this case Bitflyer, Japan’s largest crypto trading platform.
The test comprised three integrated platform/services:
- A Real Estate website where buyer and seller are matched and a purchase price in Bitcoin is agreed upon;
- Representational State Transfer API which pulls transaction information from the Real Estate website and virtual currency exchange and relates the information to the Smart Contract;
- Smart Contract: which creates the necessary notarized transfer documents upon successful confirmation of the Bitcoin payment, using NEM’s infrastructure.
Ruden’s test report is a welcome effort in transparency and provides a simple roadmap of the various steps taken by the company to carry out the test. It is interesting to note that the test transaction provides for an immediate exchange of Bitcoin into Japanese Yen and that the final signing and confirmation of the transaction by both buyer and seller happen off-chain, which is understandable given that the final transaction documents are required to be submitted in paper format to the local Legal Affairs Bureau.
Ruden pointed out that the test was executed successfully and that the main benefits were a drastic reduction in processing time, equivalent to about a 33% saving compared to a traditional off-chain process, and the avoidance of human errors (such as a loss of a document or erroneous payment transfer).
Earlier this summer, Ruden announced its plans to issue its “Ruden Token” via an Initial Coin Offering (outside of Japan) and has been working with Australian blockchain consultancy Blockchain Global on its Bitcoin real estate payment system and crypto strategy. It will be interesting to follow Ruden’s deployment of their blockchain real estate platform after this initial test and whether the Ruden Token, if and when issued, will be part of the platform.
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