Land registration is a topic that hardly crosses the mind of most people outside of the real estate sector, except for when they’re involved in a real estate transaction themselves. Even then, it’s generally considered one of the mundane administrative matters, a rubber-stamping exercise that’s far less tangibly exciting than collecting the keys to a new home.
However, the critical role of land registration in the real estate markets cannot be understated. In 2018, the volume of global real estate transactions reached $1.75 trillion, four percent higher than the previous year. Behind each of these transactions is a land registry paper trail that varies vastly in both qualitative and quantitative measures.
Challenges of the Land Registration Process
In principle, land registries simply need to maintain records of land and real estate ownership, recording changes of hands as they happen over the years. It sounds like a simple enough task, but it comes with myriad challenges.
Historically, land registries were based on paper documents, which can be lost, destroyed, falsified, or otherwise manipulated. In countries like the UK, governments have largely moved to digital land registration systems. However, if someone wants to sell an older property that hasn’t previously been registered, and the paper title deeds have been lost or destroyed, the process to register the property in order to sell it can become highly arduous.
The seller will need to somehow prove the basis of their claim to ownership without the relevant paperwork, as well as explain how the documents came to be lost or destroyed. They’ll also have to engage professional surveyors and conveyancing professionals to handle the requirements of registration.
Even a standard transaction takes time, with the UK government citing that it takes between two and five days to process each application for a change.
A Failing System
This scenario is depicted in the UK as a developed country with a relatively robust system of land registration. Around the world, the picture looks very different.
For example, in 2010, an earthquake devastated large parts of the country of Haiti, leaving 1.5 million people homeless. The disaster also destroyed 60 years’ worth of government archives, including land registrations. Since then, many Haitians have put significant effort and investment into rebuilding their towns and cities. However, they remain without any legal means of claiming land as their own, given the government has no record of prior ownership. This also means that property owners have no way to prove they’re entitled to any compensation payouts due.
Even in the absence of such a disaster, land registries in the developing world are often severely lacking. As recently as 2004, only one percent of land in sub-Saharan Africa was under formal government registration.
A 2018 study into the challenges of land registration in a state within Nigeria found that only 11 percent of real estate consultant respondents stated that they always registered residential land purchases. The study also uncovered that corruption was rife, along with an inefficient process for land registration evidenced by poor record-keeping, cumbersome processes, and lengthy delays.
Putting Land Registries on the Blockchain
Blockchain provides a potential solution for many of the challenges of land registration. This use case for blockchain extends beyond a pure database, leveraging the opportunity to create a permanent, unbreakable record of ownership for land or real estate.
The simplest implementation of a blockchain-based land registry could enable the ownership documents to be recorded and assigned to the owner’s user account. If there are structural changes to the building, these can be added to the blockchain, and if the property is sold, all the relevant documentation can be transferred to the new owner. Every transaction is traceable, timestamped, and indisputable.
Used in this way, blockchain could provide a highly secure record of ownership that cannot be manipulated. In contrast to storage on a central server or a central archive, which — if lost — means the end to all claims, blockchain allows information to survive any disaster. Not the entire archive has to be stored on blockchain, though. It is enough to keep the fingerprint of the data and replicate it all over the world. With this fingerprint any copy of the data can be validated and unambiguously found to be “real” or “fake”. A single surviving genuine copy allows to restore all claims. The frosting on the cake can be end-to-end encryption of sensitive records and tokenizing the access right. This access token can be attached to the land registry, and the owner is in control to grant access to authorized parties. For example, if the owner wants to take out a mortgage on the property, they can grant access rights to non-public data to the mortgage company. This can be done whenever needed, unconstrained by office working hours. No paper-based system can provide such flexibility, resilience and durability.
Breathing New Potential into Real Estate Ownership
Beyond these features, tokenization and smart contracts unlock vast potential for the ownership of real estate. If the property is represented as a digital token on the blockchain, it can be divided between parties, enabling fractional ownership of a building or piece of land. Such a use-case is absolutely unthinkable with paper-based registries. For a blockchain it is no big deal. In the future, real estate owners could opt to sell a part-ownership of their properties to fund future building works, creating new revenue streams and avoiding the need to go through a mortgage lender to raise funds.
If the building is leased out to tenants, a smart contract could distribute rental income between the shared owners. Furthermore, blockchain-based voting could enable owners to make decisions about the property. For example, owners could elect to have part of the rental income allocated to a fund and cast votes on when to spend that fund on maintenance or renovation works.
Although not all of these scenarios are yet a reality, and some, such as selling part-ownership may have legal considerations for implementation. However, some countries are already turning to blockchain for land registration, including Sweden and Ukraine.
Georgia is another example, where 300,000 land titles have already been registered. The sale process now takes minutes, rather than days, with operational cost reductions of up to 90 percent. With these efficiencies, it’s surely only a matter of time before other governments start to leverage the potential of blockchain for their own national land registries.
This article is brought to you by CoreLedger.
As a prominent blockchain infrastructure provider, CoreLedger is making blockchain technology simple for businesses to use. With CoreLedger’s offerings, clients can readily tokenize their offerings with fast-to-implement resources that will allow them to modernize their services. Thanks to our in-house developed software solutions and experienced blockchain specialists, CoreLedger is ready to help you make your next move with blockchain technology.