Immochain: Decentralised Infrastructure for a Digital Real Estate Industry

“Immochain” is a showcase app our team built to illustrate how a decentralised platform that allows users to manage real estate properties and corresponding information can work. It uses decentralised technologies such as blockchain and P2P data storage to simplify processes involved in buying real estate, as well as make them more cost-efficient and more secure. At the same time, Immochain lays the foundation for token-based real estate trading.

Anyone looking to buy a property has to be patient, very patient. Collecting all the necessary documents just to come to a verbal purchasing agreement can take up to twelve weeks, the subsequent period until the handover just as long. What’s more, there are many intermediaries involved in real estate deals: banks, real estate agents, notaries, lawyers, government offices, etc. And the processes and registries themselves are still largely paper-based in Germany. This not only drags out the entire process, it also reduces the truthfulness of the information. Every passing day is a day lost.

Digitisation of the land register is inadequate

At the center of buying real estate or land is the land register. My colleague Tim Becker recently wrote an article about the German land register (highly recommended!) and how it could be improved using decentralised technologies. In a nutshell: The land register is there to document all transactions of undeveloped and developed land. As a “single point of truth”, it records all relevant information in an official way and certified by notaries. The land register not only lists the owners, but also how the property or land was acquired. In addition, it lists mortgages, land charges, encumbrances and restrictions, as well as residential rights or rights of use.

The digitisation of the land register in Germany began in the early nineties. Nevertheless, electronic land registers still have not been implemented everywhere. A single central point where authorities and courts can retrieve documents quickly and securely? Nope! Each federal state uses its own applications and portals, which, by the way, cannot necessarily be accessed using every browser.

And where it has been digitised, the data itself is still issued as a PDF file for inspection. While land register entries can be downloaded in an XML format specified by the authorities (X-Justice), they are not always semantically compatible with standards in the real estate industry, such as OpenImmo or RESO.

Blockchain technology provides transparency and increases efficiency

With the help of decentralised technologies, and blockchains in particular, we could remedy many of these shortcomings. The result would be a legally compliant way of documenting information, infrastructures that can be easily integrated with existing IT systems, simplified collaboration and overall more transparency.

We developed a technical demonstrator to show exactly how this can work: Immochain. As a showcase app, it demonstrates what is possible with blockchain technology in real estate: on the one hand, the platform enables to register and transfer property and ownership in an efficient, tamper-proof way. On the other hand, it bundles all information related to a property resulting in complete documentation — roughly like the service history that ideally you would find in the glove compartment of every car.

At its core, Immochain creates a unique digital twin that represents a real property existing in the physical world. This is done through tokenisation: we use Non-Fungible Tokens (NFTs) to represent properties. Documents can be linked to each of these unique NFTs representing a property. This makes Immochain not only a register, but also a complete, forgery-proof documentation tool for real estate.

Through the registered ownership of a property, the owner of the property automatically gains access to the associated information and documents. This token, in turn, can be passed on at will. Furthermore, Immochain enables trusted entities to tokenise assets themselves — for example, by dividing the property among several parties by means of share tokens (ERC-20); technically, this is called fractionalisation of the original value.

Smart contracts enable contracts of all kinds

Even though these are already important steps in the right direction, Immochain is much more than a register and repository for documents. Through smart contracts, Immochain enables contracts to be moved to the blockchain, creating the conditions for decentralised real estate trading.

A smart contract is a programme that is firmly anchored on the blockchain and is always executed when certain predefined conditions apply. Smart contracts are particularly suitable for automating standardised digital processes in asset management and legal transactions.

For example, the priority notice in the land register could be digitised using a trustee smart contract: the contracting parties announce a deal, whereupon the real estate token is automatically transferred to a smart contract that acts as trustee. If a notary confirms the conclusion of the contract, the token is then transferred to its new owners.

Smart contracts can be used in pretty much all matters that are contractually regulated. In the real estate industry alone, the number of possible applications is huge. From property tax accounting to balances for energy and utility lines to rental contracts and rent payments: Many business processes can be automated through smart contracts to save time and costs. They are also tamper-proof. One prerequisite is that digital identities with which the smart contracts can interact exist and are fully integrated.

Through smart contracts, the blockchain enables token-based trading of real estate: it is the decentrally distributed, public register into which the information about properties, owners and buildings can be written, thus enabling automation and verifiable transactionality.

International pilot projects show the advantages

Worldwide pilot projects show how the real estate industry and its stakeholders benefit from decentralised concepts and technologies.

Although Sweden has digitised the land register, countless paper documents must be filled out and signed for an entry to be sent by email. It thus takes an average of four months from the signing of the property purchase contract to the entry in the land register. In addition, the process is highly error-prone. The current practice has also meant that only institutional players such as estate agents, banks or state agencies have been able to link their systems to the databases of the relevant office. Private buyers and sellers, on the other hand, do not have this option. They are disadvantaged in the Swedish real estate market.

The ChromaWay project was designed to speed up the process. A blockchain solution was implemented using smart contracts. With it, all parties involved could monitor or view the progress of the sales process. A newly created workflow simplified the transactions and shortened them significantly.

Chromaway was successfully tested (on a small scale) between July 2017 and mid-2018. However, the legal framework still prevents a broader roll-out.

In Ghana, the parameters are completely different. Here, blockchain technology has made it possible to record property rights for the first time ever. According to estimates, around 80 percent of the land in Ghana is unregistered. With the Bitland project, property can be registered immutably in a public blockchain. The permanent and verifiable record turns land ownership into equity. This makes it possible to take out loans. In addition, the documented property can become a mortgage for building or buying houses. The initiators expect Bitland to release capital worth the equivalent of several billion US dollars. And last but not least, democracy will be further strengthened through the documentation of property rights.

Projects in other countries such as Honduras, Brazil or US states like Georgia and Illinois also show the potential of blockchain technologies to make the real estate market more transparent, secure and faster — or to make it possible in the first place.

Blockchain can become the infrastructure of a European real estate register

Blockchain technology enables a future-proof, digitalised real estate industry that is open, flexible and interoperable. It documents all information relating to real estate seamlessly and securely.

In this way, it could also contribute to solving an urgent problem in the real estate industry: so far, Europe lacks a common real estate register and the legal framework. The role of the land register differs significantly from country to country — an impediment on growth for the European real estate market. Legal experts suggest first introducing uniform quality standards and then gradually harmonising the individual land register systems. Blockchain technology can become the technological infrastructure for such a European real estate register.

Immochain: all the advantages of a decentralized stack at a glance

So, to sum up, there are many reasons for using blockchain technology in the real estate sector. We’re showing with Immochain that it is

• convenient: all information is available in one digital location, whether inventory information, encumbrances and restrictions, mortgages, land charges and annuity debts, or tenure.
• unambiguous and flexible: real estate and ownership are represented by tokens.
• forward-looking: Blockchain technology enables token-based trading and smart contracts can automate real estate processes.
• reliable and always accessible: access to Immochain is possible at any time and from anywhere and is not dependent on people or central servers.
• tamper-proof: due to the decentralised storage and the way the stored data is stored, subsequent manipulation is impossible.
• transparent: every change can be traced by those authorised to access the data.
• data-protective: sensitive data is symmetrically encrypted and the encryption keys are only exchanged between actors who can identify themselves as authorised stakeholders by means of a smart contract.
• Interoperable and collaborative: Existing IT systems can be easily connected to Immochain. All authorised parties can interact with each other via a secure, public system.
• Simple and fast: banks can use it to check land charges after they have been released by the owner and jointly initiate new land charge entries, without prior input from the land registry. Notaries have direct access to all information on the legal protection of real estate transactions.
• expandable: it is also conceivable to store other relevant documents in Immochain, including development plans, property tax notices, building permits, acceptance certificates or minutes of owners’ meetings.
• Cost-saving: Immochain can significantly reduce the costs for intermediaries through automation.

Technology Innovation @ Turbine Kreuzberg

Turbine Kreuzberg’s Tech Innovation Unit identifies emerging technologies at an early stage and evaluates their benefits, as well as finding the right areas to apply them. Together with our clients and partners, we build tangible projects to tackle new technological challenges.

How we can work together? Find out here.