Smoother, faster, simpler: Blockchain’s promise for the real-estate industry 

Editor’s note: This article is part of our JLL proptech series, produced in cooperation with JLL, a leading professional services firm that specializes in real estate and investment management. We believe in transparency in our publishing and monetization model. Read more here.

Closing a real-estate transaction can get messy. Buyers, sellers, brokers, legal representatives, mortgage providers, and of course, the government, all require forms and papers that must be stamped, scanned, faxed or dispatched via postal or delivery services.

Blockchain and real-estate transactions appear to be a perfect match since such deals need secure and immutable ownership records and trust is key. Blockchain technology potentially allows any two parties to transact directly with each other without the need for a trusted third parties such as intermediaries like real-estate agents. Although it seems unlikely that intermediaries would completely disappear.

In some countries, the real-estate industry is already embracing blockchain technology. In Sweden, property buyers and sellers can be verified by an identity solution from telecommunications company Telia. Georgia has plans to use blockchain to register land titles and validate property transactions with the help of Bitfury. The service will enable the nation’s government to verify and sign a document containing a citizen’s information and proof of ownership of property.

China already is experimenting with the technology in Xiong’an New Area, the country’s emerging city of the future.

“The use of blockchain in land registries will mark when blockchain becomes a mainstream technology for real estate and will facilitate a real acceleration in other real-estate uses,” said James Hawkey, Head of Retail China at real-estate firm JLL.

He said that the most basic use case for blockchain in property is putting a country’s land registry, or its equivalent, on blockchain. This would allow for all ownership and changes in ownership in property and property rights to be documented.

Hawkey added that creating digital records of property is a considerable hurdle, and that in some parts of the world records of any kind are absent. “This is a huge undertaking and requires government sponsorship,” he said.

Smart contracts

Self-executing contracts containing the terms of the contract between two sides, or smart contracts, are another key feature of blockchain. These contracts can verify documents and authorizations with the help of digital signatures. Because they are distributed—each action is recorded on multiple “nodes”—blockchain contains a foolproof record of every transaction ever made. This helps avoid double spending, fraud, abuse, and manipulation.

In Xiong’an, a blockchain-enabled project fund management platform is designed to help prevent misappropriation and interception of funds. Xiong’an, with the help of Ant Financial and other partners, is also preparing a blockchain-powered house-rental platform that provides accurate information on government-verified listings, tenants and landlords. This should help the city solve the widespread problem of property listings that are either heavily embellished or plain fake.

Smart contracts also allow for greater automation. For example, they can “know” when the end of a property lease is approaching and remind the landlord to return any deposits.

One Singapore startup does just that. “What we actually do is allow landlords to easily create digital contracts, and we are able to collect data from digital contracts and help them to power analytics platforms to generate reports,” said Ivan Lim, founder and CEO of RealEstateDoc, which focuses on the commercial property market.

JLL’s Hawkey says a key benefit for smart contracts is reducing time required and the coordination between parties involved—buyer, purchaser, agent, and mortgage lender. “This is perhaps the perfect use case for the smart contract. When conditions are met, the transaction moves forward,” he said.

There are many other applications. Chinese startup PutLink aims to help Chinese invest in overseas property by using mainstream cryptocurrencies such as Bitcoin and Ethereum.

“Blockchain makes payments safer, easier, and faster, it makes contracts unchangeable and reliable—you don’t have to fly overseas to sign it,” said PutLink’s Michael Su.

A fraction of the cost

An even more radical idea might be tokenizing real estate—a process of representing the ownership of real-world assets digitally on a blockchain ledger. Tokenization could turn property into something that’s like a company traded on the stock exchange where ownership can be fractional.

Zi Wang, former Google engineer and co-founder of US-based company Third Planet, said blockchain has a few unique applications or properties that allow us to think in new ways about real estate.

“One of the things we are working on is working with developers and investors to help lower the barrier for entry for average investors,” he says, citing fractional ownership as an example. A typical 10-story development is usually financed by banks, private equity or wealthy investors. Fractional ownership supported by blockchain could change that, he added.

“Instead of getting 10 investors maybe you could get 10,000 investors or a million,” said Wang. Such an approach could help make property more accessible, especially to young people struggling to afford a place of their own, he added.

Blockchain also could help add more data insights to an industry that is undergoing a data revolution. Many real-estate systems and processes are currently siloed meaning it’s hard to connect dots and derive conclusions.

Still, blockchain has its limitations and is not suitable for every type of system. It could even increase more costs if implemented incorrectly, according to a report from consulting firm Deloitte. Immutability, for instance, is considered one of blockchain’s superpowers but this could prove to be a burden since canceling orders and transactions can be a frequent occurrence.

Blockchain in the real-estate industry is still in its early stages of development. While some applications seem obvious, others will become clearer as successful case studies emerge.