The real estate sector accounts for a substantial part of the world’s assets. Due to the sheer size and relevance of the sector, as well as the offline elements, digitization and disruptive technologies like blockchain technology have taken some time to gain a foothold in the industry. PropTech has become a buzz word in the last couple of years, as technology continues to flourish in the real estate market.
Lots of blockchain applications can be identified for the real estate sector. One example would be transparent and immutable digital records for land registries, building permits or title registries. Such applications could streamline complex processes and reduce criminal activities like fraud. Asset tokenization is another use case that could have a significant impact on the real estate industry. Theoretically, any object can be tokenized, i.e. one token can be assigned to a relative share of the object. That way, illiquid assets like buildings can be tokenized and traded on secondary markets. This creates a liquid market for formerly illiquid assets, which would result in a much more efficient market. Token owners could automatically receive their fair share in the building’s profits (from rents) and sell their ownership share in the building at any time – potentially without the need for a notary.
As blockchain instils trust in a trustless environment, standardized processes like entering into sales contracts can be automated. The blockchain provides an immutable transparent record of a state, which enables the disintermediation of notarial services. Predefined standardized smart contracts will allow individuals to note the occurrence of a sale and provide the required proof. One party informs the blockchain of the trade by uploading the respective hash value of the sales contract and the other party can agree to the terms of the contract by matching the stated hash value.
Most of the current legal frameworks require the use of notaries for certain types of contracts. Notary services could be decentralized by merging notaries and the blockchain. If the parties have agreed on a trade, they could notify the network of their state and have the relevant, predefined validators automatically notified via a smart contract. For example, when a real estate deal is sealed, all network entities defined as notaries would be informed that their service is required. The notaries could then transmit their price offer, so the parties can then freely choose their notary /notaries, if fees were not or only lightly regulated. The contractual information could even be reviewed by various entities across the blockchain ecosystem. In such a scenario, the value of traditional notary services is clearly up for debate. If, for example, 10 separate non-notary entities review the relevant information, the level of trust may even be higher than with a single notary.
Potential research topics:
- The actual use of a blockchain application stands and falls with its actual size of individuals or entities using it – in the respective field. When comparing private applications with governmental applications, lots of differences can be identified. Governmental blockchain-based solutions may be obligatory, while potential users are free to choose whether they want to use private applications. How would a governmental solution need to look like – keeping in mind that any citizen needs to be able (or must) to “use” it.
- Which countries require notaries for which specific purposes? What are the obstacles in respective countries to implement a blockchain-based system for such processes?
- What are hurdles for the real estate sector to make use of tokenized real estate and (liquid) secondary markets?
- The use of smart contracts for real estate processes. How is decentralized, automated computer protocol able to influence renting, selling or owning real estate?