Transparency and reducing transaction costs. Noble goals, for sure, and perhaps much easier to reach in the near future for both real estate and, perhaps, construction transactions through the power of blockchain.
Over the last year, there has been a smattering of governments, including here in the United States (but mostly abroad), that are implementing blockchain-powered ledgers for tracking real property records and real estate transactions. And some are even partnering with fintech startups that see the potential for blockchain in real estate. This is a trend that continues to accelerate as the first quarter of 2018 rapidly draws to a close.
But in our view, the next step in the evolution of blockchain in real estate is towards construction. In this article, which we plan to update regularly as new governments and jurisdictions implement blockchain technology for real estate, AEC Labs takes a closer look with an eye towards how these systems might ultimately impact the civil engineering and construction industries.
Republic of Georgia
In the former Soviet republic (not the Peach State), the National Agency of Public Registry has implemented a Bitcoin-powered land title registration platform in order to close government transactions involving real property.
The project is being led by the Bitfury Group, a blockchain accelerator, which is also behind a number of other pilot projects in other countries. So far, this effort has been a success; Georgia was recently named by the World Bank as one of the top three countries in the world for ease of property registration.
The country also recently announced that it is expanding the reach of its blockchain platform, and will use “smart” contracts in connection with domestic real estate transactions. In a press release, the government identified “enhancing transparency and reducing transaction costs” as the driver of moving to a distributed blockchain ledger.
This is no small ambition, but with potentially big dividends, for a part of the world where foreign investors might be skittish about security and title insurance, among other things. (Indeed, this seems to be why blockchain in real estate has thus far been more prevalent in these kinds of countries than in Western parts of the world, although this could be changing. We explore this issue in more detail below.)
State of Vermont (City of South Burlington)
Last year, the city of South Burlington, Vermont announced a pilot program between its City Clerk office, the fintech startup Propy, and a local law firm, using Propy’s blockchain technology to record real estate transactions.
Propy is aiming to “revolutionize” the real estate purchasing and registration process globally using blockchain technologies. Its platform comprises an online and mobile global real estate property store and a transaction recorder. This allows for the remote handling of fiat and other cryptocurrency payment, and a land records registry that can exist everywhere, globally, and is independent of any central jurisdiction.
Propy currently has offices in Silicon Valley, Bulgaria, and the Ukraine.
The Swedish National Surveying Office is also working on a blockchain solution for real estate, but with a slightly different twist. Its effort is what’s known as a “private” blockchain (different from a completely public, distributed ledger that powers, say, a cryptocurrency).
Instead, this type of ledger is only open to certain parties – like registered banks, agents, or landlords – who are then able to validate blocks that are added to the ledger.
The project is being led by a startup called ChromaWay and has support from other Swedish partners in the fintech and IT sectors.
Of particular interest to us here at AEC Labs, the technology also features an app-based smart contract solution that automates and maps a real estate closing process, allowing participants in the blockchain to close a real estate transaction in days rather than the nearly 6 months that are typical in Sweden. ChromaWay projects this could save nearly $100M euros annually in real estate transaction costs.
In our view, this type of technology could apply to large construction projects as well, facilitating payment applications, construction loan draws, and many other previously manual and paper-intensive processes.
In October of 2017, the Dubai Land Department announced a bold initiative that, by 2020, all of its documents will be secured on a blockchain.
The agency hopes to promote confidence among global real estate investors and also make it easier to do business in Dubai for local office and industrial tenants. Leases would be added to the blockchain system, linking tenants with landlords and service providers, and allowing tenants to make payments electronically to utility and telecommunications providers.
“The technology will allow investors residing in Dubai and around the world to verify property data that is backed by timestamp signatures, enhancing the accuracy of data, the credibility of investment transactions and the transparency and clarity of the market,” the agency said in a press release.
Dubai’s other partners in the project are the Asset Management Group (a major Dubai developer,) the bank Emirates NBD, and the furniture giant IKEA (which seems like a very interesting footnote here, and one worth keeping an eye on.)
71 percent of the land in the Ukraine is agricultural, and of that over 20 percent is owned by the government. The market for that land is not strong, partly because of a lack of a financial infrastructure that can support complicated land leases and real estate transactions.
In addition, there is a pervasive black market across the Ukraine that is depressing prices. Officials believe that blockchain could help fix that, boosting incomes for Ukranian farmers. In 2017, it signed an MOU with the US-based firm Bitfury to put all of the government’s data on a blockchain ledger. (Bitfury is also working with officials from the Republic of Georgia.)
In addition, last fall, the country’s Agency for E-Governance announced a partnership with the aforementioned fintech startup, Propy, for foreign investors looking to purchase Ukranian real estate. “Our ambition is for Ukraine to be one of the world’s foremost nations in establishing a comprehensive Blockchain ecosystem, and the real estate sector forms an important part of our overall Blockchain strategy,” the agency said in a press release.
Analysis from AEC Labs:
With blockchain for real estate transactions gaining traction in foreign markets, could the technology do the same thing for construction projects in emerging economies too? I think it’s a real possibility. Much of the expertise behind project finance has its roots in emerging economies because of those governments’ inability to raise money on their own. Blockchain could help them change that by bringing transparency and security to fundraising in dodgy parts of the world that previously would have been a pipe dream.
Beyond the geographic implications, test cases for blockchain could lay the foundation for “smart” construction contracts. (A smart contract powered by blockchain could potentially enforce obligations that are outlined in what we would consider to be a traditional contract).
This might become an extremely powerful tool for the construction industry – and not just in emerging markets. Each obligation in the contract could be digitally added to a blockchain and then tied to automatic outcomes (like payment of digital currency, the imposition of digital liquidated damages, the release of digital retainage, or even the transfer of title to any kind of asset) once the software validates that the triggering condition is satisfied.
Not only could this could be of significant interest for governments with questionable credit looking to build infrastructure assets, and the investors looking to underwrite those projects in risky geopolitical climates, but it could drastically decrease transaction costs for construction projects generally while simultaneously boosting productivity and efficiency.
Do you agree with our conclusion that there is a future for blockchain in construction? And where else in real estate do you see blockchain technologies having significant impacts?