The Real Estate Institute of Australia has released a groundbreaking report, outlining the many use cases for blockchain in real estate and examining how it could shape the industry moving forward.
Unveiled today, the Blockchain: Opportunities and Disruptions for Real Estate report is a collaboration by the REIA, the Real Estate Institute of New Zealand and RMIT Innovation Hub.
REIA President, Hayden Groves explained the report was designed to ensure Australian real estate agencies stayed ahead of the trend, in an increasingly challenging market.
“With interest rates rising, housing affordability decreasing and very limited housing supply coming to market, as real estate agents we need to respond to these challenges with faster, more trusted and more customer-centric experiences,” he said.
“Fully integrated Web3 technology opens exactly these opportunities for Australian real estate practitioners.”
RMIT Blockchain Innovation Hub’s Co-Director, Distinguished Professor Jason Potts said the applications for blockchain in real estate were varied and the potential use cases offered the chance to re-shape the customer experience.
“The time is right for Australia and New Zealand to become early adopters and in doing so provide more options for their customers such as tokenisation of real estate assets, which can lead to lower costs, increased liquidity and therefore faster settlement time,” he said.
What blockchain offers real estate
The report explains, at its core, blockchain technology allows people to transact without the need for a third-party intermediary.
“This revolutionary technology does this by using smart contracts that are created using computer code and can only be executed once all clauses in the contract have been met,” the report said.
“Users digitally sign these contracts which are then uploaded to the blockchain and once executed cannot be undone due to its immutable (unchangeable) nature.”
The result is a decentralised ledger (blockchain) that records information by consensus.
Its benefits include greater security, efficiency, transparency, and immutable data.
The report notes together this means blockchain has multiple potential use cases for real estate, ranging from the tokenisation of property assets to the swift execution of legal contracts, faster finance for people transacting property, the ability to transact virtual property in the metaverse, and a more accurate, centralised way to register the ownership and transfer of property assets.
Potential use cases
Land registries and the transfer of property rights
Rather than a traditional institution-based land registry, blockchain would allow the ownership of land to be recorded on a decentralised ledger, where ownership information could be quickly ascertained and transferred when a property sells.
“Blockchain could replace paper deeds with secure digital assets on an immutable ledger that creates a secure shared source of truth for documents between multiple parties and organisations,” the report explained.
“Through simplification and streamlining the transaction process, blockchain could reduce transaction costs and optimise efficiency.
“Advocates suggest that a blockchain-based land registry will smooth information flow, increase liquidity because it supports fractionalisation and therefore support foreign investment and liquidity.”
Tokenisation of assets
One key area where blockchain has implications for real estate is in the tokenisation of property assets.
The report explains tokenisation is the conversion of the value of an illiquid asset (such as property) into a fixed number of liquid tokens, which themselves have a fractional value of the original asset.
“Tokenisation allows ownership rights to an asset to be transmitted and traded on a global and secure digital platform,” the report stated.
The report further explains, benefits of this include:
- Improved access to the real estate market and reduced barriers to entry as property can be fractionalised and traded in affordable shares.
- Transparency and liquidity: real estate tokens can be traded transparently on a secondary market facilitating liquidity of the asset. Through increased access it can also create an additional source of liquidity for property developers and building owners.
- Faster and cheaper transactions.
Faster finance
The report further notes blockchain will have a role to play in loan and mortgage securitisation, allowing people to quickly access finance in order to purchase property.
“Blockchain technology can enable a streamlined securitisation process, with lower cost, faster transaction processing, and greater security and transparency from loan origination to maturity,” the report authors stated.
Property management
While blockchain has obvious benefits for property sales and finance, it also has implications for the rental side of real estate.
While blockchain has obvious benefits for property sales and finance, it also has implications for the rental side of real estate.
“Blockchain, has been suggested as a technology that can support the complete property management cycle from signing the lease to cash management through a single decentralised application in a transparent and secure way,” the report noted.
“Blockchain can facilitate secure data sharing, streamline rental collections and payments to property owners, and provides premium due diligence across property portfolios.”
The report explains potential uses include:
- Smart contracts that facilitate leases, which can be signed and transacted on-chain.
- Automated payments and dividends, which remove the need for reconciliation and enable near-immediate accounting.
- Investor and tenant identity verification where blockchain-based identities allow people to prove their identity online, even pseudonymously if necessary.
Project financing
In the area of real estate projects, blockchain has the potential to alter the way projects are funded.
It will allow for the verification of investors, the real-time execution of contracts, and the tokenisation of the asset.
“Tokenisation would permit the developer to raise funding through security tokens administered through a blockchain,” the report said.
“The developer could divide the property into many small units which can then be sold against tokens.”
Other implications
Beyond the role of transacting and leasing property, blockchain and its associated technologies also have the potential to experience property in new and varied ways, including the transaction of virtual land.
And this too presents potential opportunity for the real estate industry, according to the report.
The metaverse
As a virtual world which is explored using augmented and virtual reality, the metaverse has emerged as a major real estate trend in recent times.
Existing and potential uses of the metaverse include:
Virtual real estate sales
One use case of the metaverse sees virtual blocks of land and properties in spaces like Decentraland and the Sandbox transacted on the blockchain.
These digital assets are traded as non-fungible tokens.
“Last year real estate sales in the metaverse were reported to have topped US$500 million and are predicted to double in 2022,” the report noted.
“With the current real estate market becoming oversaturated and pricing the younger generation out of a lot of the market, we may see people moving into the metaverse instead to chase some of the returns that the previous generations have enjoyed.
“However, it is unclear yet whether this industry will be sustained and is one to watch in the coming years.”
Virtual property inspections
In addition, the report explains the metaverse can also be used as a space to provide virtual property inspections.
This scenario sees a real-world property represented in the virtual world, and people can inspect and immerse themselves in that property just as they would at a real-world open home or inspection.
The report explained this offers the opportunity for people to view and experience a property from anywhere.
It’s only the beginning
Announcing the report on Wednesday, Mr Groves said the research was only as good as its adoption and the REIA had now been tasked with getting to work on an adoption strategy.
“As REIA President, I want agents and agencies to be a trusted member of their communities and property transactions,” Mr Groves said.
“Blockchain offers the potential to completely improve and grow trust in a real way.”
Mr Groves noted the REIA and state-based real estate institutes would be working together to enhance opportunities for practitioner awareness.
“We have everything from a CPD accredited blockchain course being run by REIWA, through to agents in Sydney being the first in the world to accept payment for property in cryptocurrency, as well as smart contract technology for sales and rent rolls,” he said.
