I. Towards the disintermediation of third parties?
Real Estate sector has many atypical characteristics. It’s a very traditional sector, involving many different actors, who don’t necessarily trust each other. It’s heavily regulated (norms, energy & efficiency requirements, transactions supervision) and still partially state dependent. Finally, there is a lot of asymmetry of information between parties, which makes it quite opaque. This asymmetry of information has an elevated cost (fraud, long research, and verification process), benefiting intermediaries. Many third parties are involved in real estate, from securing financial transactions to checking compliance with standards. The presence of intermediaries inevitably leads to higher fees for users. Many people see blockchain as a technology that can get rid of such intermediaries. In that sense, it could answer some of real estate’s struggles.
Distributed Ledger Technology for land titling
For an individual, the access to economic opportunity is closely related to its property rights status. Property is an asset which gives individuals access to further financing opportunity through banks or loans institutions. However, the World Bank estimates that 70% of the world’s population lack access to proper land titles.
Even if land disputes are most prevalent in poorer nations, they are a problem all over the world. With growing urbanization, climate change, and increased migration administration issues will become even more pronounced. Land rights are reflected in many of the UN Sustainable Development Goals. They are linked to poverty eradication, food security, and gender equality and women’s empowerment.
Storing land titles can be done through «Distributed Ledger Technology»: a way to reach a consensus of replicated, shared, and synchronized digital data spread across multiple sites, countries, or institutions without a central administrator or centralized data storage.
The benefits of DLT based recording over the existing client-server or even cloud-based systems, include:
— tamper proof certification
— nodes ensure immutability (equivalent to conducting tens of thousands of backups many times a minute)
— individuals and entities are incentivized economically in different locations throughout the world — nodes can be operated by parties with different or even conflicting interests. The network of nodes ensures no single party can influence the ledger.
— no entity can take control of the Distributed Ledger, it is resistant to attacks and corruption attempt.
Using a distributed ledger can reduce the cost of title research and due diligence of real estate assets, resulting in smaller fees paid by the end user.
Decentralized land titling in mature markets
As of today, European land titles registries are pretty efficient and don’t require a lot of research. There are still pilot projects going on in mature economies:
Estonia is one of the most advanced nations in terms of blockchain adoption. They are using blockchain for different purposes from storing health data to property title. The Estonian project “E-land” is a register secured by a blockchain. As of today, more than 1 million properties are registered. The register contains:
*Cadastre information — including address, area, the purpose of land
*Encumbrances, restrictions, rights of use, other notations
*Since the use of E-land, the time to do a transaction went from up to 3 months to less than 8 days.
In Sweden the Landmateriet project started in 2016, codriven by Chromaway — a blockchain startup — and Kairos future — a consultancy alongside the Landmateriet on top of one telco and two banks. The Proof of Concept is now completed.
In the Netherlands, the municipality of Eindhoven is working on a blockchain land title project since 2016: Kadaster. Originally the land department registers ownership of real estate and also provides geo-information data. Sometimes the data is used in the wrong context, or an outdated set is accidentally used. The usage of blockchain would overcome these issues. The same ledger is planned to be used to register ships ownerships’.
Founded : 2018
Founder: Alain Tanner, LutzThelen , Stephan Häusler
Location: Bar, Zug, Switzerland
Funding: private placements before an eventual ICO
The Elea Labs founders have more than 10 years of experience in the real estate industry. As a major pain point of the industry, they underline data ownership conflicts and sharing reluctances from traditional actors. Moreover, on a global scale, data and accountancy standards heterogeneity increases the complexity to gather relevant data.
Since 2012, they’re working on software to manage real estate assets portfolios, primarily dedicated to real estate portfolio managers’. They started adopting blockchain in 2017. The company is based in Zug, Switzerland and operate within German, Austrian and Swiss markets, where they are legally compliant.
They are building an open source software model the DNA of an asset by encompassing a set of data (floorplans & surface, location, contracts for 3rd services, historic, components, accounting table, external data)
The software has three main functions:
-Real time updates on assets costs
- Communication with tenants
- Valuation of the property
The challenge for the team is the user-friendliness of software, providing the fact they’re dealing with non-tech communities. They are already working with property management companies and homeowners’ organizations. Concerning their funding, they are conducting private placements now. Later on, they will do a public ICO. The application is free to use in a basic version and premium features include analytics.
Unifying data standards is a headache for a lot of industries. Real estate is particularly prone to this one because data is coming from many different sources with heterogeneous standards.
Land titles in emerging markets
In countries where land titles are partially faulted, using a blockchain ledger makes total sense, particularly when the project is endorsed by local authorities.
In Kenya, The Government’s Distributed Ledgers and Artificial Intelligence teams are working on a blockchain database aimed at weeding out fake title deeds from the land registry. Known as the single source of truth (SSOT), the database will be the primary reference for all land transactions. ICT Cabinet Secretary Joe Mucheru said SSOT would ride on blockchain technology, so if land changes hands, that change of ownership is underwritten by all the institutions in the system.
According to a Goldman Sachs study from 2015, Ghana farming land registry is around 90% not accurate. As of today, Ghana’s land titling system is paper based and located in different offices. This system turns into a headache when financial institutions have to underwrite mortgages due to scarce and inaccurate data.
Date of foundation: 2015
Founder: Emmanuel Noah
Location: Accra, Greater Accra
Funding: currently raising a seed round of 750K USD of traditional equity funding
The Benben project went live in 2015 after the Bill & Melinda Gates foundation gave a grant to its founder, Emmanuel Noah, to look for a blockchain related solution that could reduce fees on property payments. In 2016, Benben did its first pilot within Barclay's accelerator program in Cape Town, using a blockchain for data record and verification. Barclays is particularly interested to collaborate with Benben because they need to access easily property related data.
Benben software is a one-stop-shop digital land transaction service for financial institutions, property owners and property developers. The software enables:
- Quickly querying property information
- Accessing analytics for thematic information on a neighborhood or region
- Lodging land transactions with government land service agencies
Developers and banks are charged with a license fee. Benben is also working closely with the governmental entity in charge of land titling. Benben is currently raising a seed round of 750K EUR through traditional equity funding.
Unleashing the power of smart contracts
Blockchain offers a way to combine the act of conveyance and the act of providing notice (recordation) of the conveyance into one event. The mechanism is known under the term Smart contract. Smart contracts enable a decentralized execution of contracts, beforehand encoded in the blockchain. Translating this to the real estate industry, smart contracts can be used to encode a property purchase contract, which will issue automatically a new proof of ownership when the transaction is completed.
In November 2017, Propy assisted TechCrunch founder Michael Arrington to do a transaction for a flat in Kiev. The transaction was fully executed through smart contracts on Ethereum (the volume of the transaction was $60’000)
In India, Chami Akmeemana, CEO of Blockchain Learning Group and Blacksales solutions recently released an article Working with Ethereum blockchain, focusing on Smart Contracts. The blockchain-enhanced system registers the sale deed in the presence of both buyer and seller. It then proceeds their sign-offs and pushes the transaction to the approval stage. Once the transaction is approved, the transfer of ownership is automatically completed. The system will also be able to handle land titles with multiple owners.
The potential of executing real estate transactions through smart contracts is closely related to the number of transactions that can be proceeded on different blockchains. At the moment Ethereum is processing on average 22’000 transactions per hour, which means an average of 6 per second. In comparison, SWIFT is processing 174 transactions per second.
Land title systems using distributed ledger technology are particularly relevant when the existing system is underperforming or prone to corruption. Decentralization of record storing increase the system’s robustness.
Transparency is eliminating asymmetric information, though privacy is maintained. With precoded smart contracts, transactions can be automated, reducing even further frictions
Decentralized land titles systems are already in use around the world, initiated wetherby startup, not for profit organization or governmental parties.