One of the main themes to be discussed at the 2019 World Build Environment Forum Summit in New York is the impact of blockchain in real estate investment and transactions.
World Built Environment Forum
20 November 2018
The impact of blockchain on real estate investment and transactions is a key theme at the upcoming RICS World Build Environment Forum Summit in New York, 13-14 May 2019.
We interviewed Thomas Wiegelmann FRICS, Managing Director at Blue Asset Management and Honorary Adjunct Professor at Bond University & Steve Weikal, Head of Industry Relations at the Center for Real Estate, MIT to find out more.
As with artificial intelligence, machine learning, 3D printing and virtual reality, blockchain is one of the most cited developments when it comes to digitisation, or in general to future trends and technologies. Blockchain-based applications are in their early days in the real estate industry and are scarcely implemented in the form of concrete products. However, it is clear that this technology possesses considerable potential for innovation, opening up new opportunities across the real estate industry.
Media coverage of digital currencies such as bitcoin often focuses on its usefulness as an alternative to traditional tender. However, other innovative uses are made possible by blockchain, the underlying technology platform that enables the digital currency system. A blockchain is a distributed database that maintains a growing list of ordered, permanent records, called blocks. It uses cryptography to allow each participant in a network to view and manipulate the ledger in a secure way without the need for a central, third-party authority. Importantly, a copy (or partial copy) of the shared ledger is saved on every computer connected to a blockchain network.
Thus, a blockchain is a permanent, transparent, append-only, distributed record of an asset. Importantly, some digital currencies do not function as a unit of value like money, but rather represent a unit of account or a means of exchange, which could be well-suited to real estate.
Instead of a digital ‘coin’, these are referred to as ‘tokens’, which are created and distributed to the public through an initial coin offering (ICO), a means of crowdfunding by selling tokens to fund project development. The challenge, says Joi Ito, director of the MIT Media Lab, is that there are no “legal, technical, or normative controls yet, and many people are taking advantage of this”. However, the ICO concept, secured and verified by blockchain, has intriguing possibilities for unlocking value in real estate.
Use of blockchain is entering all spheres of the economy: tourism, border control, protection of endangered species, shipping, carbon offsets and insurance to name just a few. No other technological innovation is likely to have a bigger impact on professionals in the built environment sector worldwide. This webinar focussed on blockchain's impact on real estate investment and transactions.
Atlant and Meridio are two examples of a platform for tokenising commercial real estate. In this model, an attorney or other qualified authority verifies that a given property has clean title, no debt or liens, and meets other parameters specified by the owner. A special purpose vehicle (SPV) is formed outlining a direct relationship between a declared number of tokens and the total value of a property.
When the tokens are sold in an ICO, owners gain liquidity from their assets, while individuals and businesses worldwide can acquire part ownership in the property, sharing in the rental income or capital appreciation over time as provided for in the ICO agreement. While real estate ICOs are new, it is an innovative way to provide liquidity and remove friction in real estate, by creating secure markets for peer-to-peer transactions of partial or whole ownership of commercial and residential property. More scalable than real estate crowdfunding and more flexible than REITs, ICOs could become a viable mechanism for unlocking real estate value.
It is a change of mindset. Tech start-ups identified by the MIT Real Estate Innovation Lab each work to optimise the use of real estate, making it more efficient and therefore more profitable. They view real estate as more of a flexible service than a long-term asset.
A wave of new technology – ubiquitous connectivity and more powerful mobile devices, seamless easy-to-use apps, secure frictionless blockchain transactions – enable real estate to be used in myriad new ways, reinforcing the idea that real estate is a service rather than a long-term commitment. Further impetus for the rapid growth of real-estate-focused technology has come from substantial venture capital. The average funding per proptech venture has experienced consistent growth over the past few years. Larger behavioural trends are emerging, as well.
Workers accustomed to technology solutions in all areas of their lives expect the real estate business to be similarly equipped – yet this global industry still often runs on spreadsheets, a 40-year-old technology. Former real estate careerists are launching start-ups to solve problems they experienced in the business, while technologists are eyeing a multi-trillion-dollar asset class that is ripe for disruption.
The impact of technology and innovation on the real estate industry cannot be understated.