What does a blockchain real estate market look like?
Firstly, every unit of property would be encoded with a unique identifier. Property IDs already exist in most land registry systems, so these would need to be migrated to a blockchain. Next, the blockchain ecosystem needs to have defined who the nodes are, those stakeholders that include the owner, lender, and government.
Properties that exist in the blockchain are termed ‘smart property’. Transactions of property are conducted via ‘smart contracts’ – digital rules in the blockchain that process the agreement and any specified conditions. Buying and selling could still take place via agents, or the smart contract can be advanced to incorporate sale rules and make this decision automatically. The blockchain for each property grows as transaction blocks are added.
A housing market without agents, conveyancers and a land-titles office may seem decades away, but a handful of countries have already piloted a blockchain land registration system. Sweden became the first Western country to explore the use of blockchain for real estate in July last year. At the time, the Swedish Land Registry tested how parties to a real estate transaction – the buyer, seller, lender, government – could track the deal’s progress on a blockchain.
The trial was so successful it is rumoured that a full-scale blockchain system could be up and running in Sweden by the end of 2017.
Other countries at the forefront of blockchain for real estate include the Republic of Georgia, Honduras and Peru. In these countries the long-term potential of a blockchain for real estate is most significant. Systemic corruption and insecure database management in these countries, and many other emerging economies, is seen as a major constraint on growth and prosperity. Why would you invest in a house, or any other asset, if there is a distinct possibility that the record of your ownership could disappear?
In Australia, our current land titles system is among the world’s best, but a range of hidden transaction costs increase market inefficiencies.
Dr Danika Wright