The imminent arrival of blockchain to the real estate industry will 'disrupt' in the full sense, shortening deal times to, perhaps, 24 hours from around three months, but also cutting out or at least reducing certain roles. The topic is likely to be the talk of the town in Cannes at MIPIM 2018.
A tsunami, a hurricane, the fourth industrial revolution, Real Estate 2.0: however the coming digital revolution in transaction processing is characterised, the real estate sector's embrace of blockchain is inevitable, say more and more industry professionals. The question is not if it arrives in European property but simply when .. and how quickly it is taken up.
"Blockchain is going to be a watershed of change, some people refer to it as a revolution," says Tina Paillet, chair of the RICS World European Regional Board and senior executive at Generali Real Estate. She told the Quo Vadis conference in Berlin last month: "This is something that is going to happen and if we do not, as a collective group of professionals in real estate, get on that bandwagon and start making sure that what we are doing fits our business model, our business model will very shortly become extinct."
Katarina Adam, professor at Berlin's Technical and Economy University, agreed. "I don't call it a tsunami, I prefer the word hurricane," she said. "In the near future, perhaps 2018 and 2019, the real estate industry maybe won't have to use blockchain in every area of its work, but by 2020 to 2022 at the latest we will be confronted with this, and at that stage we have to be ready... We need to be thinking about this now, and not in three or four years time."
Most professionals know by now what blockchain is: an immutable electronic ledger, lodged and operated on the internet which tracks transaction procedures and their entire documentation. Access is granted solely to qualified parties via specialised private electronic 'keys'.
"Blockchain does two things," says Iceland-born entrepreneur Ragnar Lifthrasir, founder of the International Blockchain Real Estate Association and now a regular speaker at MIPIM. "It allows you to transfer assets peer to peer without the need or requirement for a trusted third party... As a result of that transfer you have a record on an immutable database that is public - which is what real estate needs probably more than any other industry right now."
But he goes further, and that is what is worrying whole swathes of the global property industry. "Real estate is the best use case for blockchain because it involves transactions, exchange of assets, it involves payments which is money, it involves the need for a registrar," he told the Pulse of MIPIM last year in a video'ed interview. "It can cut out so many of the middle men and middle layers that real estate is plagued by."
What he sees as blockchain's biggest advantages therefore - lower costs, faster transaction, greater transparency, greater liquidity - also portend huge disruption in real estate. Notarising and legal roles are especially threatened. The technology has also been tainted by recent market speculation around so-called crypto-currencies, in particular Bitcoin, an electronically-produced virtual payment unit seen as blockchain's principle transaction currency.
On the question of security, Adam has no doubts. "How do you establish confidence in any process?" she asked the Quo Vadis audience rhetorically. "This technology is transparent and comprehensible. What goes into the document is unchangeable; that means you can rely on it."
Paillet added that real estate has always face frictions, and the main blockchain concerns are, without doubt, transparency and fraud prevention. "Big sums of money are changing hands... How are you sure that the person you are selling to is really the person you are selling to, and how can you be sure that after you have paid for the asset the asset title will actually be transferred to you. And how can you be sure that the title really is the title ?"
But assuming security is assured, one major change the new technology undoubtedly augurs is a shift in transaction velocity, a fungibility that the asset class has never had before. "We are a very slow and illiquid asset class and if you want to do a deal today, usually it takes more than three months," says Paillet. "That, with blockchain, can become 24 hours, if not less."
Union Investment Real Estate's Jörn Stobbe, MD of the German unit, told a Quo Vadis panelt that the industry fully sees blockchain coming and is preparing for a deal chain that will soon be telescoped into 24 hours. "But things could happen even more dramatically," he said. "I am fully agreed that this is a revolution, that this is the one topic that for us has a revolutionary character."
Speed is not the only aspect of increased fungibility that blockchain potentially offers. JLL Global Head of Capital Markets Richard Bloxam, blogging after a recent conference in Dubai, said the technology could 'democratise' real estate in a way that doesn't exist now. "While regulations in some markets will take some time to overcome, the thesis is that blockchain will enable private investors to acquire tokens (units of equity) in individual properties or infrastructure in an immutable register of ownership, he wrote. This could range from residential tenants having a number of tokens in the building they rent, or acquiring a slice of a famous landmark office building in Manhattan." He quoted one speaker saying: "Blockchain could unleash the single biggest increase in the liquidity of fixed assets that the world has ever seen."
The potential use of blockchain of course extends far beyond the real estate industry into virtually all commercial exchanges of products and services, and Adam said she has spent time talking with the German Justice and the Economy Ministries, but results were not promising. "They all listened politely. They said the idea is good; it is great, but we don't really see any need for action at the moment."
"You can twist and turn this anyway you want," she added, "but the bad thing is simply that in Germany we would have the chance to permit this technology and we are letting the chance once again pass us by. So we don't need to wonder when in two or three years time, standards are imposed on us from outside… We need to be thinking about this now."