As Europe nurtures its ambitions to be a leader in blockchain, the new technology is making small but significant inroads into its real estate markets.
From Sweden to Spain to the UK, more private companies – as well as public bodies – are turning to the fledgling technology, which acts as a shared digital register for transactions made in bitcoin or other cryptocurrencies. By connecting data sources, documents and other types of information, blockchain can improve security, efficiency and transparency within transactions.
So far, it’s the residential markets that are leading the charge in the real estate sector. Earlier this year, a residential property was sold via blockchain in Manchester, while late last year, two UK homes were sold with the use of bitcoin.
After a two-year trial, Sweden’s land registry or Lantmäteriet, is testing blockchain technology for residential property sales which could cut the time taken between signing a contract and registering a sale from months to mere hours.
It’s an early, tentative step for the tool – but could not have been made without some basic elements in place. Essential information – such as property records – needs to be digitally available.
“Blockchain’s success in real estate depends a lot on involved parties collaborating and sharing data,” says Stanislav Kreuzer, senior analyst at JLL. “It’s not the technology itself that will make the difference – that’s for the market participants to do.”
Blockchain goes commercial
Market participants increasingly include commercial real estate players. Construction, real estate financing, as well as the valuation, and the rent and sale of property, are “clear candidates” to use blockchain tools, says Isaac Pernas, CIO Southern Europe Cluster at JLL.
“Blockchain gives dynamism to commercial real estate procedures that historically have been very heavy and sluggish for the different participants,” he says.
Valuation is one of these. As a positive step for valuation activity, both public and private parties need to embrace blockchain technology and accept its tracking information capability, says Pernas.
“Appraisal is a complex operation that requires reliable data from all parties – and validating each report and data takes time,” he says. “Blockchain technology means checks can be made automatically in a “chain of blocks”, with no possibility to manipulate or change data. A valuation’s strength can therefore be checked smoothly and quickly.”
Blockchain technology is being used by JLL for the first time in Spanish commercial real estate valuation.
A new tool for a new age
With many of Europe’s national governments and public institutions supporting the wider adoption of blockchain, its rollout could accelerate in years to come.
The UK government last year announced ‘Digital Street’ – its plans to move its land registry to blockchain by 2022. More movement by other European land registries is expected – for example, the Netherlands is considering blockchain technology – but change will not happen overnight.
The initial hurdle for blockchain, says Kreuzer, is differences between how public authorities in different jurisdictions are organized and how they operate. Kreuzer points out that even a single country as federal and polycentric as Germany is unlikely to arrive at any kind of general, nationwide consensus on how blockchain can work easily.
“What could work in Berlin may not necessarily work in Munich or in Frankfurt,” he says. “Real estate transactions are rarely standardised, while real estate laws are complex and differ locally.”
Ultimately, the implementation and validity of blockchain-based approaches such as tokenized property or smart contracts also depend on, beside the technical aspects, how willing governments are to change their processes and legal frameworks.
All the more important for a broad adoption of this technology, also for the real estate sector, is the indicatory decision of the European Commission to invest heavily in blockchain solutions across all industries. It aims to get all public services to use blockchain technology in the future.
“Decentralized authority and autonomy is still a brand-new concept for most private and commercial real estate market participants and governments alike,” Kreuzer says. “Trust in the technology needs to be built up before broad adoption can take place.”
In April, 23 countries agreed a European Blockchain Partnership to exchange experience and knowhow in technical and regulatory fields. It also launched the EU Blockchain Observatory and Forum in February with more than €80 million invested in projects supporting the use of blockchain in technology and society, as well as a further €300 million to be allocated by 2020.
It’s all part of a growing digital society in Europe, where real estate can also learn from how other industries are adopting new technology.
A digital tomorrow
Blockchain should, says Pernas, fit into the wider digitalization of Europe’s real estate. “Without wider efforts in digitizing processes, blockchain does not do much by itself,” he says.
A major challenge for blockchain is the need to achieve a level of maturity and stability.
“This technology must be used where it makes contributes positively to the service of clients,” he says. “The real estate sector needs to see this technology as a simple tool to implement and at a low cost – coming to that conclusion may take time.”
Adoption of blockchain will therefore be gradual, Pernas says, which may be no bad thing.
“It makes sense to introduce it naturally,” he says. “That way, new business processes – based on blockchain’s benefits – can be fine-tuned and enhanced.”
While its potential to alter European real estate for now remains largely untapped, interest from national land registries and the use of blockchain for valuations are steps in the right direction for the technology.