World Economic Forum: How blockchain disruptive technology can improve transparency in real estate

Of all the disruptive platforms and technologies discussed at the Forum’s Annual Meeting of the New Champions this year, one in particular has attracted attention: blockchain. Some experts believe that blockchain, which is actually the machine behind the online currency Bitcoin, could completely change the way we buy goods and services or trade information. For real estate companies, the impact could be disruptive.

In essence, blockchain allows for a continuously updated database to be distributed across a network of computers. Its distributed nature ensures the integrity of the database, removes the need for intermediaries, and makes the information contained within it completely secure. The end result is a new level of transparency in financial transactions.

In the real estate sector, the technology has the potential to allow countries around the world to develop a comprehensive, real-time database of building tenure and ownership. Trials are already underway in Sweden, Ghana, and Georgia. This could be transformative, as transparency in real estate markets has a profound impact on economic development and citizens’ quality of life. For example, it verifies ownership and checks enforcement of building regulations, which can be a matter of life and death in the event of an earthquake or other natural disaster. Transparency also provides more protection for individuals’ property ownership rights.

Transparency drives investment

On a broader, international scale, there is a clear link between the attractiveness of a country’s real estate market and transparency for overseas investment. Jones Lang LaSalle recently released its bi-annual Global Real Estate Transparency Index (GRETI), which tracks transparency in real estate markets. Strikingly, the top 10 most transparent markets attract 75% of global commercial real estate investment. As capital allocation to real estate grows (JLL predicts it will grow from $700 billion to over $1 trillion within a decade), pressure is growing for real estate markets to have similar transparency as other international asset classes.

According to the index, the impact is most evident in the Asia-Pacific region, which has made the greatest progress in real estate transparency. Japan, for example, has gone from a "semi-transparent" to a "transparent" real estate industry in recent years. This is largely due to multinational companies driving the amount of market data available to investors.

Meanwhile, a recent move in Taiwan will result in the registration of all individual buying and selling transactions, including prices. China's largest real estate market is following suit in response to market pressures. The real estate industry is struggling to keep up with markets in cities such as Shanghai and Beijing. As real estate investment in Asia grows, so does transparency.

This trend is aided by computer technology, and not just by the promise of blockchain. Existing digital technology allows for more granular real-time data to be compiled and correlated with markets. Companies including JLL have already introduced technology such as online marketplaces and property management tools, while also forcing changes to local agency practices and regulations. Better digital mapping often involves and helps with the use of drones.

The global demand for transparency is growing

The need for transparency in real estate has only grown since the revelation of the Panama Papers in early 2016. The fight against corruption is high on the international political agenda and it stands to reason that organisations such as Transparency International are now placing the real estate sector under closer scrutiny.

The government plays a crucial role in this activity. Through Prime Minister Narendra Modi’s goal of spurring economic growth and reducing bureaucracy, India has made impressive public sector-led progress. Laws have been enacted to improve the ethical standards of agents and make the land acquisition process fairer and more transparent. In other Asian countries such as China and Japan, government initiatives have played a leading role in bringing greater transparency to the real estate market. In particular, they have also highlighted the most important parts and then filled in the gaps in implementation regulations.

Even with the potential for blockchain to be fully computationally feasible, transparency is still a growing need in the real estate market, according to JLL’s index.

These changes have fostered new investment and business activity and, importantly, increased community well-being and promoted inclusiveness.

It’s clear that technology will continue to be a key factor in driving transparency across many industries, including real estate.