Blockchain was invented in 1991, and has evolved into a technology that has many more applications than the cryptocurrencies with which it is commonly associated. In the 21st century, blockchain 2.0 – such as Ethereum – was developed, which expanded its functionality considerably. Hyperledger, an open-source, collaborative project was launched in 2015, which aimed to encourage the use of blockchain to support global business transactions.
Blockchain 3.0 is now being planned, comprising legal, construction, estate agency and financial applications, which will start to communicate with one another in the same way as the internet of things.
This article explains what blockchain is, how it works and how it could help simplify the homebuying process. Existing literature identified gaps in adopting blockchain in residential development; further insight was gathered from RICS, educational institutions, governments, proptech companies, real-estate and housing organisations, internationally, as well as nationally.
Blockchain is a combination of existing technologies that creates a digital replicated and distributed ledger, used as a database to store transactions. It is decentralised and transparent, and can achieve secure and reliable data interaction between relevant parties. Various services and applications can be built around these to increase speed, security and transparency. As a result, data and assets can be moved in a way that saves time and money.
Blockchain differs from other digital ledgers as it can simultaneously disperse information to all parties. It cannot be controlled by a single organisation because each server contributes an equal amount of data to the system.
For a blockchain to be formed, several transactions that are sent to the network are grouped into a block. This is then linked to the preceding block to create a logical, chain-like structure. Strong cryptography validates and links blocks of transactions; each new block contains a hash of the previous one, making it nearly impossible to tamper with any record.
The blockchain technology verifies the document and the rules and order of authorisation with a system for storing digital fingerprints. These are unique for every transaction. Once data has been entered into the blockchain or transaction rules have been executed, the block holding this record cannot be edited or deleted; an additional block must be created to display the amendment. The distributed network must also approve any changes.
In the residential sector worldwide, there are many considerations involving a host of stakeholders, all needing different information, both for new developments and existing homes. Buying a home involves intermediaries, paperwork, fees and lengthy delays. Real-estate registry records, for instance, are often antiquated, paper-based and located across various governmental agencies.
Adopting blockchain technology could also make the housing development process less cumbersome, yet still able to deliver homes without compromising on quality and sustainability. A trusted network can underpin huge operational improvements, particularly for contracts, which are prone to corruption or disputes. It is envisaged that the solicitor's role will primarily lie in adding all the legalities regarding terms and conditions into smart contracts, rather than acting as a trusted intermediary.
All legal permissions must be obtained before full commitment to the development can be made and construction can start. Other considerations include a comprehensive analysis of the site and objectors' interests. Negotiations should be conducted before applying for planning consent. Leasing, managing and disposal are vital from the initiation of the scheme.
After completion of due diligence checks by the developer, all factors that may affect the success of the development are re-evaluated. Having access to reliable information is vital at this stage, as it allows the developer to reflect on the status of the project.
Implementation commences when all raw materials deemed essential to undertake the development process are in place. Additional professional expertise may be brought in at this stage to anticipate and minimise delays or extra costs.
Landowners cooperate with the proposed development if their return is financially adequate and commensurate with their investment risk. They need to be informed of financial variables and the profit and risk level. Where several landowners are involved in a single residential development, each must agree to the proposal. Occupiers are the primary stakeholders and their requirements must be thoroughly researched at the commencement of the development.
Building information modelling (BIM) already enables the integrated design of buildings and infrastructure. Blockchain technology could support security, liability, transferability and live data collection, as it allows the project to be mapped and tracked at every stage.
Real-estate transactions often involve a transfer of title, which can be a lengthy process. Using blockchain technology for land title management means the parties involved can gather and input information about properties on one common, reliable and secure platform. Global supply chains can be transformed by tracking, verifying, and coordinating freight autonomously.
A shortened development time frame can achieve the initial anticipated profit without compromising the quality and sustainability of homes. Developers could purposely bring down costs, such as the purchase of the land, construction expenses and development finance. A shorter development process results in lower costs. If a homebuyer only takes a week rather than six months to complete the sale and the developer gets its money sooner, it can afford to sell houses for less and make the same profit margin.
Blockchain is not the answer to all the problems of the residential sector. Although it could enhance efficiency, the affordability of housing is influenced by a combination of factors, which, when consolidated, eventually dictate the prices of homes. Demand and supply remain an issue, and the technology is not suitable for every situation or organisation.
It should also meet certain prerequisites for it to be relevant. Before adopting blockchain, companies should ask themselves whether a traditional database could work just as well. Scaleability issues, such as a systems inability to grow and manage increased demand, can make the technology more inefficient than simpler applications would be.
Currently, there is a shortage of experts who have successfully adopted this technology from initiation to completion of a development, as it is still in its nascent stage. When it comes to homeownership, the UK is one of the most traditional markets, and the residential development sector remains largely unaware of the technology and how it can best be adopted. The market needs incentives to share data if blockchain technology is to survive. This leaves questions as to how its benefits will be adopted by housing developers and eventually lower house prices.
Nevertheless, the future of blockchain technology in the UK looks promising for the next five to 15 years and RICS is working on regulations and policies regarding its adoption, while government may well support its wider introduction.
Related competencies include: Data management