Pavlin Stoyanoff is a lawyer, with over 11 years on Bulgarian and international projects. He believes that technology in law will serve people and businesses better and smoothly.
Fast, secure, paperless, no notary and no middleman. This is basically the value proposition of any blockchain platform promising to make real estate transactions easy as a walk in the park. Well, there are some facts we need to face here.
These platforms are privately developed and are not integrated with the state land registries. In fact, this means that the clients communicate and contract with their property agents using the features of the decentralized technology and smart contracts in some cases. Does it mean that closing a property deal is thus easier? It appears it is still not, and it won’t be until the state goes on blockchain too.
Centralized state registers, paper and…
Buying and selling real estate nowadays, practically in almost every country, takes time, vigilance, and some not-so-negligible volume of formalities. For example, one would need to check the public land registries to verify the property’s identity, the owner’s title, the previous owner’s title, and the title of the owner before the previous owner’s title, and so on and so forth. Some countries still keep the records on paper, which sometimes get lost, damaged, forged. Once agreed on a deal, the parties or their agents would in most cases need to appear before a notary public. They execute the contract in a strict form, which needs then to be registered. The adventure runs into the risks of incomplete registry records, insufficient and old information, suspicions or real-life examples of fraud, delays. In the modern legal systems, the states try to manage the hazard of deception by stringent formal requirements, and by keeping central public land registers. In turn, the same risks still exist despite that the state has pointed out the authorities and officials who would bear the responsibility if they materialize.
In the currently popularized property blockchain platforms, the above formalities still run in the background. Тhe risks still exist as someone, for example, the real estate agent, will still need to do the registry checks and verifications, execute the formal transaction deeds, make the state registrations, and confirm to the client that all is good.
Without an official state property registry on blockchain, legally we do not buy any property on blockchain. The technology only secures the relationships between the client and the agent. It may facilitate and record the agreements and interactions with the agent and with the other parties: It may keep a copy of the title documents, but inmost countries you still need to safe keep the original paper title deed.
The ultimate goal behind replacing entirely the existing public land registries and legal purchase procedures by a blockchain solution is to avoid at once “both evils”: the bureaucracy and the fraud hazard.
Imagine the (real estate) world on blockchain
We may imagine that the public real estate registry runs on the blockchain, the properties are tokenized, and the transactions happen in the decentralized network. You wake up. You check the real estate market place and see that during the night the sale price of your chosen mansion has matched your offer. The clean title has been automatically verified in the decentralized database, your offer conditions have been met, and the transaction has been automatically executed by the smart contract. You may be anywhere in the world, thousands of miles away from the mansion purchased.
Now you have a property, but you need little extra cash. You are receiving and recording your rent on the lease segment of the real estate platform. Nobody can see your profits unless you disclose them. You decide to allocate a few tokens representing a portion of the rent you receive and pledge that against a loan. Or sell the tokens with an absolute option to buy back within a certain time. You may set this to execute automatically as soon as your money account reaches a certain value, or the loan is fully repaid.
With the money you got you buy a share in the revenue of another profitable property. If the return is low, you have a share in the ownership as a security. You had checked and calculated any other conflicting rights and pledges on the same asset, all visible on the real estate platform and reliable in the blockchain environment.
To summarise, we should be able to buy and sell property as easy as we trade shares on the capital markets.
What needs to happen to achieve the ultimate “blockchain real estate world”
Surely, we need the state land registry on blockchain. Countries like Sweden and Estonia already have their hands on building their own ones.
The option to buy property by cryptocurrency is actually a very attractive advantage of the current private platforms. Therefore, having an official cryptocurrency would be a great plus, or at least a legal and/or technical possibility to pay for the property in crypto. Several countries have already headed to this direction, like Sweden, Japan, Singapore, Estonia (of course), Dubai, Tunisia, Senegal.
Smart contracts should be integrated into the blockchain real estate platform. They would allow, at minimum, secure and simultaneous exchange of the ownership against the purchase price. Тhe closing of the transaction could be subject to an automated verification of the “clean and undisputed title”. More complex contracting and conditions could be left for external solutions – legal and technological. Thus, the availability of an official blockchain registry will develop fully new legal & business services.
The current blockchain-based real estate agency platforms are excellent proof of concept. Their success could trigger the sooner adoption of technology by the states. Certainly, the migration process would be a complex and sensitive one. In any case, the public interest calls for the utmost guarantee of the rights in real estate. The accelerated pace of the modern economy invokes in its turn quick and neat legal and technical environment to process property transactions. It is easy to believe that the blockchain, or even better technology, will be the future of real estate.