Unblocking blockchain: the potential is huge, but what needs to happen first?

Real estate is known for being an industry that's slow to transact, with every deal requiring the parallel or linear workflows of a number of parties – legal, title, appraisal and finance – and the challenges of making this work happen quickly is a contributing factor to the illiquidity of real estate as an asset.

But for many, including Jeffrey Berman, General Partner at strategic venture capital firm Camber Creek, blockchain could be the technology that finally changes this.

"When I was a kid, if my father wanted to trade stock he'd call a broker, who would call the market maker, who would call the trading floor to execute the trade, and there was a disconnect at every step. And that's similar to how real estate transactions work," he commented at the RICS World Built Environment Forum Summit 2019 in New York.

"Blockchain, as a technology creating that ledger of truth, will allow those systems to sync in an interconnected and simultaneous manner, much in the way that today if you want to buy some Apple stock, you can do it on your phone. That's the future of liquidity in the real estate market."

Most applications of blockchain today focus on tokenisation – splitting a built asset into tokens that can be traded using the technology. However, for Berman, we are not yet at a point where anyone can make that a meaningful reality: "I believe tokenisation is important but until there's a universal exchange all we're creating is tech structures, and that's not necessarily going to create the value and liquidity that we'd like to see."

Kevin Shtofman, Global Technology Strategy Lead – Real Estate at Deloitte Consulting LLP, also speaking at the same event supports the value of blockchain: "Where I think blockchain gives so much value – we haven't realised it yet – is that it creates trust in a trust-less environment. You can write into a digital token a revenue split that helps you monetise the transaction in such a way that everyone who lent their expertise, their information and their relationships to the deal gets paid in an efficient way. Once you can bring together that set of people and they're all incentivised to get the deal done quickly, all of a sudden you have an efficient marketplace that you can scale."

But what is the role of local government in this mix? Shtofman is sceptical of the viewpoint that blockchain ends the need for interplay between the public and private sectors, particularly in developed markets.

Indeed, the benefits for government are compelling: "In the US you need government to facilitate this. The advantage is that the pitch we can give to governments is: 'If we put records onto a blockchain, you have them there, they are immutable, they are there forever.' 

"You have the ownership record, you have the critical data around the property or the investment, it's very easy to track it and report it. So, if I can give you this platform that makes you able to search transaction records, search investor records to avoid money laundering and corruption, aren't you going to be on board with this platform moving forward?' You have to get the government entity involved at the very beginning."