This article was originally published in Blockchain Industry Review - a Crypto Curry Club Magazine published monthly and available in soft copy and the printed version.
Written by Guest Contributor, Lisa Gibbons,
Head of Marketing Strategy of Marketing Agency, Crafted Reach
In the last year house prices in the UK jumped by 9.5% according to mortgage lender Lloyds bank. The divide between the haves and the have nots is becoming greater each day, with potential buyers being squeezed out of the market. Furthermore, Savills estate agency forecasts house prices to increase by 21.1% over the next five years. This leaves us with a dysfunctional real estate industry, focused on supplying only the wealthiest portion of the population.
Exacerbating the situation is the complex buying process, often involving several different parties; the renter, the owner, the management company, the conveyor, the valuer and the solicitor, to name a few. And it isn’t only the buyer who is left wondering what costs go where. Large real estate companies and property management firms are often leaking revenue due to poor oversight or lack of insights into where the money is being spent.
With prices rising and the number of homes available shrinking we need to adopt a new approach. Blockchain technology combined with large-scale state investment in public housing could help to alleviate our over reliance on private developers to deliver the right supply of properties. Let’s take a look at the market from both sides of the coin.
In May of this year the Royal Institution of Chartered Surveyors reported that the lack of new homes available for buyers was now the biggest concern in the UK property market. So how do we ensure that more homes are being built for the people that want to buy them? When it comes to land registered, land use cases and planning permission blockchain provides an answer. The distributed ledger would allow the public purse to have a broader view of the historic planning permissions and permits associated with land and therefore increase reliability when assessing the potential use cases of the property for the future.
When supplying properties to buy or rent to the public trust plays a major part in the decision of the buyer or tenant. The HM Land Registry registers land and property ownerships across England and Wales. It has begun adopting blockchain technology to make transactions easier to manage, instill trust in their systems and cut costs. They have established a community of collaborators to discover the possibilities of blockchain. Furthermore, real estate companies and rental agencies who accept bitcoin as payment, such as liv.rent, offer flexible payment options to suit individuals with different sets of circumstances who would like to fully embrace bitcoin. By embedding this technology into your operations agents can tap into the potential of new stakeholders. It also allows for the agency to automate payments with smart contracts and efficiently record all agreements with the distributed ledger, eliminating the costs of intermediaries.
In addition, construction companies interested in the land can easily access a full picture of the planning applications in the past or better yet, the lack of applications so that they can proceed with one. This increased transparency is a consistent benefit with the introduction of blockchain technology. It allows all parties to effectively manage their supply chains without letting costs get out of control. More importantly, when a government approves a tender for a housing project every layer of that approval can be written into the ledger, making it a vital component for monitoring the stages of housing development.
The decentralised exchanges on blockchain also allow for developers to streamline transactions and conveyancing costs. Surveyors, valuers and solicitors are just three of the many professionals hired when you are buying your first home. If they are responsible for verifying and preparing legal contracts associated with home ownership but this information is now digitised and stored on a ledger using blockchain then there is a case to be made that the costs associated with these services will become unnecessary. This isn't to say that a full house inspection by an engineer or professional isn't required. It is an important part of buying any piece of real estate. However, the preparation of files, contracts and records becomes a much more seamless process with the addition of blockchain technology.
Now let's turn our attention to buyers and homeowners. Although house supply is flat at the moment, the demand is soaring with positive sentiment across many major European cities. Whether you are buying a penthouse apartment or commercial land, there will be a prime location designed just for you, according to the real estate agent that is. However, that is no longer the case. The supply is not matching the current demand, therefore real estate agents need to plan ahead and capitalise on the properties that they do have available to sell. Across the UK 32+ participants in the residential market survey noted an increase in buyer enquiries for May 2021 (https://www.rics.org/globalassets/rics-website/media/knowledge/research/market-surveys/5._web_-may_2021_rics_uk_residential_market_survey_tp.pdf) So why hasn't the supply met the demand and how can we do to ensure that the needs of the public are being met? We can’t due to the complex process for collecting, evaluating and using information related to both supply and demand across the industry. Another factor on the demand side for consideration is the changing preferences for buyers and renters amongst the younger population. The real estate industry needs to adapt to new market demands and this includes all advancements in technology.
“An increasing number of Millennials and Gen-Zers make up the bulk of the rental population. They have grown up around cryptocurrencies and many have adopted them as part of their financial investments, strategies, and lifestyles. What this means is that they are looking for alternatives to the traditional way of renting” (Hazel Wong, Liv.Rent)
This is where blockchain has the power to change an industry and make a valuable impact on the future of real estate. With streamlined payments using cryptocurrencies and a robust mechanism for collecting data related to demand we are in a better position to predict market sentiment and plan for an increase in housing supply.
The valuation stage of the buying process is crying out for more transparency. It is well known that buying a house may be the biggest purchase an individual ever makes. This high value comes with high risk, high costs and a heightened awareness of the transactions involved. Covid 19 has brought with it an unprecedented level of economic uncertainty that is having an impact on all real estate valuations. In addition we have a diverse range of data sources that show varied statistics and predict different patterns of behaviour. For instance, in December London had one of the lowest house price rises but in November official statistics showed London prices rising at an annual rate of 10%. With blockchain technology we can decrease Mortgage lenders reliance on physical valuations, instead taking all historic and related factors into account.Data provided by the blockchain ledger offers the mechanism to simplify the valuation process and store information on previous sales and transactions in a transparent manner. Therefore, allowing for trust to flow from the seller to the buyer and the perception becomes high value, low risk rather than high value, high risk.
PROTECTION FOR BUYERS AND TENANTS
Tenants left without security and protection is so common that it is no longer spoken of. In some cases it is expected that once a deposit is paid it is never seen again. The student housing market is one example of a landlord/tenant arrangement that is packed full of areas for improvement. Blockchain technology gives tenants more security when paying a deposit while also providing the landlord with access to the tenant's history in renting other properties. If a dispute arises then both parties know that they have transparency from the beginning of the process. With the increase in property management companies accepting Bitcoin we see more clear protection mechanisms for tenants.
Liv.Rent is just one company taking advantage of the opportunities that Bitcoin offers, “Not only is this a great marketing opportunity for property companies and rental agencies, but this is also a chance to appeal to a wider audience as the adoption of bitcoin becomes commonplace. Providing alternative methods of payment will add options to a very limited process in the rental and real estate industry; thereby, creating flexibility and convenience”.
There is an argument to be made for mortgage advisors and real estate agents tying the knot here and getting into bed together. The mortgage advisor is where the real value lies for the buyer once the traditional payment model and banking system is taken out of the equation. Why use a bank when you can pay directly?
Real Estate inventory is highly fluid, constantly changing as one seller exits the market and another comes onto the market. There are also a wide range of different property specifications (2 bed, 3 bed, semi-detached, apartment, villa etc). Blockchain technology allows recording the changes over time to say one property on the market. So you are not only getting the deeds to your house when you buy it, you are also getting the history of the market that your house has been through.
Rather than blockchain disruption we need to start speaking about blockchain adoption. With this adoption comes real benefits for both the industry and the buyers. Integration of traditional real estate knowledge with future led blockchain technology could transform the real estate landscape of the future. In summary, there is a widespread need to solve the housing crisis across the globe. Blockchain technology can help to increase transparency and manage some of the functions currently managed by costly intermediaries, making the selling and buying process quicker and more cost effective. In the future we won't have to hire consultancy firms to analyse the disastrous crash, as in 2008, it will be stored on the ledger for everyone to see so that greed cannot get in the way of a fully functional real estate industry.