By Wayne Berger and Peter Levett, Joint Chief Executives, iShack Ventures

When we say “Blockchain”, most people think “cryptocurrency”. Maybe you’ve even dabbled in a little crypto trading. But there’s so much to this technology, and it could make real waves in the real estate sector.

 

First we need to understand what Blockchain is. According to Investopedia: “A blockchain is a distributed database or ledger that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format… The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.”

 

If you think of Blockchain in this way, it’s easier to see how it could be invaluable in the property market. For example:

 

1. Property Ownership and Title Records: One of the most promising use cases for blockchain in real estate is managing property ownership and title records. Using a decentralised ledger, property records can be managed much more securely and transparently, which reduces the risk of fraud and errors. Using Blockchain, then, could streamline the property transfer process and make it easier for buyers and sellers to verify ownership. In time, Blockchain could even be used to manage the deeds registry. Considering the massive backlog and inefficiencies of the deeds office in South Africa, this could be a game changing technology upgrade.

 

1. Smart Contracts: Smart contracts are self-executing contracts with the terms of the agreement written into code, built using Blockchain technology. Smart contracts can be managed securely and transparently between parties, reducing the need for intermediaries such as real estate agents or lawyers. This, in turn, could reduce the time and cost associated with buying and selling a property, and make it easier and more accessible for buyers and sellers.

 

1. Fractional Ownership & Tokenization of Assets: Blockchain technology enables fractional ownership of real estate assets. Kind of like a more secure stokvel, blockchain enables multiple investors to own a portion of a property, thereby making real estate investments more accessible to individuals who may not otherwise be able to enter the property market. In the same way that you can own part of a Bitcoin, property buyers who don’t have the capital to invest in a building by themselves can each own a portion of that building. 

 

In the same way that NFTs have made waves in the art world, Blockchain technology can also be used to tokenize real estate assets. This involves converting a physical asset, such as a building or property, into a digital token that can be traded on a decentralised platform. This could increase the liquidity of real estate assets and make it easier for investors to buy and sell shares of a property.

1. Property Management: Blockchain technology could also be used to streamline the property management process, using a decentralised ledger to manage rental payments, lease agreements, and maintenance requests. This would reduce the amount of time and resources needed for property management.

 

If that all seems a little far-fetched, it’s worth noting that Blockchain is already being deployed in the United States to ease the process of trading in property. Some examples include:

 

1. Propy: Propy is a blockchain-based real estate platform that enables buyers, sellers, and agents to buy and sell properties securely and transparently. Launched in 2017, Propy has processed USD4 billion in transactions for consumers and agents.
2. Harbor: Harbor is a platform that enables the tokenization of assets, from NFTs to real estate assets. The platform allows investors to purchase digital shares of a property, enabling fractional ownership and increasing the liquidity of real estate investments. Harbor was launched in 2018, and in 2019 created tokens representing the shares of four real estate funds worth USD100 million .
3. Deedcoin: Deedcoin aims to reduce the costs associated with buying and selling real estate by allowing buyers and sellers to earn rebates on real estate commissions and reducing the amount of money paid to intermediaries such as real estate agents.
4. Ubitquity: Ubitquity enables the management of property ownership and title records. The platform reduces the risk of fraud and errors in property transactions, making it easier for buyers and sellers to verify ownership and transfer property. Ubitquity’s platform was launched in 2016.

 

Perhaps the most exciting thing about the potential of Blockchain in South Africa’s real estate market is its ability to improve the accessibility of property investment – enabled by Fractional Ownership & Tokenization of Assets – as well as the prospect of more reliable record keeping. 

 

With the Pretoria Deeds Office closed indefinitely, property professionals from Real Estate Agents to Conveyancers are concerned about a potentially massive slow-down in the property trade as change of ownership becomes even slower to process. The knock on effect of this to South Africa’s economy could be dire – transactions can’t take place, loans can’t be granted, cash flows will be hampered and taxes will not make it to SARS’ coffers. A Blockchain enabled solution would resolve all this.

 

Through fractional ownership and the tokenization of assets, South Africans who do not have the capital for a deposit, the cash to cover transaction and transfer fees, or the income needed to pay off a mortgage loan could enter into the property market much more easily and affordably. Tokenized assets reduce the need for expensive support services to facilitate property transactions. 

 

Fractional ownership, on the other hand, enables people to buy part of a property asset without knowing each other, without jointly applying for a loan, without having to establish a company or similar to invest jointly… One could simply use whatever funds one has available to buy a piece of a property, and allow that investment to grow until one is able to afford a home.

 

As property professionals, all of this is exciting. Easier, smoother and more accurately recorded transactions, as well as access to a broader base of investors and customers, can only be a good thing for the industry.