By now, many within the property industry will have heard of Blockchain, but perhaps not know what it is. Put simply, BlockChain is a virtually incorruptible digital ledger that can be programmed to record not just financial transactions but almost anything of value. Information held on Blockchain is on a shared and continuously reconciled database which is not stored in any single location, meaning the records it keeps are truly public, easily verifiable and most importantly, virtually impossible to hack.
As lenders, our biggest risk is probably fraud. Mortgage fraud in our current climate is estimated to be over £1bn per annum. We spend a lot of time establishing the true ownership of a property and while we insure against fraud, prevention is better than cure. Under the current system some conveyancers can do limited KYC on new clients, potentially enabling fraud. A practical solution to this problem could involve registering a property at a future Blockchain Land Registry (“BLR”). This Process would require the owners to enter some sort of digital “fingerprint” such as a retinal scan on registration/purchase, making fraudulent sales or financings near impossible as the same process would be required for subsequent transactions. Should this be the route that the UK property industry takes, we would not be the first to do so- in February, Georgia announced that it would work with ‘Bitfury’ to commence registration of all property transactions onto Blockchain with further countries in the process of following suit.
Property registration through Blockchain is just the tip of an even larger iceberg. It is conceivable that in the future, almost every relevant bit of information relating to property, especially information that a property investor would want, could be stored in a similar way. This could range from planning, tenancy, environmental reports, searches, building regulations, measurements, historic valuations… the list is almost endless. The implementation of Blockchain could also reduce the cost of dealing with failed planning applications dramatically, with that number currently sitting at over £100m annually as councils could store pre-approved height, use and massing info on each property’s ledger, deterring unrealistic speculators.
With such a myriad of information readily available should it be stored on a BLR, the resulting outcome would have a huge impact on the speed of property transactions, reducing the amount of time and money wasted on delayed and abortive deals, estimated by Property Technology founder Sam Zawadzki to be close to £669m annually. With all this information at their fingertips, a conveyancer could report on the title (to customers and mortgagees) in a matter of hours rather than days and property sales could be concluded in days rather than weeks. People could theoretically move home within 2-3 weeks of agreeing terms, even in deals with chains.
Similar positives apply to commercial – particularly as the technology now exists to review hundreds of leases in a matter of hours, meaning offers for commercial properties could be made pre-diligenced, finance approved (and with legal costs reduced by up to 80%), ready to exchange.
The digitisation of information onto the BLR could also be used in the more efficient securitisation of properties. This securitisation not only benefitting the large commercial properties but also having advantages towards BTL properties as well. With fewer young people being able to access property ownership directly in the current market, through this system you could even find renters buying shares of the vehicles which own the properties they live in; Essentially, A form of shared ownership for the 21st century. An exciting prospect, especially as most of the required technology already exists. Moving forward, all we need is a motivated government and industry to take the property industry into the future.
By Michael Dean from Avamore Capital