How blockchain is helping investors value real estate
Blockchain technology is gradually making inroads into the real estate valuation process, simplifying and accelerating investment.
Still very much in its infancy, blockchain tools have the potential to bring clarity to investment decisions by working alongside other technologies, such as artificial intelligence and machine learning.
By linking data sets from different sources – along with documents and other forms of information – to properties, blockchain offers investors a more transparent digital view on a property. The Bank of China Hong Kong this year announced it is using blockchain technology for its real estate appraisals.
The tools can save investors time during the valuation process by “adding simplicity and security”, says Isaac Pernas, CIO Southern Europe Cluster at JLL.
Blockchain technology was used by JLL for the first time in real estate appraisal in Spain this year.
“It’s about creating an environment in which all information on a property can be gathered in a reliable, confident and non-modifiable way – while the validity of the valuation can be verified quickly and simply from any online device,” says Pernas.
Authentication of data is carried out automatically in blockchains, without any of the parties involved in a transaction being able to tamper with data. This clear and objective handling of data can “inspire security and confidence and ensures databases are considered trustworthy giant leap for the valuations business,” Pernas says.
“Blockchain does not affect valuation standards or methodologies – but can affect the way different pieces of information are collated,” Pernas says.
Greater clarity for investors and lenders
Across the world, there is a rising demand for valuations from individual investors applying for residential mortgages. It’s an area where blockchain technology is expected to help, by allowing lending banks to instantly check the accuracy of reports, as opposed to the current manual process – a move which is benefiting homebuyers and banks.
“When loans or assets are transferred to investors, a clearer view on an asset can be gained,” Pernas adds. “Data alone does not have the integrity and traceability that blockchain can to provide.”
Yet blockchain is far from being the norm – for now. The reliability of data is just one of the big challenges that need to be overcome if real estate companies are to follow Bank of China Hong Kong’s lead.
Valuation requires trustworthy data from the sell side, as well as from the land registry, property records and investor. The key to blockchain’s successful use in real estate valuation is cooperation between those involved in the asset management, recording and assessment of a property.
Blockchain’s primary benefit is connecting technology, says Stanislav Kreuzer, senior analyst at JLL. “It can connect different parties and provides a shared, tamper-proof digital ledger or journal of transactional information – which can be particularly interesting for the real estate industry.”
But there are also prerequisites, says Kreuzer.
“Required information – such as property records – needs to be digitally available,” he says. “Blockchain’s success largely depends on the amount and the breadth of collaboration and data sharing between involved parties. Existing legal frameworks will need to be updated to provide support for the technology’s use in the real estate industry.”
For the necessary improvements to be made, somewhat reticent public bodies will need to alter their processes. After a two-year trial, Sweden has done exactly that, with Lantmäteriet, its land mapping and registration authority, testing the use of blockchain technology for residential property sales.
“More public participation, as in the case of Sweden, would add further value to blockchain for investors,” says Kreuzer.
Both public and private parties need to embrace blockchain technology and “accept this way of tracking information as a positive step for valuation activity”, says Pernas.
Sweden’s example – it expects to have completed the first real estate transaction with blockchain this year – will be watched closely by a real estate industry on the cusp of change.
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