How Blockchain is Making a Revolution in Real Estate?By Apr 03, 2019 4 Min Read
Recently blockchain has caught widespread attention in the Hong Kong real estate market. Established in 1978, Centaline Group collaborates with Microsoft Hong Kong and TFI Blockchain Technology to launch the first blockchain platform for Hong Kong secondary real estate market. This is the first property agency in Hong Kong putting blockchain into real estate transactions.
Centaline Group, Microsoft HK and TFI Blockchain Technology Limited collaborate to launch blockchain platform for Hong Kong secondary real estate market
Image Source: Centaline Property
In leveraging blockchain technology in real estate applications, Centalink follows the footsteps of New World Development (NWD) (Stock code: 00017.HK) and the Bank of China. Announced in a month earlier, NWD collaborated with the Hong Kong Applied Science and Technology Research Institute Company Limited (ASTRI) and the Bank of China to launch the first property-purchase blockchain platform. The Bank of China is an early mover using blockchain in real estates, with 85% of mortgage-related property valuations are processed via its own blockchain.
How large is the Hong Kong secondary real estate market?
According to the Land Registry, the considerations of agreement for Sale and Purchase (S&P) in secondary residential properties amounts to HKD 35 bn in first two months of 2019. These can lead to billions of savings if the execution process can be streamlined using blockchain.
What are the pain points in real estate market?
There is often asymmetric information across multiple entities in property leasing and S&P transactions. The culprit being the lack of common database to record property transactions in Hong Kong. Besides, the lack of trust among entities made the property database inefficient. Property agents and lenders are not willing to disclose their full database to stakeholders. This leads to conflict of interests among multiple intermediaries, including the tenants, real estate agents, lenders and banks. It comes as no surprise that the Estate Agents Authority of Hong Kong received 306 complaints in 2018, mostly related to improper handling of the Provisional agreement for S&P and providing misleading information on the advertised property. The authority further noted that 41 real estate agents got their license suspended in 2018.
How blockchain can tackle these problems?
Proptech represents digital transformation in the property industry. This concept went viral in 2018, with a total of US$ 9.6 bn raised from venture capital. As the main component in Proptech, the use of blockchain can shape up the Hong Kong property market with the following benefits:
1) 24/7 Streamlined services with no time or location constraints
Instead of processing the property transactions in branch, tenants can submit and sign the application documents online with blockchain. For example, it takes two working days to finalize the deal after the buyer signs provisional S&P agreement. With blockchain, the lead time can be cut to one hour only.
When blockchain enables 24/7 streamlined services in transaction execution, NWD predicts that each transaction can save at least 8 hours from intermediaries processing, including the filing of complex application documents, back-and-forth interaction between banks and lawyers, as well as research time on mortgage loans.
2) Enhanced security with paperless procedures
The use of blockchain minimizes the time for data entry and saves massive amount of papers required. Centalink estimates that the use of smart contracts in property transaction execution saves at least 40,000 papers per month.
Compared to the manual data entry which is vulnerable to human mistakes, the transaction data in blockchain is encrypted and only visible to authorized participants. The immutability nature of blockchain also creates trustless environment for different parties. Centaline has been using blockchain to streamline the process for Estate Agency Agreement for Sale of Residential Properties in Hong Kong (Form 3) and the Estate Agency Agreement for Leasing of Residential Properties in Hong Kong (Form 5), which in Q3 2019 the Provisional agreement for S&P will be streamlined as well.
3) Keeping buyers on track
Blockchain can automate notifications to buyers and real estate agents for any transaction updates, including signing of documents and reminder on paying initial deposits. These notifications enable buyers to keep track with the whole mortgage process in mobile as well.
All problems solved?
Despite blockchain greatly enhance the efficiency of executing property transactions, we believe it is not a one-for-all solution in the property market. Certain procedures such as property site inspection, negotiation of signing the letter of intent, cannot be processed by blockchain. Having said that, we still believe the advent of blockchain can revolutionize and change the real estate operations entirely!