Legal challenges and opportunities of blockchain technology in the real estate sector

Publication Date20 Jan 2020
Pages129-145
DOIhttps://doi.org/10.1108/JPPEL-07-2019-0039
AuthorRosa M. Garcia-Teruel
SubjectProperty management & built environment,Building & construction,Building & construction law,Real estate & property,Property law
Legal challenges and opportunities
of blockchain technology in the
real estate sector
Rosa M. Garcia-Teruel
Department of Private, Procedural and Tax Law, UNESCO Housing Chair,
Universitat Rovira i Virgili, Tarragona, Spain
Abstract
Purpose Blockchain, which was originally created to enable peer-to-peer digital payment systems
(bitcoin), is consideredto have several benets for different sectors, such as the real estate one. In a standard
European-wide real estate transaction, several intermediaries are involved. As a consequence, these
agreements are usually time-consuming and involve extra difculties to cross-border operations. As
blockchain,combined with smart contracts, may have an importantrole in these transactions, this paper aims
to explore its prospectivechallenges, limitations and opportunities in the real estatesector and discover how
the traditionalintermediaries have to face a possibleimplementation of this technology.
Design/methodology/approach This paper analyses the current intermediaries in the real estate
sector in European Union (EU), their functions and how can blockchain strengthen the security of these
transactionswhile reducing their time. The author usesa legal methodology to approach it.
Findings Blockchain, combined withsmart contracts, has both challenges and opportunities forthe real
estate sector. On the one hand, it may improve procedures, allow EU transactions and the interconnection
between public administration. However, to not reduce parties rights, this blockchain should have some
special features,such as the possibility of being amended.
Originality/value This paper provides a valuable overview of all the intermediaries that could be
affected by blockchain protocols. It is of interest of blockchain developers, public administrations and
researcherswho are working on blockchain and property conveyancing.
Keywords Real estate, Land registry, Blockchain, Sharing economy, Rental contracts, Tokenization
Paper type Research paper
1. Introduction
Blockchain is increasingly becoming of interest for several sectors (Chichester, 2017).
Although originally created to bypass the traditional intermediaries in currency issuance
(De Filippi and Wright, 2018), academics, governments and stakeholders envisaged the
potential opportunitiesthat this technology offers for their own activities.Even the nancial
sector, which was the one most directly affected by the creation of the bitcoin currencyand
therefore the blockchain systems, considered this technology as an opportunity for
improving their processesas well as lowering their expenses[1].
The interest in this technology has been reected in a range of projects that are testing
the feasibility of its use (Leloup, 2017). Digital payments, commercial registries, social
© Rosa M. Garcia-Teruel. Published by Emerald Publishing Limited. This article is published under
the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate
and create derivative works of this article (for both commercial and non-commercial purposes),
subject to full attribution to the original publication and authors. The full terms of this licence may be
seen at http://creativecommons.org/licences/by/4.0/legalcode
Blockchain
technology in
the real estate
sector
129
Received29 July 2019
Revised25 November 2019
Accepted26 November 2019
Journalof Property, Planning and
EnvironmentalLaw
Vol.12 No. 2, 2020
pp. 129-145
EmeraldPublishing Limited
2514-9407
DOI 10.1108/JPPEL-07-2019-0039
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/2514-9407.htm
media, insurances, public administration or healthcare are only some examples of
blockchain applications. For example, the Government of Estonia is using blockchain to
secure health records, and the UK considered a blockchain to pay and control research
grants in 2016. And the Catalan Government recently published the Catalan Blockchain
Strategy, which aims at implementing a blockchain ecosystem for this regional
administration, including an ID system, sharing of health data to boost body organs
donations and a system to share self-consumptionenergy through blockchain[2].
Moreover, seven European Union (EU) countries (Cyprus, France, Greece, Italy, Malta,
Portugal and Spain) signed in December 2018 a Ministerial Declaration on Distributed
Ledger Technologies. In this declaration, these EU Countries conrm that any legislation
on Distributed Ledger Technologies should take into account the decentralized nature of
such technology and should be based on European fundamental principles and
technological neutrality[3]. This led to some of them to enact some pieces of legislation
related to this technology, suchas Virtual Financial Assets Act of Malta (01 January 2018) or
the Legge n. 12, of 11 February 2019, in Italy. For the purposes of this paper, we will
concentrate, however, on the fact that real estate conveyancing is also experiencing the use
of blockchain and smart contracts,a phenomenon which is being called proptech(Nasarre-
Aznar, 2018).
Indeed, the cases of uses of this technology focus on different stages of the real estate
conveyancing process. Regarding land registration, land registrars from Sweden, New
South Wales (Australia), GA and the UK, among others[4],are already exploring the use of
blockchain for title registration or for certain covenants. In addition, some private
companies are studying the possibility of completing the entire process required to sell a
property through a distributed ledger, such as Househodl, Averspace, Urbit Data,Zillios or
Velow.re, which is a permissionlessreal estate blockchain working on a pilot projectat Cook
County (USA), thanks to the partnership with the Cook County Recorder of Deeds. The
rental sector is also implementing this technology through the consortium between the
municipality of Rotterdam, the CambridgeInnovation Centre and Deloitte (Veuger, 2018), in
addition to the Rentberry (an application that uses blockchain for renting properties), Elea.
io, Midasium and Placetorent. The tokenisationof mortgages and property is also being
tested (Homelend, Pangea, Atlant):the term tokenisationis used to describe the process in
which a certain right (e.g. ownership) is included into a tokenor colouredcoin, so that the
transmission of a tokeninvolves the acquisition of the right included.
All these initiatives, in particular the private ones (Household, Rentberry, Homelend,
etc.), agree on the potentialimpact of blockchain technology on the real estate sectorand the
need to discontinue the traditional processes, to get rid of costly intermediaries. By way of
example, the company Atlant[5],who is implementing the tokenisation of property, conrms
that blockchain technology is the best way to achieve a proper adoption of the sharing
economy while making real estate transactionsmore transparent, providing liquidity for the
trading of these types of assets,enhancing cross-border transactions and also alleviating tax
inefciencies. In the same way, Etherty[6] conrms that the traditional illiquidity in real
estate markets is made relativelyeasier to liquidate by the Etherty trading platform, where
buyers and sellers can quickly purchase and sell. The impact on this sector might be
representative because of its importance in the economy: according to the European
Commission (2015),the contribution of the real estate sector to national economies
production ranged in 2012 from 5,7 per cent of total value added produced in Lithuania to
15,8 per cent in Greeceandthe real estate sector grew more than the economy as a whole.
In short, they all justify their creation in the need to shake up and revolutionise the real
estate sector. However, is this prospective disruption ensuring the rights of buyers/tenants
JPPEL
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