Written by Stefan Kostarelis
With companies such as Purplebricks launching in Australia, disruption has become a hot topic in the industry.
While Purplebricks disrupts the standard process of how properties are bought and sold, an emerging technology called blockchain could transform the way in which people pay for them.
Blockchain is a public ledger of all the Bitcoin transactions that have ever been executed. Blocks are added to the chain in a linear, chronological order, recording the movement of assets between owners.
The main advantage of blockchain is that it can decentralise transactions and remove middlemen. It also offers total transparency because it is public and not owned by any corporation.
Writing for The Conversation, Lecturer of Finance at the University of Sydney Danika Wright explains how blockchain might be applied to the real estate industry in Australia.
At present, she notes that there are many hidden costs associated with the purchase of a house. These include things such as title registration, legal fees, property transfer costs and stamp duty. On top of that, there is also the time it takes to settle.
Wright believes that by using blockchain, the housing market would not only be faster but more cost effective too.
In order to utilise this payment system, we would have to first encode every property with a unique ID. After defining the people behind each transaction, “smart contracts” could be created to maintain the blockchain ledger.
Essentially, this would create a housing market free of agents, conveyancers or land titles offices.
It isn’t all positive though. Blockchain is only as strong as the code that supports it and recent years have seen a number of high-profile hacks of cryptocurrency traders.
The comments section of The Conversation article also harbours some detractors less enthusiastic about the technology.
Pat McConnell, an Honorary Fellow of Macquarie University’s Applied Finance Centre, asserts that the article is based on a false premise, namely that the mere recording of a number somewhere denotes “ownership” of something.
McConnell goes on to explain that ownership is a “complex legal issue” and that the only real hope for blockchain would be to provide savings in conveyancing fees.
In another article, McConnell makes his full case against using blockchain for financial markets. Ultimately, he believes that – while interesting – the technology is unfit for the complex nature of large markets.
The potential advantages of using blockchain for real estate are clear. As Wright says, it could lead to lower fees, greater transparency and a reduction in fraud.
However, like any disruptive technology, it would also bring about new legal issues and problems that need to be solved.
Blockchain technology is still in its infancy so we shouldn’t expect any big changes to happen overnight, especially in a property market that is as heavily regulated as Australia’s.