Blockchains are changing the way you buy your home

Blockchains are changing the way you buy your home – Blockchain technology has already been used successfully for a number of years in Australia by a company called PEXA, which has recorded over 11 million real estate transactions. The same firm has recently set its sights on the UK to revolutionize the way mortgages are handled and processed. Digital currencies now offer those involved in buying or selling a property a growing range of options to pay for property and avoid many of today’s costs – potentially much to the chagrin of existing lenders and real estate intermediaries.

Blockchains are changing the way you buy your home

Real estate transactions have barely changed. Usually, the purchase and sale of real estate is registered in a central register known as the Land Registry, but the World Bank estimates that “70 percent of the world’s population still lack access to proper land rights…” and even in so-called sophisticated jurisdictions such as the UK, 15% of property is not registered in the Land Registry. For example, if someone has owned a property before 1990 and has not taken out a mortgage since then, the property cannot be registered. However, the way people buy and sell their homes is slowly changing, thanks in part to the gradual introduction of technology. Traditional banks, lenders, attorneys, escrow agents, etc. are increasingly faced with a choice about how to transfer money from both lender to borrower and from buyer to seller of a property. The use of digital assets means that it is now cheaper to transfer money between different parties and the amount of money to be saved by using a digital currency pegged to $ or € or £ etc can be quite significant.

The first digital £ (GBPT) was launched in July 2022 by a company called Blackfridge (based in the Isle of Man), with KPMG performing a monthly attestation to confirm that all GBPTs are indeed 100% backed by cash equivalents. GBPTs differ from most UK banks where depositors’ money is used for other lending activities, i.e. if the bank’s customers ask to get their deposits back on the same day, it is highly unlikely that the bank will be able to do so. Last year in the UK there were approximately 1 million property transactions where financial institutions typically confirm what they owe each other and transfer money using the SWIFT interbank messaging service (which charges a £25 fee). Very few real estate transactions involve the transfer of money direct from buyer to seller as the money usually goes via the buyers’ and sellers’ respective lawyers. It will not be unusual for buyers to transfer money to their lawyer clients once the lawyers have agreed the transaction, after which the buyer’s lawyers transfer money to the seller’s lawyers. When the seller’s lawyers have deducted the fee, the remaining capital is transferred to the seller. ie at least three transactions/messages are generated: £25*3= £75 for the sale of one home in SWIFT message fees alone. This equates to £75million pa for UK mortgages alone.

Over in the US, the cost to deposit and receive money (wire transfer fees) is typically $15 to receive and $25 to send. Given that there were 6 million real estate transactions last year, the cost of moving money from buyer to seller equates to roughly $240 million. A large proportion of these real estate money transfer fees in the US and UK can actually be eliminated by using a CBDC or a stablecoin – i.e. a digital currency linked to a fiat currency. Such digital currencies typically use blockchain technology, and according to CoinGecko, there are 90 stablecoins with a market capitalization of $140 billion.

However, it is not just digital currencies that will influence the way homes are bought and sold. In Australia, Property Exchange Australia (PEXA) provides a centralized platform that allows lenders, buyers and sellers’ solicitors and the land registries to communicate; that is, having one ledger to enable a more efficient and faster way of transferring property titles. Listed on the Australian Stock Exchange, PEXA was established in 2013 and has created an e-transfer solution for the Antipodean continent. In 2011, Australians introduced legislation called the Electronic Conveyancing National Law Agreement which enables registered “subscribers” (solicitors, brokers and lenders) to use the system on behalf of buyers and sellers of real estate. The registered subscriber is authorized to both digitally sign any registry instruments and authorize financial settlements on behalf of a client, avoiding delays in requesting additional authorization and signatures. Using blockchain technology, it has effectively created one secure database that relevant parties can access, and it has been so successful that, according to Legal Futures, “80% of mediation completions in Australia” is now run via the PEXA platform. The property exchange itself has handled over 11 million property transactions in Australia to date, and reports that “In Australia, remortgaging times have dropped from an average of 42 to 15 days, with some remortgaging even completing in one day.”. This is a great example of how blockchain technology has been used to transform the buying and selling of homes in Australia by improving the speed of property transactions. Now PEXA is turning its attention to England and Wales to potentially transform property transactions, having completed its first re-mortgage in the UK. Additionally, other firms using blockchain technology in Australia include Bricklet and Smypli.

The percentage of transfers filed on PEXA for five of Australia’s states

However, it is not only in Australia that blockchain-powered platforms are being used in the mortgage market, but also in the United States. In March 2022, Figure Lending LLC and Apollo completed a transaction involving digital mortgage origination and transfer of ownership over a blockchain – the secure, streamlined process is a “first of its kind” in the mortgage industry. A process like this has the potential to revolutionize the $13 trillion U.S. mortgage market, which saw over $2 trillion in mortgages last year. Figur Lending’s GM, Daniel Wallace, has reported: “Blockchain can provide increased protection and transparency in the ownership process for consumers and real-time settlement for investors, replacing trust with truth to create a faster and more efficient process for everyone. This important development shows just one way blockchain will provide significant improvements streamlining the mortgage space.”

So reducing the time and cost of buying and selling a property not only benefits homeowners, but also helps make real estate (an inherently illiquid asset class) a little more liquid for everyone. Interestingly, if you look at PEXA’s website, while the company uses blockchain technology, it doesn’t make a “song and dance” about Blockchain itself. Then again, why would it? Having used the technology for years, it works for PEXA and the 11 million transactions it has completed to date. So does this mean we could see more firms using blockchains talking less about the technology and more about the benefits and benefits? After all, how many firms wax lyrical about the fact that they “have a website”, or their “dot com on-line expertise” that was all the rage 20 years ago…?