For the past few years, blockchain has been touted as the potentially revolutionising technology within the financial sector. Now, there is growing interest in using the technology in various other industries – including the Australian property sector – to address glaring gaps in those markets.
What is Blockchain?
Blockchain is essentially a digital ledger which records, stores and replicates information with (purportedly) greater transparency, security, and efficiency.
Information on a blockchain ledger is not stored exclusively in one location or by a particular party. Instead, it is replicated across different electronic devices held by multiple, unrelated parties. These devices are known as ‘nodes’, and play a crucial role in maintaining the integrity of a blockchain ledger. When a party proposes to add new information to the ledger, the nodes communicate with one another to check and verify the integrity of the information. If consensus is reached between each node, the ledger is updated with a record of the information, and the end result is that each node possesses an identical copy of this updated ledger.
This process allows for only accurate information to be recorded, and ensure that the information is visible for all to see. It cuts out the need for a middle-man and because it is entirely based online, it does not rely on a paper trail which is prone to human error.
This is the exact technology underlying cryptocurrencies like Bitcoin, which use blockchain technology as the basis for their platforms for the exchange of goods and services.
Blockchain development within the Government
The Australian Government is interested to explore ways to best leverage the advantages of blockchain technology across the public sector.
In May 2018, the Digital Transformation Agency (DTA) was allocated $700,000 in the federal budget to investigate and identify potential uses for blockchain technology. Shortly thereafter in July 2018, it was announced that the Australian Government had struck a $1 billion deal with leading blockchain provider, IBM to provide five years of technology service to all federal agencies. The services include IBM’s undertaking to conduct research and accelerate the application of blockchain, artificial intelligence and quantum computing in government.
However, since then, the enthusiasm for blockchain technology has appeared to wane. On 23 October 2018, the DTA reported its preliminary research findings at a parliamentary committee.
DTA chief digital officer Peter Alexander raised concerns about the current fragmentation and lack of standardisation of the technology. He also noted that there is currently better and more suitable technology for every proposed use of blockchain.
In addition, he pointed out that this form of technology may not be suited to many government applications due to its “low-trust engagement”.
The interactions available on a blockchain platform are purely transactional. Parties can transact with one another with little trust because they opt to rely on the accuracy of the ledger for validation. A transaction with the Government, according to Alexander, should be built on trust and recognition – not something which can be done by transacting through blockchain.
The DTA published further findings in February 2019 echoing similar concerns. After researching the use of blockchain around the world in public and private sectors, the DTA concluded that it was still an emerging technology with significant gaps in the technical and business aspects of its implementation. Putting aside blockchain, the DTA recommended agencies to focus on addressing and understanding the needs of its users and explore solutions which can meet those needs.
Blockchain and the property market
Regardless of these concerns, blockchain technology has been identified as a potential “cure” for the deficiencies and inefficiencies of Australia’s property market.
Apart from saving up for a deposit, securing the property, and obtaining a mortgage, property buyers are required to pay up to $1000 for title registration, insurance and other legal costs associated with the transfer of the property. In addition, property buyers may have to wait more than a month to settle the transaction.
This is where blockchain technology could come into play. Paperless transactions could speed up settlement periods. A transparent and accurate database may reduce the need for additional charges, regulatory hurdles and the use of intermediaries to facilitate transactions.
Moreover, according to a recent report by the Australian Housing and Urban Research Institute, blockchain technology is capable of simplifying the processes involved in constructing, siting, tenanting, selling and maintaining properties by use of automated contracts. As a database of records, blockchain technology could potentially help buyers verify property records in real-time and provide greater visibility into a property’s rental and maintenance history. Transparency in supply chains for contracting and building processes may also transform property development.
In light of this, the New South Wales Land Registry Services announced in early October 2018 that it will be partnering with blockchain technology provider ChromaWay to investigate the application of blockchain technology in relation to property conveyancing in that State. The investigations are due to be completed early this year in order to accommodate the State’s goal to transition completely to electronic conveyancing by 1 July 2019.
Meanwhile, the United Kingdom HM Land Registry is one step ahead, as it takes on the second phase of its major digital research project, Digital Street. Through this initiative, the Registry aims to explore how land registration and conveyancing may be revolutionised by application of technology such as blockchain as it moves towards 2030. As part of its second phase into the project, the Registry has announced its partnership with the software company Methods, who will utilise blockchain platform Corda.
Blockchain technology is capable of transforming the property market as we know it by reducing the hassle for home buyers and potentially lead to an increase in commercial property investments.
In addition, the DTA’s concerns about unsuitability may not be as relevant to the technology’s application in the property sector as we see the increase of privatisation of land title offices in Australia. In fact, privatisation provides a greater opportunity to harness new and innovative technologies. Hence, it is possible that we may see an accelerated uptake of blockchain technology in the Australian property sector in the near future.
How can we assist?
If you are interested in knowing more about the potential uses of blockchain technology in property transactions, or if you need help navigating legal requirements for your property projects and investments, please feel free to contact a member of our IP, Technology & Media or Real Estate & Projects teams to discuss possible solutions and next steps.
This article was written by Luke Dale, Partner, Damien Foulis, Partner, and Stephanie Leong, Law Graduate.
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