According to the latest data released from the International Monetary Fund (IMF), residential house prices continue to escalate. In 2020, some countries recorded rises of 17%, with 23 out of the 60 countries surveyed by the IMF experiencing house price increases of more than 5%. Knight Frank has just released a report claiming that “ten of the world’s developed economies averaged price growth of 12% in the 12 months. Turkey (29.2%) leads
the annual rankings, but its rate of growth is slowing. Several key economies including New Zealand (25.9%), US (18.6%), Australia (16.4%), Canada (16%) and Russia (14.4%) also make it into the top ten.”
House prices continue to rise
As more people work from home due to COVID-19 there is a concern that there has been an increased need for larger properties, helping to push up the demand for homes but which, in turn, has led to a rise not just in the price of property but rents as well. A recent article in the New York Times reported that the “Price Index measure of rent is up 0.5 percent just between August and September, the fastest pace in about 20 years”. The US has seen the average cost of rent increase by 16.4% since January this year. Rising rent prices and inflation (just announced at over 5% in September in the US) will undoubtedly lead to demands for higher pay, further fuelling inflation as companies fight to hold on to staff. It is also worth remembering that changes in house prices are no longer included when measuring the rate of inflation which, given the recent prices rises in property, is another reason that the reported rate of inflation is less than the actual rate.
Considering the size of the residential property market and the fact that many different parties seem to need to be involved in buying a home, it ought to come as no surprise that various organisations have been looking at how Blockchain technology can be used to make buying a home more efficient. In 2019, R3 announced that it had completed the first UK property purchase on its new blockchain-powered platform, Instant Property Network (IPN), reducing the time it took to complete the purchase of a home to less than an hour. IPN claimed that using Blockchain technology could potentially result in the global property market saving $160billion. Nick Clare, Head of Project Management at JLL UK, has maintained that blockchains have the potential to “create, authenticate and audit contracts in real-time, across the world and without intervention from a middle man…[and] have instructions rooted in the transaction so that payment can only be
taken as long as the instructions are fulfilled, providing complete transparency to all parties and reducing the likelihood of payment disputes.”
It is true, there are some firms that are using Blockchain technology, with Built.com listing 21 Blockchain firms which are focused on the real estate sector. Although there has also been considerable discussion on the tokenisation of property, there is one company, TrustMe Property Exchanges (TPX™), that is not looking to tokenise property but to enable owners of properties to sell up to 49% of their home on a blockchain-powered platform – either to go ‘mortgage free’ or to directly access the values of the properties without the cost of re-mortgaging. This could provide very serious competition to the home equity release sector, which is currently worth £2billion p.a. and is expected to grow to be worth £13billion within the next ten years. TPX™ will also enable people to ‘get on the property ladder’ with half price homes since it makes shared ownership much easier and reduces the loan to equity ratio for lenders. This is made possible since investors can buy up to 49% of a property with a lender, and the house purchaser owns the remaining 51%. Rather than unitising property, investors merely have their ownership recorded on the Land Registry – no funds, no hidden costs – simply using Blockchain technology to make the whole process of home ownership more transparent and efficient. Antony Abell, CEO of TPX™, has explained that “the global value of residential property is $167trillion. We are looking to help improve the liquidity of this huge market and rid the world of the divisive equity release schemes where interest payments on debt are rolled up so in many cases the bank/insurance company own the family home 100%. We believe that there are significant inflationary pressures building and one of the best hedges against inflation is property. By using TPX we aim to make home ownership more affordable and liquid for all.”
Despite the advent of Blockchain systems over two years ago it would seem, however, that the process of buying and selling a home has been slow to embrace the use of Blockchain technology. Yet Blockchain technology offers some very interesting opportunities to make buying and selling property more efficient. It could eliminate the need for middlemen in transactions, improve trust amongst buyers and sellers, securely store property transaction data, decrease the time it takes reduce fraud, and hopefully reduce costs for all parties. This technology is starting to prove to be a huge disruptive force and although, for now, much of the promise is still not fully evidenced, expectations and realisations for the technology continue to grow at an accelerating pace.