PropTech Today: Smart contracts and their impact on trust

I got an overnight flight to Nigeria yesterday. I landed at 5am local time and am only just now getting sensation back in my body.

A 6ft 5in frame and economy class do not really work well together.

It is my second time to this country in under nine months. While some question the worth of my coming due to there only being a small tech community out here, I say it isn’t about the tech community, but the real estate community.

Nigeria is one of two hotbeds of the African real estate industry, tech will be following closely over the next few years.

It got me thinking, however, as I made my way in from the airport through the fascinating, if hectic, Lagos streets, about the key challenges they face.

Speed and transparency.

Interestingly, they are similar issues to those we face in the UK but in a slightly different manner.

For Lagos and the wider African market, it is about attracting inward investment. Real estate investors do not want to touch it.

The Jones Lang LaSalle 2014 global real-estate transparency index places Nigeria in the ‘opaque’ category of transparency, meaning it suffers from elements of corruption, lack of fundamental data and poor environmental sustainability programs when building large-scale properties.

It hasn’t really improved since then.

Talking of speed, Nigeria is one of the worst when it comes to registering a property sale. It ranks 182nd out of 185 countries ranked by the World Bank who commented that the registration process can last as long as two years, taking an average of 12 procedures and costing about 20.8% of the value of the property.

All of this impacts trust, the most valuable aspect of a real estate transaction.

There is no surprise, therefore, that the word ‘blockchain’ has been mentioned to me several times already this morning. Let’s take an element of blockchain and talk about smart contracts.

Back in September I saved two articles which talk about smart contracts. It seems appropriate to finally use them today.

First, let’s define smart contracts for those not necessarily up to speed:

Smart contracts are intended to digitally facilitate and verify a contract instantly and without the need for third parties. Every transaction is entirely trackable and irreversible. This mitigates the risk of corruption...somewhat.

It’s all about bringing security to the procedure, as well as increasing efficiency and reducing costs. Often, smart contracts require payments to be made and received in some form of cryptocurrency.

The first article interested me simply because it talked about the very subject of speed and efficiency.

Some 71% of those surveyed by SavoyStewart stated that smart contracts would increase the speed of transactions.

And 66% went on to say that it would make efficiencies throughout the process and get rid of ‘middlemen’.

There is no surprise that the legal profession is all over this world of smart contracts. We now have to ask ourselves, what is their role in real estate moving forward?

Perhaps the more relevant article, from back in September, was that of the Queensland agent who was the first to bring in smart contracts to his rental flow.

Their rather over-dramatic statement that using smart contracts “would make Queensland one of the most attractive destinations in the world” is far fetched, but the trial is a good one to review should you consider learning more about smart contracts:

At a glance:

The Real Estate Institute of Queensland has partnered with technology firm Igloo to create digital tenancy agreements.

The PropTech innovation will allow residential tenancy agreements to be executed as digital smart contracts in Queensland by the end of this year.

The new contracts will use blockchain technology to create a simple and secure transaction for each tenancy agreement.

There are obvious elements that are positive steps forward.

The CEO of Igloo stated that “Smart contracts...are clearly the way of the future in a form of law that has relied on a hand-written signature for literally thousands of years.”

“At its simplest, a smart contract is a digital contract that can live beyond its initial execution by facilitating transactions and giving all parties a central record of what has happened during the tenancy.”

The key point here is the disruptive nature of the market relying on a particular form for ‘literally thousands of years, but another huge point for me is that these ‘can live beyond...initial execution’.

One suggests smart contracts are potentially disruptive (I agree) and the other covers one of the key elements I mentioned earlier. Transparency.

Deciding to shift to a smarter solution for contract negotiations will not be straightforward and there is learning needed - both on the consumer and industry side. However, if we are truly to move the industry forward, it is technology like this that we need to understand more fully and start to implement.

As part of that learning, you can analyse all of the blockchain firms who focus on the residential rental market.

*James Dearsley is a leading PropTech influencer and commentator, and is co-founder of PropTech platform Unissu. You can follow James on Twitter here.