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Tuesday, 19 November

Are Smart Contracts Coming To Commercial Real Estate?

In the Commercial Real Estate sector, smart contracts, underpinned by blockchain technology, can self-execute as well as self-enforce the terms in an agreement. What do CRE professionals think?

It is claimed that because of the decentralised nature of blockchain, a smart contract can bypass expensive middlemen such as financial institutions and solicitors. In the commercial real estate industry, smart contracts are already being used to conduct property transactions such as buying, selling, leasing and financing.

 

PropTech

Commercial estate agents Savoy Stewart surveyed 544 commercial real estate (CRE) professionals to identify what they think are the biggest benefits of using smart contracts.

The survey found 71% of professionals view increased speed as the biggest benefit of utilising smart contracts in CRE. Since smart contracts run on a software code, they don’t require documents to be processed manually. Consequently, smart contracts can significantly quicken purchasing stages such as the processing of verification and ownership.

 

Efficiency

With CRE transactions typically involving multiple intermediaries such as brokers, banks and solicitors – a smart contract has the capabilities to take over some or all these functions. As a result, 66% of the experts believe this will enable the exchange between the buyer and seller to be more efficient.

 

Costs

Similarly, with fewer or no middlemen to deal with in a smart contract, 63% of professional’s state not having to splash out on expensive intermediate fees will enable both parties (buyer and seller) to save a considerable amount of money.

 

Security

Interestingly, 59% rate smarts contracts as highly secure. Rightfully so, as records on blockchain are not only permanent but cannot be altered - meaning documents cannot be forged and opportunistic property scams become almost impossible. 

 

Paper-free

Curiously, only 40% of those surveyed appreciate the positive impact going paper-free by utilising smart contracts can have on the environment.

 

Clearer communications

With all terms and conditions required to be recorded in explicit detail, 45% hail clearer communication as a key advantage when using smart contracts.

 

Barriers

Additionally, Savoy Stewart asked the consulted professionals what they think are the main barriers which could prevent a much wider use of smart contracts in CRE going into the future and discovered that 74% of the experts place a lack of smart contract understanding/knowledge as the primary reason why the industry may not use them on a greater scale.

Thereafter, 69% feel until the government clearly stipulates how they intend to regulate and tax smart contract transactions, there will be limited uptake.

58% think data privacy compliance might be a challenging issue – since details stored on a smart contract stays forever, it may breach certain data privacy regulations. Especially, those regulation frameworks enabling concerned parties in a contract the power to withdraw certain/particular information at request.

Darren Best, the MS of Savoy Stewart said: “Smart contracts are only in their infancy, yet they have huge potential to make a real game changing impact in the commercial real estate industry. As this research certainly shows, smart contracts have left an encouraging impression on commercial real estate professionals. The benefits highlighted by them, demonstrates the huge potential smart contracts have.

"As the understanding of their functionality as well as applications to different commercial real estate processes/procedures improves, they could gradually phase out standard paper contracts.”

Pictures: The positives and negatives of a smart contract.

With thanks to savoystewart.co.uk

Article written by Brian Shillibeer

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