22nd November 2017
by Ben Kennedy, CAIA
As the recent decision by the Chicago Mercantile Exchange to allow futures trading denominated in bitcoin pushed the price of a unit to controversial new heights, greater focus by those with a view of the future is being placed on the framework underpinning the cryptocurrency, Blockchain technology. While the technology created by the mysterious Satoshi Nakamoto is more commonly known for its role in Bitcoin, its wider application is being developed by established players in financial markets. Of particular interest is its application to the real estate market, we see a growing dialog developing of how the technology is set to improve the sector.
While often a hot discussion topic at networking events, the technology's inner workings are often left glossed over. A concise explanation best expresses the technology as a decentralised ledger maintained by the collective power of its participants. Transactions, documents and other information are posted by one party, verified by the other members and securely listed on the ledger. With transparency in information posted and no single point of weakness, the system allows parties to complete transactions with levels efficiency and security not seen before.
The initial advantages to large and international currency transactions are obvious; the ability to transfer money instantly, securely and free of charge advances our (frankly outdated) payment infrastructure significantly. However like so often with disruptive technologies, the ripple effects into other markets will be significant.
Real estate is established as one of the oldest and most traditional investment classes within the modern portfolio, partly contributing to the argument that it lags behind its peers in terms of technological advancements and transaction efficiency. Middle men are rife and silos of skills and information are common, often resulting in multiple parties required to work in what can be a tedious sequence to complete a transaction. Blockchain is expected to help extensively with this and initial examples are numerous: Smart contracts where execution is automated when certain conditions are met reduces time and third party costs; locally held information such as title registers could be held securely and publicly for instant access and transparency; the storage of information would no longer rely on multiple datarooms, information could be shared instantly with all relevant parties and held securely and safely.
As Blockchain technology develops, forward thinking real estate managers will benefit from the lower transaction costs, improved governance processes and greater access to information. Just like Uber and Tesla are changing the transportation market, Blockchain has the potential to transform financial markets and their wider affiliates. However as a word of caution, technological innovation often follows a rate of advancement unfamiliar to public expectations. Breakthroughs are often established faster than initially thought, but the roll-out to commercially available products often lags behind the timeframe most of the populous anticipate. Blockchain has arrived but its wide scale implementation is still being developed.
At Langham Hall we are determined to keep at the forefront of change in the market, keeping our clients informed and offering the most efficient and tailored service. As a specialist in the real estate market we encompass a comprehensive solution for investment managers across multiple jurisdictions. Langham Hall provides market leading Depositary, Administration, Company Secretarial and AIFM services with assets under administration in excess of $85 billion.
For more information please contact:
Head of Depositary
T. +44 (0)20 3597 7969