Deploying the Blockchain for Real Estate Transfers

03 June 2019

Dharma Sadasivan

Among the many possibilities that blockchain technology presents, there are few as exciting, promising, and perhaps even fashionable, as the use of the blockchain to facilitate transfer of title to immovable property (real estate).

The blockchain affords many advantages – for countries that do not use the Torrens system, a fraud or tamper-proof, auditable ledger that records every transaction would be an ideal way of digitizing title deeds, leases, and encumbrances. It promises faster and cheaper property transactions with far reduced paperwork. It could potentially allow automated testamentary transfers of property pursuant to wills. Tokenizing real estate would lower the barrier-to-entry for property ownership, giving lower income families the opportunity to purchase, own, and invest in property – an opportunity from which they may otherwise be precluded.

There are many models and frameworks that have been developed, particularly in the start-up space, for how the blockchain can be used to facilitate real estate transfers – yet, many of them lack the one critical ingredient in making it workable – State-level integration. You can build all the apps you want, but if your country's land regulator does not recognize a title transfer under your app, there is no title transfer under law.

In this article, we look at how real estate transfers in Singapore are effected in reality, and highlight various points in the transfer process that would require State-level integration with Singapore's regulatory authorities for the successful digitization, tokenization, and/or blockchainization of real estate transfers. This article does not consider securities regulation and token issuances in relation to real estate.

​Here is a flowchart of the simplest possible process to effect a transfer of landed real estate. This flowchart assumes that there are no encumbrances on the property – i.e. there are no mortgages, Central Provident Fund ("CPF")* charges, or any other types of claims against the property.

​Download the PDF here

The first thing that stands out is that even the simplest possible real estate transfer is in fact rather complex.

Secondly, there are several documents required: an offer to purchase, an option to purchase, hard and soft copies of the instrument of transfer, a stamp duty certificate, the Title Deed (for cancellation), a new Title Deed reflecting the name(s) of the new owner(s) and a notice of transfer to Inland Revenue Authority of Singapore ("IRAS") Property Tax Department. These documents need to be digitized so that they can be appended to a blockchain to record the various transactions.

Thirdly, the process requires payment of stamp duty to IRAS, filing of a notice of transfer to IRAS, and various filings to the Singapore Land Authority ("SLA"). The SLA is also the statutory board that registers the change of ownership and issues a new Title Deed in respect of the property. In other words, to digitize the real estate transfer process using the blockchain, you need to integrate these tax and administrative processes with IRAS and SLA.

Finally, there is an existing validation process in which the SLA validates the contents of the soft copy of the Instrument of Transfer (an online portion of the process) against the hard copy of the Instrument of Transfer (an offline portion of the process). Therefore, an alternative validation method will need to be developed in order to remove the offline portion and digitize the validation process completely.

In more complex real estate transfers involving mortgages, charges, and other encumbrances, further integrations may be required, such as integrations with banks and the CPF Board. If the property concerned is a Housing and Development Board (“HDB”) property then additional integrations with the HDB will be required.

While this flowchart applies only to transfers of landed real estate in Singapore, it is likely that other jurisdictions will have similar or analogous processes. The aforementioned State-level integration issues remain likely to be the key barriers for blockchainization in real estate.

We look forward to further developments in both the blockchain and real estate, as well as working closely with regulators and disruptors in this space to help transform how real estate transactions are conducted.
 
*Note: The Central Provident Fund is a compulsory employment-based superannuation fund for Singaporeans, administered by the Central Provident Fund Board – a statutory board that operates under Singapore's Ministry of Manpower.
 
Dharma Sadasivan
Associate Director, BR Law Corporation
dharma@brlawcorp.com

With thanks and gratitude to my colleague Mrs Suriakala Valli Param, Consultant, Conveyancing, for her kind guidance and input.