Disruptive Technologies in the Real Estate Sector Today

Awards

Dr. Gábor Helembai, Senior Associate, Bird & Bird.

We can state that blockchain has definitely reached the real estate sector. Bird & Bird, as an international leading law firm in business sectors where technology plays a key role, always keeps an eye out for the most innovative ideas and ground breaking developments in the industry. In this article, we provide some fresh insight into two interesting innovations with reference to certain recent real estate related legal changes in Hungary, which perfectly demonstrate how digital transformation currently affects the real estate industry and what challenges regulators have to face due to disruptive technologies.In adopting of the new Act on Legal Practice and the amendment of the Act on Land Registry, the Hungarian legislator mainly focused on paper-based documentation and offline land registry procedures. The intention, clearly, was to make real estate transactions more secure. The introduction of more severe rules of countersigning by attorneys does not make the parties’ lives easier from a practical point of view and the improved formal requirements also increased the risk of potential trouble arising from occasional imperfect formalities.As a completely different approach, there is demand in the market to use blockchain technology for real estate transactions and to set up digital land registries. A blockchain based land registry system is one of the most exciting projects in the real estate sector nowadays and there are several promising developments. The introduction of such technology in practice is not theoretical: Sweden and Dubai have advanced projects in place on various initiatives (for example ownership verification or smart leasing process etc.).Blockchain could be a perfect technological solution to register transactions without the services of a trusted third party, e.g. a land registry office. The authenticity of the process, the signatures, the file confirming ownership, mortgage deeds etc. will all be secured with a blockchain. The big advantage of the technology is that it eliminates paper documentation and is replaced with digital records and digitally signed documents. The concerned parties can easily store these files in the cloud or locally thereafter.Certainly, the value of a blockchain-based land registry solution would be substantial for countries without a trustworthy real estate ownership record and land registry; however, a reliable and cost effective digital system would enhance a better, investor friendly legal environment and save significantly large amounts of money for taxpayers  in a well-established and competent land registry as well.Another notable development of the Hungarian real estate sector was the long awaited changes of the Hungarian REIT (in Hungarian: “SZIT”) regulation in 2017. The option for Hungarian REITs has become more popular due to the said legal changes: the favorable tax regime (no corporate tax, local tax and reduced stamp duty for transactions) remained, but the legislator recognized that a more flexible regulation that is more suited to everyday life, inevitably puts this theoretic solution into practice. Hungarian companies are now considering using the new REIT rules; concurrently, a novel disruptive technology-based investment solution emerged on the horizon where blockchain is the key world again.Such innovative solution’s aim to revolutionize the investment market via asset tokenization. Basically, the service provider offers a smart contract platform that allows selling and investing in tokenized assets (e.g. real estate) on the blockchain. This is an avant-garde asset trading platform that lets different digital currency holders invest in real-world assets. One of the biggest advantages is that this means of investment can reduce costs dramatically compared to a traditional real estate investment. In addition, geographical trading restrictions (e.g. the need for a bank account) can be eliminated and thus it provides a real investment opportunity in real estate without geographical restrictions. This concept of investment would make the investments into real estate much more attractive for small investors from around the globe. The first successful private tokenized real estate sale occurred in Germany in December 2017.

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