Blockchain’s potential benefits for real estate, housing and construction are huge. But, it may be some time before we are living in the blockchain. Experts Wim Stalmans of The Blockchain Academy and board member of Lëtzblock, and Guillaume de Vergnies, executive director of blockchain-based real estate investment firm Digibrixx explain.
At what stage is Luxembourg currently in terms of blockchain implementation in general?
G.D.V. I would say that because of its size and the way it is organised, Luxembourg is a more agile state than many others. They have a focus on digitalisation and support initiatives to foster blockchain implementation in general. When it comes to Digibrixx and tokenisation, we are working in the legal framework that preceded the blockchain, it’s evolving now together and that’s a very positive sign. The financial services industry is paying attention to the opportunities of tokenisation and the only way to move on is to work together on the next generation solution for financial products. It’s only recently that it was possible to issue securities on the blockchain, after many years of work and bringing all actors around the table.
W.S. From a general point of view, there’s a firm willingness to move forward with blockchain here in Luxembourg. The creation of the Luxembourg Blockchain Lab is the best manifestation of that. The objective is to create a blockchain hub of excellence. There’s already work ongoing with ministries to propose education.
Lëtzblock plays a major role in nurturing a blockchain eco-system, by bringing stakeholders together blockchain evangelists. But, for applications like Digibrixx, digital bricks backed by concrete real estate, how hard is it to bring customers on board?
G.D.V. The perception of the market is that most people have the feeling of missing out on the opportunity to invest in real estate here in Luxembourg, because of the high prices. So when it comes to explaining the financial product itself, they find it extremely relevant. Now, when we unveil the technology part about tokenisation, that financial products will be linked to a platform, and everything would be registered on the blockchain it’s new, but doesn’t change much compared to the traditional experience. By which I mean that, if you want to invest in something to add that instrument, you have a securitisation vehicle. Whether you do it on the blockchain, or if you do it on the legacy centralised system, the operational points are most likely the same.
“We are step by step, digitalising all the processes of becoming an investor.”
Guillaume de Vergnies, Executive Director of Digibrixx
Is the Digibrixx process fully digitalised?
G.D.V. We are step by step, digitalising all the processes of becoming an investor. You have to bear in mind that as a financial product, you have to follow the compliance path, which means identifying the investor certifying the origin of the fund. That kind of process is still not digital or institutionalised.
What do you see would be the longer-term impacts of blockchain in real estate and housing–could it push up property prices further in Luxembourg?
G.D.V. I would be astonished if it had an impact on Luxembourg real estate pricing. The idea here is not to drive the price per square metre in Luxembourg. It’s really to be understood as a safe environment because it’s safe and secure by being backed with real real estate, not a portfolio of things that comes in and out. On the other hand, a real impact is that the land capital gains that we have seen in the last 10 years, will no longer be just benefiting a small population who can afford it. It’s now accessible to anyone who wants to diversify and access this market.
W.S. First of all, I am neither a financial advisor nor a real estate expert, I’m a blockchain generalist with a few opinions. What I see going forward is a long-term effect, where you have through blockchain and tokenisation of blockchain, possibly more granular evaluation models for real estate. I don’t know in which direction this will influence market prices. But I do think that there will be more transparency, possibly also tokenisation of different evaluation models, which allows for a more detailed pricing of the different assets in real estate markets.
Wim, can you tell us more about other blockchain uses in real estate?
W.S. We have been working together with other companies, and developing a future vision for what blockchain can mean for real estate, going forward. It is very diverse what blockchain can do, that goes from tokenisation of the raw materials, the nuts and bolts, going into a building construction projects to the tokenisation of the digital twins of a building. And then the tokenisation of the building itself, and that’s where Guillaume comes in, with the tokenisation of investment funds, in financial products. And so all these tokenisations and all the entries of transfer of ownership of the different elements that go into a building, and also the different data streams that a building produces. All of that can lead to a more integrated management of real estate lifecycle.
“It will take a long time. This is not only about legislation or technology.”
Wim Stalmans, board member of Lëtzblock
What are the main barriers at present as you see them?
W.S. Markets and the technology are still very immature. There are so many elements that don’t allow for the implementation of these kinds of visions today, like GDPR or the discretion that different companies prefer over a public presence of data on the blockchain. Especially the discretion that most companies wish to preserve in a competitive environment. Blockchain requires that competitors and stakeholders come together and agree on standards, on how to use blockchain and make the transactional data on the different assets that enter into a building project, available without endangering competitive positions or giving away critical data and critical information.
When is this discussion likely to be resolved?
W.S. It will take a long time. This is not only about legislation or technology. This is about changing a generalised centralised mindset towards the mindset that is decentralised. Now we all are very much attached to the centralised model legally, operationally, economically and societally. And so that transition towards a decentralised setup, which is required for blockchain to be really implementable is an enormous leap and an enormous evolution that needs to be realised.
What is stopping construction firms at present from adopting blockchain solutions?
W.S. I think there is a generalised situation where companies are very much attached to their proven procedures and what currently exists in terms of operations with different stakeholders, and they don’t want to endanger that by imposing new blockchain based procedures. They are all so busy with their traditional business that looking into blockchain, which is a huge task, to be aware of what is possible to agree on what could be done together. For them it is too early. There is very much the wait and see attitude.
G.D.V. I believe that blockchain has a lot to offer to a sector like construction in terms of classification, registering stamp operations, giving a backbone to the history of a building’s construction. But, you don’t work directly from the paper to the blockchain, there’s a stop in between which is digitalisation. This is happening and once we have a first environment that is digitalised, we can move from off chain to on chain. But you have to have an environment that can benefit from the offers of innovation that blockchain can bring in.
This article was first published in Silicon Luxembourg magazine. Get your copy.