Rebuilding the Construction and Real Estate Industries with Blockchain
The construction industry is a 10 trillion-dollar industry globally and accounts for ~13% of the world’s GDP. However, recent reports show that it suffers from the smallest growth in productivity of any other major industry in years.
How is it possible that an entire industry fails to capitalize on the technological benefits of recent years and hasn’t been able to increase its productivity?
Possible explanations are the strong fragmentation (high number of small companies, rather than a low number of large companies), narrow profit margins, highly cyclical operation and dependence on a continuous financial, regulatory, and logistical coordination. On top of this, the construction industry often lacks national and international standardized building codes.
These circumstances heavily discourage investments in new equipment and emerging technologies.
What can be done? The answer might lie in the blockchain.
A blockchain is a decentralized and by its very nature fully tamper-resistant system, that stores information in pieces called blocks. These blocks are then chained together, using timestamps and internal references to previous blocks.
This system allows a decentralized network of nodes to securely create and store information in consensus, thus eliminating the need for trusting a central entity or other nodes in the network.
The inherent advantages of a blockchain, namely transparency and collectively verified information storage architecture, raise many compelling ideas for potential uses in the construction and real estate sectors.
A blockchain can serve as a backbone infrastructure for all parties involved in a construction project, from regulatory and financial activity to logistics and supply chain tracking. It can store and provide access to immutable digitally signed permits, applications, and contracts. It can validate delivery manifests, material origin, quality, and amounts, as well as the identity of the receiver. This will increase transparency and help minimize material losses and fraud.
A blockchain can even make funding and investment in commercial real estate projects accessible and straightforward. Companies can issue tokens to fund commercial projects and pay dividends for investors, to gauge market demand of a project, and more.
In the housing sector, ownership deeds can be stored and transferred securely on the blockchain, helping to minimize corruption and fraud. In fact, any process that is paperwork intensive and requires signed documents can be significantly streamlined by the use of blockchain technology.
In short, in the long run blockchain can make many construction or real estate projects faster, cheaper and safer, while doing so with greater transparency than was ever possible in the past.
Thus, blockchain is one of the best hopes for the construction and real estate industries when it comes to letting go of their inefficient past and starting to move towards a more efficient and thriving future.
The wider effects of blockchain will take many years, if not decades, to become reality for the construction industry, but this is the perfect time to start taking the first steps to the right direction.
First successful implementations of blockchain in the construction industry will likely happen in private networks among key industry players as the level of coordination required among entities is smaller than in industry-wide applications.
IWA has been involved with prototyping interesting applications of blockchain technology recently. Some of the learnings include the fact that blockchain could instigate major change in the Asian and Middle Eastern property markets due to the trust that blockchain would provide between parties with trust issues.