Blog post by Mr. Leo Ming-Yan LO, MEcon BSc (Surveying) MRICS MHKIS RPS(GP), CEO, Fonto Holdings Limited; Founder, Asia PropTech; Co-Founder, PropBLK
Similar to the early days of the Internet, Blockchain received different levels of scepticism, but it can effectively adapted to various industries in different process, such as the real estate mortgage application.
The traditional real estate mortgage application process faces 3 big challenges: high transaction costs, prolonged processing time, and lack of transparency. Right now, countless intermediaries in the mortgage process generates unnecessary costs such as intermediary fees, legal fees, and property right verification fees. After layers and layers of procedures, the real estate mortgages intermediary transaction cost often reaches between 2.5 - 5% of the value of the property.
As third-party service providers, such as surveyors, lawyers, credit institutions and title deeds are involved, the paper-based mortgage application process is labor-intensive and time-consuming. When the buyer and the seller gain consensus on a property transaction, the buyer will apply for a mortgage from his bank with documents proving his income and creditworthiness. The bank will hire a surveyor to conduct a preliminary property evaluation to determine the loan amount, beginning the credit approval process based on the result and then confirm property ownership with the Land Registry. A final property evaluation report is needed to cross-check with the approved credit line. Subsequently, buyer will be notified to sign a mortgage agreement and mortgage deed. Lastly, the bank will withdraw funds and notify the Land Registry to update the title certificate. The whole process needs around 30 to 60 days to complete.
Blockchain, also known as distributed ledger technology (DLT), has the potential to provide a simplified, lower cost, and more secured mortgage industrial chain. One of the DLT benefits is the ability to store large amount of document data on a distributed network, which is more secure and accessible than paper. For example, a potential buyer can conduct an early review of their loan status and can easily re-access the information when making a property offer later on. This integrated information network will make some existing intermediaries redundant. A report from Moody in 2018 estimated this can save the lenders in the U.S. mortgage market more than $ 1 billion operating costs.
The nature of the DLT can increase the transparency of audit, limiting opportunities for fraud and information manipulation. In addition, as all parties will be using the same document, all steps can be performed faster and more openly, speeding up the whole verification process. Faster verification will not only eliminating human error, but also reducing the long-term accumulation of physical and digital files.
Bank of China Hong Kong uses Blockchain to process approximately 85% of its mortgage-related real estate valuations that require accurate calculations of monthly mortgage repayments. In the past, banks and surveyors had to exchange faxes and emails to complete and submit valuation reports, which can now be done in Blockchain in seconds. A Hong Kong real estate technology company, PropBLK, is now exploring similar technology for different banks application.
However, the application of DLT needs government support. Government taking lead in developing Blockchain can definitely speed up the mortgage loan process as the property ownership records can be easily queried and confirmed through Blockchain. Estonia is the country that utilized the most of Blockchain. After transferring its property ownership registration to electronic land registration, the processing time for land transactions in Estonia is shortened from 3 months to 8 days. It is expected that Hong Kong will one day be able to do so too, the reduction in real estate transaction costs will surely benefit the public.
Mr. Leo Ming-Yan LO Mr. Leo Lo is a surveyor-turned-serial entrepreneur. He is a founder of a real estate technology company (PropBLK) which is working on the A.I. and blockchain applications in the real estate sector, with solutions in AVM and tech-enabled real estate analysis. He is a trailblazer in the PropTech industry and actively forges partnerships with PropTech companies in the globe and building up the ecosystem: Asia PropTech, synergizing the forces and knowledge from PropTech startups, real estate players and investors to co-create ideas and solutions.
You can find out more about Asia PropTech here www.asiaprop.tech
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