Transactions within the real estate industry are still heavily paper-based and done manually with the involvement of multiple intermediaries. This results in high expenses that are incurred by the parties involved. The manual process also takes up much time, with the paper documents having to be couriered to and fro between the parties for their signatories.
One such process that is time-consuming and relies heavily on paper document trail is the paying of and refund of security deposits when leasing a casual and retail leasing space. Retail malls in Singapore have increasing been adding more casual leasing spaces to maximize the rental income. This is due to the changing retail landscape and business models. These casual leasing spaces are short-term and their rentals are typically less than a year. As such, the churn is higher as compared to the leasing of traditional shop spaces which is typically leased for a 3 + 3-year period.
As with the longer shop space leases, retail malls collect security deposits for these casual leasing spaces as well. Our study has found that, on average, the time required for the processing of security deposits is about 3 months. This includes 1 month taken to process the payment of the security deposit and another 2 months to refund the tenant.
For a smaller mall, they process about 30 casual leasing cases in a month. Larger malls may process up to 50 or 60 casual leasing cases in the same time period. Assuming an average of 40 casual leasing cases in a month and a 3-month period to process the receiving and refund of each security deposit, we estimate a 120-month turnover waiting time on a monthly basis per mall.
There is a total of about 150 malls in Singapore, therefore the monthly turnover waiting time would be 18,000 months (or 1,500 years) per month on a national level. On an annual basis, this would translate to 216,000 months (or 18,000 years) of turnover waiting time.
And that is just in Singapore, and only in the retail casual leasing space.
That is a lot of time for money to be stuck in transit, when it can be better rolled for other investments. When put into perspective, the opportunity cost is staggering.
A Proposed Blockchain Solution
We propose leveraging on blockchain technology, to solve the problems listed above.
With blockchain, we are able to build auto-executing smart contracts that do not rely on human intervention for processing, does not require wet-ink signatures, are in digital format, and comes with an auditable document trail. With a simple click of a button, security deposits can be processed to and fro in a matter of minutes.
This will allow real estate transactions to be completed in a much more efficient time frame. We estimate that the time taken to complete the process to receive and pay the security deposits would be reduced from 3 months to less than a day.
This method will reduce the manpower and time needed from both the landlord and tenant. Since the transaction is done on the blockchain, proper accounting documentation would be recorded at each step of the process automatically and no manpower has to be deployed to maintain the security deposit records. Both parties would be able to refer to the blockchain records as it would be immutable and transparent.
How RED Can Help
The RED team has been experimenting with the use of blockchain for the recording of digital signatures for agreements and have successfully deployed its use for demo purposes.
RED would be a front-end interface for users to interact directly with the blockchain. On the platform, users would be able to convert their fiat currency into tokens and vice-versa. Using the tokens, users would be able to pay for and receive refunds of their security deposits. They would also be able to check their balances and the history of their transactions.
On the backend, there will be several layers that will be working together to ensure a smooth experience for our users.
As a platform, RED will be blockchain agnostic, which will allow us to use established blockchains such as Hyperledger and Ethereum.
With the successful implementation of the platform, we expect the turnaround time of the depositing and refunding of security deposits to be greatly improved for both landlords and tenants of commercial casual and retail leasing assets. This will be beneficial to the commercial real estate leasing market in general.
The platform will boost productivity for our clients in the conduct of their business. Having funds flow more smoothly will provide them with greater liquidity, and it will free up valuable time for their staff to be able to pursue more productive and revenue-generating work.
In turn, this platform will lift the overall commercial, retail real estate leasing industry standards in Singapore, with Singapore taking the lead in the digital leader for real estate transactions in S.E Asian region.
Real estate makes up a significant portion in Singapore’s economy and has an intimate relationship with banks and financial institutions. The proposed POC provides a viable alternative for B2B leasing transactions to occur without the use of traditional banking instruments. For example, this platform will help accelerate the obsolescence of cheques, which is a common medium being used for the settlement of real estate transactions.
The technology on our platform will be patent protected and licensed to real estate companies in the region.
RED as a platform will release API connectors with documentation to relevant stakeholders for easy onboarding and integration. We recognize the importance of building a viable ecosystem in order to establish a new industry platform standard locally and across the region.
This article was written by Real Estate Doc (RED) CEO Ivan Lim, and COO Eugene Lee. They can be reached at firstname.lastname@example.org.
Published on 27 December 2018.