Web 3.0, blockchain, cryptocurrency, metaverse and other technical terms have become buzzwords, slowly dominating conversations in boardrooms, social media and professional circles.
The biggest concern for many professionals is whether their expertise will be replaced by Web 3.0. And yes, Web 3.0 is bound to impact the work done by realtors, land buying and selling companies, conveyancing lawyers, surveyors, financiers, land registry officials and marketers because change is unstoppable.
But what is Web 3.0 all about and how is it going to impact the Real Estate sector? Robert Muoka, an Advocate of the High Court of Kenya started out in conveyancing and gradually ventured into blockchain technology.
He demonstrates that we all have the ability to learn and align ourselves with change. He is the CEO at My Shamba Digital, the Chairperson of the Blockchain Technology Subcommittee of the ICT and IP Liaison Committee of the Law Society of Kenya, Nairobi Branch, and co-founder, Sheria Online. He tells us everything we need to know about Web 3.0 in real estate.
What attracted you to the blockchain world?
I have always been interested in technology and how it’s harnessed to solve real-world problems. When I first learned about Blockchain and other Distributed Ledger Technologies, being a property lawyer, I was fascinated by their potential to revolutionise real estate transactions. The decentralised, secure and transparent nature of their underlying technology made it incredibly appealing to me.
In early 2021, we established My Shamba Digital, an innovative property technology company focused on making real estate transactions and conveyancing processes simpler, more transparent, and secure. We have partnered with FGA Partners, an American Private Equity firm and Megahoot Technologies, a US-based technology company to develop and deploy Blockchain enabled land registry systems.
The systems will utilise the Pecu Novus Blockchain Network to provide a unique and secure land registration and verification process. The integration of blockchain technology through the use of this network aims to eradicate incidents of land fraud, land grabbing and ownership disputes. The impact of land conflicts is far-reaching, with the Ministry of Lands and Physical Planning reporting 7,052 cases of property fraud costing the economy Sh60 billion annually.
Blockchain and decentralisation are key features in Web 3.0. To a layman who does not understand blockchain technology, how does it work?
Blockchain technology is a decentralised, immutable distributed digital ledger that records transactions across a network of computers. The technology works by allowing multiple parties to securely record transactions and store information in a shared database.
Some of the key elements of Blockchain technology include blocks which contain a set of transactions that have been verified and approved by the network. Once a block is added to the chain, its contents are considered permanent and unalterable. The technology also uses cryptographic algorithms to secure transactions and to ensure that the information stored in the blockchain is tamper-proof.
This is achieved by using digital signatures to verify the authenticity of transactions and by using hash functions that ensure the data’s integrity. There is also decentralisation, which means the blockchain is maintained by a decentralised network of computers, known as nodes, that work together to validate and process transactions.
This eliminates the need for a central authority or intermediary, making the network more secure and transparent. Lastly, there is a consensus mechanism. For a transaction to be added to the blockchain, it must be verified and approved by the majority of nodes in the network. This mechanism makes the technology reliable and secure.
How is blockchain technology applied in real estate?
In various ways. Some of the most common applications include real estate tokenisation, property registration, smart contracts, supply chain management, property management, payment processing, creation of digital land registries and property registration. In property registration, blockchain systems store and manage property ownership records securely, reducing the risk of fraud and errors.
The transparency and immutability of blockchain makes it easier for buyers, sellers and lenders to verify and transfer ownership. The unalterable nature of the technology comes in handy when tracking property ownership records in a digital registry.
In supply chain management, the technology can be used to track the chain of building materials and construction processes, improving transparency and reducing the risk of theft. Property management companies can also use it to create a decentralised platform that allows efficient communication and collaboration between landlords, tenants and service providers.
Robert Muoka is the CEO at My Shamba Digital, the Chairperson of the Blockchain Technology Subcommittee of the ICT and IP Liaison Committee of the Law Society of Kenya, Nairobi Branch.
Photo credit: Courtesy
When it comes to payment processing, blockchain-based payment systems such as cryptocurrency have been used to securely and transparently process payments for real estate transactions. If used to digitise land registry systems, governments can eliminate fraudulent activities and make it easier for individuals to access land records.
These are just a few of the many ways that Blockchain technology applies in the real estate industry.
Real Estate Tokenization and Real Estate Investment Trusts (REITs) are related concepts. Real Estate Tokenization refers to the process of converting property ownership rights into a digital token. This allows for fractional ownership and enables the asset to be bought and sold on a blockchain-based platform as a security, just like in REITS or the Stock Exchange Market.
Trading such tokens provide greater liquidity for developers while reducing the barriers to real estate investments for investors with limited capital as the tokens tend to be cheaper than traditional property assets.
Luxury real estate, for instance, is always expensive and exclusive to heavy pocketed buyers. It also takes time for developers to sell the property but through tokenization, multiple investors can gain fractional ownership of the property by buying tokens, in return providing capital for developers to fund their projects.
At My Shamba Digital, we have assumed an advisory role with local real estate development companies that aim to tokenize their properties. We help guide them through the legal and regulatory framework surrounding the tokenization of real estate assets and the reconciliation of titles in Kenya.
Reconciliation of title verifies the accuracy and legitimacy of property ownership records, which is crucial for real estate tokenization. It ensures that the tokenized property rights are correctly represented and can be trusted. Although real estate tokenization is still in its infancy, it has the capability to revolutionise the traditional property industry.
There is a lot of hype around smart contracts, how do they work and what limitations do they present?
Some blockchain platforms, such as Ethereum allow for the creation of smart contracts, which are self-executing contracts with the terms of agreement between buyer and seller written directly into code. The code and the agreements contained within them are stored and replicated on a blockchain network.
Smart contracts have several benefits over traditional contract such as automation, a fact that reduces the need for intermediaries who traditionally draft contracts. Automation also reduces the risk of human error, they are cost effective and they save time. They are also secure given that they’re stored on a decentralised blockchain network, providing a high degree of transparency.
However, smart contracts present a few challenges. For instance, writing smart contracts can be a complex process, and errors in the code may have significant consequences. Legally, in many jurisdictions, the legal status of smart contracts is still uncertain, and they may not be enforceable in the same way as traditional contracts.
Compatibility is also a challenge considering that smart contracts are often built on specific blockchain platforms, they may not be compatible with other platforms, limiting their interoperability. They may also have limited functionality because they only perform pre-defined actions limited to the programming language in which they are written.
Lastly, smart contracts may need external information to execute, and this information must be provided by trusted third parties, known as oracles. This introduces a potential point of failure into the system.
How is the reception of web 3.0 in Kenya’s real estate industry?
The reception of Web 3.0 technologies, including blockchain, in Kenya's real estate sector, has been mixed. While some recognise the potential benefits of using blockchain to enhance transparency and efficiency in property transactions, others are wary of adopting new technologies in an industry that has a history of being slow to change.
In 2019, the former CS, Ministry of Information, Communications & Technology, Joe Mucheru, established the Distributed Ledger and Artificial Intelligence Taskforce through Kenya Gazette Notice No. 2095 of 2018. The taskforce was created to develop a roadmap for emerging technologies and to shape the Fourth Industrial Revolution.
The transparency and immutability of blockchain make it easier for buyers, sellers and lenders to verify and transfer ownership. The unalterable nature of the technology comes in handy when tracking property ownership records in a digital registry.
Photo credit: Pool
The taskforce released a report recommending the implementation of blockchain technology in the land titling process to end the practice of manipulating land records and restore confidence in the accuracy and integrity of land titles.
In the same year, the Capital Markets Authority (CMA) Board approved the Regulatory Sandbox Policy Guidance Note (PGN), providing a framework for setting up a regulatory sandbox to allow live testing of innovative capital markets-related products, services, and solutions with the potential to deepen Kenya's capital markets.
The sandbox aims to improve CMA's understanding of emerging technologies, support an evidence-based approach to regulation, and facilitate the growth and expansion of Kenya's capital markets. I foresee companies dealing with the tokenization of real estate being admitted in the regulatory sandbox in the coming years. Overall, while the adoption of Web 3 technologies in Kenya's real estate industry is still in its early stages, there is growing interest and investment in exploring their potential benefits.
In your capacity as an advocate, what adjustments should lawmakers consider to accommodate these technological advancements?
The rapid pace of technological progress often requires laws and regulators to play catch-up with regard to consumer and investor protection, preventing money laundering, and countering terrorism financing.
Some of these laws could include Property and Land Laws which should be revised to acknowledge and recognize blockchain-based land registries, though the Land Registration Act, 2012, makes provisions for electronic land registries.
Current Securities Laws may need to be amended to recognise tokenized real estate assets as securities, subject to appropriate regulations and oversight. The Electronic Transactions Act which regulates electronic signatures and records should be amended to accommodate blockchain based land registry and ensure the records are legally binding and enforceable. If amended, this act will also cover tokenized real estate transactions.
The use of blockchain technology in land registries involves storage and sharing of sensitive personal and property data which needs watertight Data Protection Laws. Finally, web 3.0 and blockchain may have significant implications on property taxes thus necessitating Tax Law updates.
As the popularity of these innovations increases, regulatory and consumer protection bodies will also need frameworks to protect consumers from exploitation. For instance, Initial Coin Offerings (ICOs) are a common way for companies to raise funds through blockchain technology, and they are vulnerable to fraud and abuse.
Lawmakers should regulate ICOs to ensure that investors are protected and that companies comply with relevant laws and regulations. There will be need for transparency (from companies) and dispute resolution platforms as more transactions take place on Web 3.0-based technology.
Are there opportunities for the property, land and housing arms of government in blockchain technology?
Real estate tokenization has the potential to impact affordable housing. By tokenizing real estate assets and making them more easily tradable, it may become possible to create new investment opportunities that will help finance the development of more affordable units.
One of the biggest challenges developers going into the affordable housing market report is limited profits and revenues. Tokenization makes it easier for individuals and institutions to invest in affordable housing initiatives, potentially increasing the pool of capital available for more development.
Digital blockchain-based land registries are something that every government should strongly consider. Such registries not only benefit the government but they also improve service delivery, boost tax collection, attract more global investors, reduce land disputes and subsequent court cases and also strengthen the relationships between the people and their government. Lenders can also make use of such a registry to fasten record verification for purposes of lending property investors.
According to a report by the World Bank titled, “Securing Africa's Land for Shared Prosperity,” only 10 percent of rural land in Africa is registered, with the remaining 90 percent undocumented and informally administered, making it vulnerable to land grabbing, expropriation without fair compensation, and corruption.
Thus, delivering accountable digital land registry systems and improving the validity of land titles is crucial for African governments to reduce corruption and other issues plaguing our land registry offices.
