The real estate sector is undergoing a digital transformation. Digitization is making its way into all phases of the property lifecycle, and from the surroundings and infrastructure around the property to urban development.
The proptech wave is affecting all real estate professions. Smart buildings and smart cities, the introduction of fintech technology for real estate and the sharing economy are creating new business models. This creates new legal issues in everything from privacy, data ownership and surveillance of wearable technology, to the requirements of planning and building law. New models of transactions and funding can provide smoother processes, but also legal issues regarding licensing and lending permits for implementing automatic and smart contracts, and related issues when introducing solutions based on blockchain technology.
Last year, the government presented Norway’s first report to the Norwegian Parliament on the data-driven economy and innovation. The report highlights this data as a resource, be it data volumes from IoT1 sensors or the increased use of AI, will become an important component of the Norwegian economy in the years to come. Among other things, the government is focusing on making real estate data freely available, which can be used to create a digital twin of the whole society. This twin can then be used to create information, new services and processes. More public datasets will be shared and data quality will improve. In addition, the government proposes that data relating to ownership issues, which comes from land registration and property registration, should be made available free of charge.
The government report points out that in surveys that measure the degree of digitization, the real estate sector does overall worse than several other sectors. In any case, the industry is considered to be particularly “data-poor”, in the sense that there is not yet much accumulated operational data that can provide a basis for big data and data-based solutions and services. algorithms.
The government wants to help facilitate sustainable consumption, reuse and digitization in the building, construction and real estate sectors. A collaboration council has been established between industry and state authorities to promote effective digitization and interaction in the industry.
An interdisciplinary project group made up of the country’s leading property owners and developers will facilitate the sharing of solutions and expertise in good property management. The work is based on Norwegian and international experience, including work related to the EU Industry 4.0 strategy.
The sharing and reuse of data should be an opportunity for increased innovation in the construction and real estate sector. Norwegian companies could be in an excellent position to benefit if the potential for data sharing is exploited, in particular due to a digitally mature population, good internet access throughout the country and the increased opportunities offered by 5G. .
The vast majority of approx. 4.2 million buildings in Norway were built before the digital age and data on buildings is limited. For newer buildings, many data sources are locked away in proprietary tools and the information is not available to others. Making the data sources available is one of the goals of the project, so that the data can be used by the whole industry.
Ambition is a common solution for data sharing that adds tangible value through higher customer satisfaction, better operating economics, and most importantly energy, power and climate friendly solutions during the operation of buildings. In the long term, the goal is that the model can be adapted to the whole industry and create a common industry standard.
Blockchain and tokenization
Experts seem to agree that blockchain technology could change the way the real estate industry works in a short time.2 A typical example is the conclusion of smart contracts that automate services between parties according to predefined conditions without the use of intermediaries. Blockchain will also allow many parties to have simultaneous access to information.
In 2019, OBOS, one of Norway’s leading real estate developers, conducted (according to them) the world’s first home sale with blockchain technology. When a condominium is sold today, it goes through several manual processes. And an intermediary is used to ensure trust between the parties. Thus, it may take several months before all the steps are taken and the sale is formally in order. The blockchain prototype, however, manages the recovery in a single automatic operation and ensures the verification of transactions, between people or companies, without the need for a third party to guarantee security.
According to Statistics Norway, only 1.0% of houses in Oslo can be bought with a nurse’s salary.3 In the future, crypto technology could be one of many measures against increasing inequality in the housing market. Tokenization allows the ownership of a house to be divided into small parts. By investing in such small rooms, you can catch up with price changes in the market without having the money for an entire house.
It is not the property itself that is symbolized, as only the land register currently provides valid legal protection for property and property rights. What can be tokenized are the stocks or shares of a company that owns a property or a debt associated with a property. Investment in shares or participation represented by tokens, regardless of the sector, currently has significant limitations in terms of transferability. Currently, the tokenization of property in Norway is in its infancy. Creating effective token-based real estate markets requires working from many sides. Digital platforms need to be further developed, tokens need to be issued that give partial ownership of properties, and authorities need to address regulation.
For now, traditional investment objects such as financing platforms or crowdfunding or more traditional vehicles such as real estate investment funds predominate. But everything suggests that the tokenization of real estate projects is growing and will revolutionize the way of investing in real estate in the future. According to the World Economic Forum, up to 10% of global GDP could be stored and processed via DLT (distributed ledger technology) in five years. It is estimated that the total value of tokenized assets will amount to $24 trillion by 2027.4
Risk and regulation
Financial supervision in different EEA countries has a different regulatory approach to assets based on blockchain technology. To achieve greater harmony within the EEA area, ensure innovation and address new risks related to new digital services, the Commission presented the digital finance package on 24 September 2020.
Payment tokens (e.g. bitcoin) are used as a means of payment, for investment purposes or for storing value. This type of token is not issued or supported by any central authority and is also used as payment for non-publisher services. In Norway, payment token exchange and storage services are covered by the Norwegian Money Laundering Act.
Investment tokens give the right to a return or profit (e.g. in the form of property rights and/or dividends). This type of crypto asset can have many of the same characteristics as traditional stocks or derivatives. To raise capital, one can issue digital tokens that give ownership rights or dividends in exchange for cash or payment tokens (ICO). In its latest annual report Financial infrastructure5, the Central Bank of Norway points out that the tokenization of stocks, bonds, property and other assets can result in the issuance of a separate class of private digital currency (PDP). These are not intended to be a means of payment, but a store of value that increases in value over time.
The European Commission considers that investment tokens in particular qualify as financial instruments within the meaning of MIFID II. Financial instruments are defined in Article 4 of the Directive, which has been transposed into Norwegian law through the Securities Trading Act. Transferable securities, money market instruments and units in collective investment schemes are financial instruments.
Internationally, there is also a huge debate about the regulation of crypto assets. A preliminary agreement for the proposed regulation of EU crypto-asset markets (MiCA – Markets in Crypto Assets) was reached in July 2022. This regulation will promote innovation, but at the same time ensure consumer protection, market integrity and financial stability. The agreement must be approved by the EU Council and Parliament. Member states then have until 2024 to implement the regulations.
An increasing degree of digitization leads to an increased degree of collection, exchange and use of information and processing of personal data. The new personal data law (which includes the GDPR) imposes increasingly strict requirements on the processing of personal data by companies. This applies to landlords as well as tenants and service providers. Among other things, there are clear requirements regarding limiting the use of information, internal control, risk assessments, information security and data processing agreements.