TRANSFORMING THE REAL ESTATE VALUE CHAIN · Real Estate Agents wanted to reduce the time it takes for an end-to-end sales process so that more sales complete, improving revenue and

T R A N S F O R M I N G T H E R E A L E S T A T E V A L U E C H A I N :

C O L L A B O R A T I V E I N N O V A T I O N A N D

C O - O P E R A T I V E D E L I V E R Y

2019 T R I A L R E P O R T

I N S T A N T P R O P E R T Y N E T W O R K

When a person wants to purchase a house, the process encompasses a whole host of different interactions with different businesses and governmental entities that can be uncomfortable and drawn out,” John Stecher, head of the group innovation office at Barclays in New York, said by phone. “The aim of this forum was to simplify the purchasing process for the customer.

- Bloomberg, 4th April 2019

Table of Contents

Abstract 5

The Problem 6

Centralised Solution 10

Decentralised Solution 13

Trial Findings 16

Trial Feedback 21

Conclusion 30

References 33

ABOUT IPN GROUPWe create better customer outcomes with collaborative innovation and co-operative platform delivery.

Organisations are nearing full internal optimisation; the next wave of innovation is in inter-organisational process and marketplace optimisation.

Our unique approach helps organisations delight their customers, reduce their costs and risks whilst ensuring their operations are fully endorsed by regulators.

AuthorsJohn ReynoldsMark AdamsRichard McManus Sanj BulsaraYashwinee Karkera

ACKNOWLEDGMENTIPN Group would like to say thank you to all the participants involved in the trial and special mentions to John Danahy, Rebecca Sullivan, Andrew Lloyd, Christian Woodhouse and Geoff Dunnett for attending as panelists during the trial week.

Also, thank you to our development team and partners:• Titos Matsakos and Marios Skevofylakas • R3 - especially Alex Oldfield, Matt Ward, Austin Moothart and Eric McEvoy • Persistent Systems - Chetana Naik, Sadhvi Nayak and Sneha Naik • Microsoft for providing the cloud hosting environment

Finally we would like to acknowledge HM Land Registry’s commitment to innovation, with their Digital Street project and community, catalysing industry and the organisa-tions participating in the Instant Property Network to achieve a common goal of mak-ing the customer experience of the property buy / sell process better.

T R I A L R E P O R TPage 5

roperty marketplaces around the world are broken. It is slow, complex, confusing and costly to buy and sell both residential and commercial property.

In an increasingly digital world, the status quo is becoming intolerable to customers, regulators, businesses and public sector organisations who inhabit these marketplaces.

Many of the systemic problems within the various jurisdictional marketplaces could have been fixed well over a decade ago by one large centralised e-conveyancing platform like PEXA in Australia; but this has not materialised in other jurisdictions, and the UK government, for example, specifically stated in their report - Improving the home buying and selling process, “we do not believe that mandating a move to e-conveyancing through legislation would be helpful at this point” Ministry of Housing Communities and Local Government (MHCLG), April 2018 1.

Recent advances in decentralised technology present a new opportunity to fix inefficiencies in property marketplaces. Instead of a single entity taking on the cost and risk of building a centralised platform, market participants can work together to create a decentralised platform. This will enable businesses to keep control of

their customer data and business process whilst participating in a shared industry-wide platform that is governed by a member-led consortium, thus avoiding the creation of a centralised data monopoly in the marketplace.

This shared platform will address many of the systemic marketplace problems; delighting customers, being endorsed by regulators and enabling business and public sector organisations in the marketplace to reduce costs and risks whilst creating new innovative services. The initial savings through marketplace process deduplication and optimisation will be significant. They are estimated globally to be in excess of $160bn with Goldman Sachs estimating for US title insurance alone this could be $2 – $4bn.

Ultimately, creating this network will lay the foundations for new social and economic models enabled by tokenisation and fractional ownership.

IPN Group has collaborated with 40 organisations across more than 20 countries spanning 5 continents to explore the benefits of such a network and this report set outs the huge potential that has been identified. We are now in discussions with organisations that are committed to the rapid realisation of these benefits.

ABSTRACT

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Copyright 2019 IPN Groupwww.ipngroup.com

T R I A L R E P O R T Page 6

The average time from offer to completion in England and Wales is somewhere between 8 to 12 weeks, with around 40% of transactions taking longer than expected and 25% of transactions

failing, costing hundreds of millions a year to consumers and causing undue stress to both Buyers and Sellers 1

Ministry of Housing Communities and Local Government, April 2018

At a macro level the problems in the property marketplace are rooted in the fact that processes have never been optimised at the level of the marketplace. Whilst much transformation and digitisation has taken place at the level of the individual firm, at a marketplace level the business process has its roots in the paper-based foundations, with transactions that would have been carried out via post, fax or telephone, now also being completed by email or siloed portals. This digitisation of the legacy paper-based

processes means that overall the customer journey remains slow, complex and inefficient, with delays, duplication and conflicting information on status updates to consumers; email is clearly faster than post but overall at an industry level, whether it is post, email or siloed 3rd party portals, the net effect is that there is no common view of the end-to-end process or exactly where a transaction is at any point in time.

THE PROBLEM

The image below illustrates at a market place level, that interactions between participants are inefficient.

Seller

Estate AgentLand Registry

Buyer

TaxSurveyorConveyancer

A

B

C

EB

D

D

E

A B

A

DBank



The IPN Group’s Instant Property Network undertakes a systematic end-to-end review of the customer property buying process. A five-step customer journeyis employed, which is Preparation, Offer, Due Diligence, Exchange and Settlement - an adaptation of McNamara (1998) 2.

At each stage of the customer journey, there are opportunities and process gaps that contribute to the inefficiencies of the system and overall delay.

Offer Stage During this stage the Buyer and Seller work with the Seller’s Estate Agent to negotiate a price for the property. This stage ends with a formal memorandum of sale being issued. The key problems identified in this stage are (in the UK marketplace in particular):

• From the Seller’s perspective, when an offer is made on the property it is not binding and whilst the Buyer will push to have the property taken off the market, the Seller has no certainty.

• From the Buyer’s perspective they have no certainty that the Seller will stop taking offers on the property. In the worst case the Buyer can invest time and money in commencing the due diligence phase only to find out the Seller has accepted another offer; a practice known as gazumping.

Preparation Stage During the preparation stage, the Estate Agent and the Seller prepare the property for market, while the Buyer obtains their mortgage approval in principle from the Lender. The key problems identified during this stage are:

• Sellers do not prepare enough information upfront which leads to delays later in the process. This problem has been recognised by both the Ministry of Housing Report and the Conveyancing Association and confirmed as also being an issue in commercial transactions.

• Buyers do not have robust approvals in place, which eventually mean many are ineligible for a full mortgage.

• Buyers are subjected to verification processes like ID verification (IDV), Know-Your-Customer (KYC) and anti-money laundering (AML) checks multiple times , which not only adds to the cycle time but also contirbutes to Buyer inconvenience.

THE PROBLEM



Exchange Stage During this stage contracts are finalised, mortgage approval is secured and the deposits are paid. Several key recurring issues that surface are:

• Post due diligence last minute enquiries. Often, when everything seems to be in place for exchange, further last-minute enquires come in asking for documentation or information, enquiries that have typically been triggered by a late piece of information in the due diligence process.

• The due diligence and property evaluation process can reveal issues that prevent the mortgage offer in principle converting to a full mortgage offer resulting in the whole process collapsing, costing the consumer and all transaction participant’s time and money.

Due Diligence Stage At this stage the Estate Agents hands the lead role to the Conveyancers who start drafting the sales agreement and completing due diligence on the property, including commissioning searches and home surveys.The key problems identified in this stage is:• The time taken to complete the searches

and gather the information pertaining to the property. The problem is well described in multiple research reports, but suffice to say, from the Buyers perspective, the lack of available real-time information has meant that the due diligence process, starts from a blank sheet of paper and due to caveat emptor, is onerous, time consuming and costly, taking far longer than expected. Our research has concluded that this problem is amplified in commercial real estate transactions.

THE PROBLEM



Settlement Stage This is the final stage of the process where monies are transferred (sale price, fees and taxes), the title transfers and insurance commences. The key problems identified are the certainty of outcome and that the Conveyancer is left as the brokerage firm in the middle handling all the cash and settlement activities. Recurring problems include:

• Delays in movement of money resulting in transaction falling through on the day, leading to increased stress and additional removal costs.

• Risk of fraud due to money moving around the system via the Conveyancer.

THE PROBLEM



SOLUTION AS A CENTRALSIED PLATFORMThe solution to these problems has been in sight for many years, University of Oxford Research Report ‘The Future of Real Estate Transactions’ 2 explains

“The establishment of a single system connecting all the agencies that supply information involved in property transfers can ease the conveyancing burden for firms or individuals. This single portal system is what is generally known as ‘e-conveyancing’, where all documents needed for a transaction are accessible to parties in a transaction through a single online platform”

The report goes on to highlight 2 case studies that detail attempts to build a centralised platform which have failed:

CENTRALISED SOLUTION

Chain Matrix: HMLR Pilot Scheme 2008Her Majesty’s Land Registry set about piloting its own e-conveyancing platform called Chain Matrix in Autumn 2006. The system would allow buyers, sellers, their legal representatives, estate agents and lenders to view the progress of every transaction in a property chain, thus highlighting where a bottleneck exists and notifying those responsible. HMLR thought that identifying the causes of the delays would encourage those responsible to improve their efficiency and to minimise reputational risk. It hoped that this platform would facilitate a simpler, more co-ordinated exchange of contracts and completion (Doversberger, 2010) 2.

A second new technology trialled as part of the Chain Matrix pilot was that of an Electronic Funds Transfer (EFT) system, which would automatically execute a payment on behalf of the buyer to the seller’s bank account on completion and validation of all Chain Matrix requirements, thus negating the need for solicitors to hold funds in escrow prior to completion.

Chain Matrix was trialled in three cities in 2006-2007, and HM Land Registry planned to apply user feedback and adapt the matrix accordingly. However, Chain Matrix was abandoned after £4.6m had been spent on its trial.

Principle cause of failure - Lack of adoption of this centralised platform, and lack of integration to existing systems resulting in a requirement for ‘double keying’. According to a HMLR employee close to the project, “the biggest problem was the lack of integration between Chain Matrix and solicitors’ individual case management systems. This led to the need for data to be input into both systems separately and the duplication of processes, or ‘double keying’. As a result, any efficiency in time saving was lost.”




VEYO: a UK Law Society initiative, 2015 The Law Society, a professional association funded by membership fees from law firms in England and Wales, spent millions of pounds on its Veyo initiative, a failed attempt at introducing mass-market e-conveyancing. The service, due to launch in May 2015, aimed to allow solicitors, Buyers, lenders and estate agents to monitor transactions in real-time, speeding up the conveyancing process by allowing solicitors to upload and amend documents securely online (Pickford, 2015) 3 . Despite recognising a need for critical mass and offering increased transparency and trust, the scheme was later scrapped. What this highly anticipated product offering had failed to consider was the emergence of alternative software providers who were able to both outperform and undercut VEYO.

“Part of the reason [for VEYO’s failure] is due to a change in the market, with other software providers having been better able to respond to firm’s needs and the rising cost of VEYO outweighing the benefits … there was a lack of clarity in regard to the integration with search providers, HMRC and mortgage lender approval of the project. “

Principle cause of failure - Centralised system which failed to integrate with existing systems “As it stood in the first phase, only Conveyancers had access to the portal, with no other agencies being integrated, meaning practitioners still have to juggle their case management system, HMLR’s portal, and

search providers’ databases …. nothing was in one place.” (Solomons, 2016)” 4.

PEXA a Centralised Success and Monopoly To say that all attempts to create a centralised platform for property markets have failed would be incorrect and probably the most notable success is PEXA in Australia. The PEXA platform with a government mandate has gained mass adoption. However, as has been the case with many centralised platforms, what is initially a positive for the market can become a negative, and over recent years there have been many stories printed on how market participants are increasingly uncomfortable with PEXA’s monopoly status in Australia’s property industry. It is against this backdrop that Sympli, a venture owned by InfoTrack and the Australian Stock Exchange, was recently launched as a competitor Electronic Lodgement Network Operator (ELNO).




A movement away from centralised platformsMore broadly customers are beginning to push back against the huge centralised monopoly platforms. Customers are beginning to question if they really want all services provided by amazon, if they want to live in a monochrome monopolistic world, where everything for estate agency, legal, finance, search, survey, insurance and other services are all provided and controlled by one provider or do they want choice?

Whilst not advocating a consumer lead consortium for property buying and selling, there is a lot that can be learned from ‘Platform co-operatives – solving the capital conundrum’ by Simon Borkin February 2019 8

“Today, more and more people manage their work and resources through digital platforms that offer boundless flexibility and independence. However, they can also be exploitative and monopolistic, owned largely by a small number of Big Tech corporations which enable the precarious gig economy, exacerbate systemic inequalities and facilitate data surveillance and data capture. The dominance of this form of platform capitalism, as well as the network effects created, means it is hard to see anything beyond this prevailing model. However, this must be challenged because other futures are possible – platform co-operativism is a network of trading businesses that might look and feel like the established Big Tech platforms, but are democratically controlled and collectively owned”

IPN is forming a consortium to design such a solution for the property industry.



SOLUTION AS A DECENTRALISED CONSORTIUM PLATFORM It is well established that a single centralised platform for the industry could solve many of the problems identified above, however we also know that many attempts to create such a platform have failed. But what if the same, or even greater benefits, could be achieved by simply connecting all the players in the marketplace on a decentralised network? What if there was a network that enabled market participants to share transaction specific information from their internal systems with other participants in the marketplace, and to bind the information in their systems with the corresponding information in the other parties’ systems so they always stayed in sync? What if this network enabled not only the sharing of information and documentation, but also facilitated the exchange of digital titles and payments such as purchase monies, fees and taxes?

The Instant Property Network is a Reference Implementation of such a network, a digitally native marketplace, a marketplace where participants can join up their business processes and transact directly enabling the removal of much of the friction, cost and delays in the current market.

TECHNICAL SOLUTION A paper in 2018 called Blockchain and Property - At The Beginning of the End, by J. Michael Graglia and Christopher Mellon introduces ‘a framework for blockchain-registry adoption’ 5, describes 8 levels for blockchain-registry adoption and although we didn’t explicitly use this model, we focused on creating the functionality to enable:

1. Blockchain recording of documents related to the transaction

2. Smart workflow recording progress of a transaction

3. Smart escrow smart contracts used for escrow payment

Implementing this functionality creates the foundation for:

4. Blockchain Registry

5. Disaggregated Rights

6. Fractional Ownership

7. Peer to peer transactions

8. Blockchain Interoperability

DECENTRALISED SOLUTION

Instant Property Business Network - Governance, Standards, Business Logic

INSTANTESTATE

INSTANTSURVEY

INSTANTINSURE

INSTANTTAX

INSTANTESCROW

INSTANTREGULATE

INSTANTTITLE

INSTANTLEGAL

INSTANTMORTGAGE




Standard Process The starting point is that all participants on the network agree to follow a standard set of shared business processes through the high-level value chain. In the same way organisations in the 1980s organised around the business value chain, participants in the marketplace organise their shared business process and reporting around a common property value chain.

Transaction DashboardThis common standard enables process transparency for both businesses and consumers on a per transaction basis, with all participants having a common real-time view of transaction status. Unlike a centralised platform, this is a decentralised dashboard created from the shared information within each of the participating organisations’ databases.

Smart Property RecordAt the heart of the network is the Smart Property Record, the digital twin for the physical asset. As this is a B2B marketplace, we envisage Estate Agents making this service available to their clients.

The Smart Property Record is analogous in many ways to the ‘property log book’, or ‘passport’ that the UK Ministry of Housing Communities and Local Government has committed to exploring, or the e-Home Report 6 that the UK Association of Conveyancers solution to providing property

Stage 1Prepare

Stage 2Offer

Stage 3Due Diligence

Stage 4Exchange

Stage 5Settlement




information earlier in the process. Smart Property Record has, however, some unique features that go beyond a simple passport or home report: it is a unique digital record created by the home owner and then passed around the ecosystem to enable marketplace participants to provide services against the record, e.g. a Search Service provider can add information to the record like the environmental searches, a Surveyor can attest to the value of the property or indeed a gas company could confirm that they had installed a new heating system.

An identical copy of the record is shared with those who the home owner decides to share it with, so everyone is always looking at the same data, it is time-stamped as every piece of information is added and it is tamper-evident so if the owner changes data entered by a 3rd party, either accidentally or maliciously, it will be evident to anyone viewing the record.

Having a Smart Property Record for a residential property would remove a significant amount of pain during both the offer and due diligence phase of the value chain.

The value of a Property Passport was also noted by the Oxford University Report ‘The Future of Real Estate Transactions’ 2, which states “Many of the identified blockages in the commercial conveyancing process surround the lack of openly accessible information concerning a particular piece of property… However, the most innovative, and therefore most challenging, of ideas has come from companies taking a more comprehensive approach to the due diligence process, attempting to create property passports.”

THE CHOSEN TECHNOLOGYThe IPN solution was built on R3’s Corda, the world’s leading financial services distributed ledger platform.

Corda is an open source blockchain and smart contract platform. Unlike earlier blockchain platforms, Corda is designed ‘from the ground up’ for business. Corda’s smart contracts enable privacy and finality across any agreement or asset

type. Corda is the only platform that allows the building of interoperable blockchain networks that transact in strict privacy, directly and with value.

The key differentiator of Corda’s platform is its ability to address business transaction requirements through a series of architectural elements making it the first distributed ledger capable of business transactions:

• Point-to-point architecture

• Pluggable consensus

• A multilateral ledger

This architecture has enabled Corda to address business opportunities that earlier posed as hinderances to blockchain adoption. Corda is the only platform that offers:

• Privacy of transactions

• Transaction finality

• Legally identified parties

• Ability to scale

• Developer productivity and enterprise integration

In addition to driving efficient transactions, another popular use case for Corda is the improvement of internal processes and systems.

The immutable and linked nature of the records stored by Corda can streamline auditing processes by ensuring the transparency and validity of information both within and between organizations. This global, shared set of verifiable facts enables participating organisations to:

• Automate auditing of records with the linked and immutable nature of the ledger

• Profile risk based on shared data sets for greater confidence

• Replace internal processes and systems with dramatically simplified processes



TRIAL FINDINGS

In March 2019, IPN Group collaborated with 40 organisations across 23 countries, spanning 5 continents to test Instant Property Network, the world’s first distributed ledger-based property marketplace.

• The trial was run over 50 nodes deployed on the network with an additional 20 test nodes. The first transaction conducted in the trial took just 36 mins from start to finish, thus proving that that when participants work together in a collaborative way, the process can really become smarter, simpler and faster.

• The nodes were deployed on Microsoft Azure, which is a cloud computing service created by Microsoft for building, testing, deploying, and managing applications and services through Microsoft-managed data centers.

• Over 200 professionals from market leading organisations in the UK and in the global property market, participated in the trial.

• Organisations included Ashurst, Baker McKenzie, Barclays, Clifford Chance, AXA XL, Even Construction, Royal Bank of Scotland, Raiffeisen Bank International, Commerz Real, SBI Nihon SSI, SBI Holdings, BBVA, Search Acumen, Shieldpay, Squire Patton Boggs, Davivienda, Swiss Re and SiriVentures .

• The list of participants also included several public sector organisations like land registries and Tax Offices.

• The network spread across the following countries Argentina, Australia, Austria, Brazil, Canada, Colombia, Cyprus, Czech Republic, Germany, Greece, India, Ireland, Italy, Japan, Netherlands, Singapore, Slovakia, Spain, Sweden, Switzerland, Thailand, United Kingdom, United States.



Coordinating multiple players in a simple, secure and transparent workflow has the potential to reduce by orders of magnitude the time and resources required in a traditional Real Estate transaction

- Even Construction

Benefits

During the trial, participants completed a survey. ‘Respondents’ provided strong validation that Instant Property Network would speed up transaction times.

93% of respondents believed that IPN, in time, could enable the average transaction time to be reduced from 3 months to approximately one week and, in time, 100% believed IPN would deliver faster sales cycles, with fewer deals falling through, resulting in more revenue.

This survey result was reinforced by consistent verbal feedback from participants.

Consumer Hypothesis, Benefits and InsightsHypothesisProperty Sellers want to decrease the time taken to sell their home, have greater visibility and transparency of the end-to-end process, reduce the likelihood of an in-progress sale falling through and know the status of the overall chain. In the longer term, property Sellers will want to be able to release equity quickly through fractional ownership.Property Buyers want to decrease the time taken to buy their home, have greater visibility and transparency of the end-to-end process, reduce the likelihood of an in-progress sale falling through, and know the status of the overall chain. In the longer term, property Buyers will want to be able to climb the property ladder through fractional ownership.Achievement would deliver benefits of reduced ‘time to sale’ from months to weeks and increased transparency in the sales process end-to-end.

TRIAL FINDINGS

InsightsSome insights and considerations gained throughout the trial process are set out below:

It is highly likely that Buyers and Sellers will become network participants, adding a business to customer or B2C element, not least for the purpose of signing or approving documentation at ‘exchange’ and ‘completion’ – there will be a technical design consideration in solutioning this.

The extent to which the Buyer might wish to turn to insurance in order to buy reliance on the property data, and the capability to purchase such insurance in an integrated manner.

The optimum approach to

terminate a transaction in the event of a Buyer or Seller not wishing to complete the transaction – at any point in the process.

In the event of a Buyer’s change of circumstances, such as being made unemployed, how might participants in the process be advised and to what end.



The trial has demonstrated a genuine use case for this revolutionary technology and will undoubtedly facilitate the development of entirely new products and services that will

significantly improve the property buying and selling process for our clients across our global network

- Squire Patton Boggs

TRIAL FINDINGS

Business Benefits 85% of respondents believe they would see their organisation using an application like IPN and operating within a transparent, joined-up B2B marketplace with their peers within a 3 year timeframe.

There was evidently a strong appetite within the industry to collaborate as captured

by John Danahy from Squire Patton Boggs “The Instant Property Network is a potential game changer for the real estate industry globally. The IPN trial has shown significant industry

demand for a platform that has the potential to transform the conveyancing process. For the first time we are developing a common platform that delivers unprecedented transparency, a unique Smart Property Record and data immutability that only distributed ledger technology can provide. The trial has demonstrated a genuine use case for this revolutionary technology and will undoubtedly facilitate

the development of entirely new products and services that will, significantly improve the property buying and selling process for our clients across our global network”.

Does each party in the process need to perform its own KYC and AML where appropriate, or can a party rely on KYC / AML already conducted by a party to the transaction.

Data reliance insurance integration - to what extent might the Buyer wish to turn to insurance in order to buy reliance on the property data, supported by the capability

to purchase such insurance directly through the network.



Benefits of a Step Change in Inter-Organisational Process Maturity The challenge the property marketplace faces today is similar to the challenges that organisations faced prior to the wave of Business Process re-engineering (BPR) enabled by Enterprise Resource Management (ERP) Systems.

During the 1970s and 1980s, organisations invested in computer software to optimise departments or functions such as HR, Finance, or Procurement. Whilst these systems brought automation and efficiencies within the individual function, they resulted in data islands and a lack of joined up processes across the organisation.

In the 1990s, ERP solutions were proposed to solve these problems and many sceptics said it was impossible to join up Finance and HR as they are completely different. ERP systems proved it was possible and solved the problem of organisational data and process silos enabling ‘joined up’ business processes across the organisation’s value chain, making the entire organisation more efficient and effective and laying a foundation for new customer value propositions. Whilst ERP has brought tremendous value within individual organisations, optimisations have largely stopped at the organisational boundary.

Distributed applications represent the next wave

of value creation, presenting the opportunity to do to marketplaces what BPR and ERP did for organisations.

Market level optimisation requires careful consideration of the interactions between organisations within the marketplace, both now, and in the future.

During the end-to-end property value chain, the process oscillates from highly optimised internal organisation processes to ad-hoc inter-organisational processes. This creates friction, cost, risk and delays, requiring individual heroics to manage the inter-organisational friction. These heroics are stressful and frustrating for organisations’ employees and customers alike.

TRIAL FINDINGS



Driving up the maturity of inter-organisational process from initial to defined and managed represents a $160bn opportunity and in UK mortgage origination alone it represents a £200m opportunity; the instant property trial demonstrated how level 4 capability could be achieved across 40 organisations at global scale.

The maturity levels as characterised below can be achieved by a systematic approach to definition, measurement and optimisation of work flows between marketplace participants.

Level 1 - Initial - chaotic, ad hoc, individual heroics - the starting point for use of a new or undocumented repeat process

Level 2 – Managed - the process is at least documented sufficiently such that repeating the same steps may be attempted

Level 3 - Defined - the process is defined / confirmed as a standard business process

Level 4 - Quantitively Managed - the process is quantitatively managed in accordance with agreed-upon metrics

Level 5 - Optimising - efficient process management includes deliberate process optimisation and improvement

Our mental model, therefore, in designing the Instant Property Network was to consider the end-to-end property value chain (prepare, offer, due diligence, exchange and settlement) in very much the same way as BPR focused on the analysis and design of workflows and business processes within an organisation, aiming to fundamentally rethink how they do their work in order to dramatically improve customer service,

cut operational costs, and become w o r l d - c l a s s c o m p e t i t o r s . We aimed to f u n d a m e n t a l l y rethink how the m a r k e t p l a c e processes work, in order to enable businesses within the marketplace to create an o r c h e s t r a t e d property buying and selling journey that delights c u s t o m e r s , e n a b l e s businesses to cut operational costs and risks, is endorsed by regulators while creating new innovative services.

TRIAL FINDINGS

Focus on process improvement

Processes measured and controlled

Processes are characterised and is proactive

Processes characterised for projects and is often reactive

Processes unpredictable, poorly controlled and reactive



TRIAL FEEDBACK

Benefits

All participants commended the operation of the system dashboard, providing an ‘at a glance’ view of transaction status.

100% of respondents believed that, over time, IPN could reduce costs, reduce exposure to fraud and increase revenues. 75% of respondents believe this was achievable in the near-term.


The IPN Group learned that, even with the shared platform, transactions benefited from end-to-end orchestration, a little like a service desk service checking transactions and following up with participants to complete an action. This might potentially be a new role for Estate Agents, which could move them to the position of ‘trusted advisor to the customer’, enabled by having the end-to-end process oversight

The Estate Agent is the gate keeper to the property buy / sell process, has a direct relationship with the customer and is trusted to safeguard the consumer’s data and privacy - keeping local data ownership and controlling the access to such data on a per transaction basis is a pivotal requirement.

As gate keepers, Estate Agents need a simple process to identify and engage participants other than the Seller. Consideration should also be given to circumstances where some participants are on and some are off-network.

Although Estate Agents are the most likely originators of a Smart Property Record, the accuracy would need to be verified by the Sellers and therefore be editable. Verification of basic property details could be semi-automated through use

of, for example, Royal Mail and Land Registry records. This must also be capable of change to ensure formatting or other errors in those public records can be overwritten if they don’t match - Note that the Land Registry description of the property can be different from the postal address.

A number of participants in the transaction process can be auto-selected, such as Tax office and Land Registry. However, others may not be part of the transaction as there may be no outgoing mortgage company, and Buyers may fund in cash so no incoming bank. Estate agents may not know this up-front, so provision needs to be made to revisit fields as the transaction unfolds.

The creation of sales contracts needs to be dynamic and incentivise the users to stay

Estate Agent Hypothesis, Benefits and InsightsHypothesisReal Estate Agents wanted to reduce the time it takes for an end-to-end sales process so that more sales complete, improving revenue and profit. The need to reduce operating costs as margins are under pressure, and explore new market opportunities through fractional ownership.Achievement would deliver benefits of faster sales cycles, fewer lapsed deals and increased Customer Service and trust with better customer transparency.



IPN has given us our best view yet of what a future end-to-end journey could look like.

- Royal Bank of Scotland

TRIAL FEEDBACK

Benefits100% of participants believe that IPN, in time, could reduce mortgage back office costs and speed up the process.

Significant opportunity exists to both constrain and reduce the costs associated with running mortgage factories.

In addition to traditional property sales, re-mortgaging is big business and IPN could provide a streamlined process to deliver benefits to re-mortgage transaction participants.

The Royal Bank of Scotland commented “What has made a real difference here is that R3 has brought representatives of all the key parties involved in the process together, so as a result we can see the potential for a network of this kind to improve transparency and speed for customers, and reduce cost and complexity for all involved.”

Lender Hypothesis, Benefits and InsightsHypothesisMortgage Lenders wanted to reduce the operating costs associated with approvals in principle and full mortgage offers, improve the speed of completing property due diligence and finalising mortgage offers and reduce the risks and costs associated with settlement. In the longer term, Lenders would engage in micro lending services through fractional ownership.Achievement would deliver benefits of reduced operating costs associated with approvals in principle and full mortgage offers and improve the speed of completing property due diligence and finalising mortgage offers.


Affordability testing and validation requires substantial Lender activity. Consideration is required as to what extent this should be ‘on or off IPN’.

Details regarding the source of funds need to be provided, with particular regard to the source of additional (non-mortgage) monies – the Buyer needs to demonstrate where the funds are coming from.

Product design needs to deliver an optimum method for linking the Estate Agent to a known Lender, and to the Buyer.

The validity period for any approval in principle or full mortgage offer could be used to flag where, for example, exchange is after the mortgage offer expires and notify the Buyer that their mortgage offer is expiring and an extension should be applied for.

Functionality and business logic in support of outgoing mortgages requires careful consideration.



TRIAL FEEDBACK

This type of innovative, integrated solution addresses the great potential to improve the

property Buyer’s experience

- SwissRE

BenefitsA key recommendation within the Association of Conveyancers 6 report on the home buying process was to focus on bringing forward a binding commitment to the sale in process. They believed that a property passport or Smart Property Record containing information that could be relied on (enabled by insurance) could allow Buyers to make a binding commitment as the caveat emptor risk is mitigated.

Swiss RE commented “Insurance customers could benefit from easy purchasing, whilst insurers increase data quality, improving the accuracy of underwriting and risk services”.

SBI Nihon SSI commented “IPN has great potential to improve numerous industries because it involves so many businesses, including governmental authorities. From the view of the insurance sector, we fully understood this opportunity and the need to accept blockchain technology.”

Insurance Hypothesis, Benefits and InsightsHypothesisInsurers wanted to able to provide more refined products based on the Smart Property Record, move towards providing real-time insurance quotes and reduce the operating costs associated with providing their services. In the longer term, Insurers would explore new market opportunities in offering Micro Insurance services through fractional ownership.Achievement would deliver benefits of new innovative services, reduced risk and real-time insurance product commencement; and access to innovative products automatically commencing on exchange of contracts.


IPN identified that insurance providers were always looking for innovative new products and demonstrated how the Smart Property Record could be created by the estate agent, validated by the Conveyancers and search services and then passed to the insurance node to insure the property, or similarly, interrogate the record and verify of the entries in the record.

From a Conveyancer’s perspective, for the sale of flats, buildings insurance is not procured by the Buyer, so evidence is required that such insurance is in place necessitating integration to an insurance node / network.



TRIAL FEEDBACK

Benefits100% of respondents believed that IPN, in time, will reduce costs, increase revenues and reduce exposure to fraud, and that legal contracts on ledger will help speed up the process.

Conveyancers sit in the middle of the property value chain; in many respects they are the data and financial aggregators who collect in all the information and funds and distribute.

A system that makes it easier for Conveyancers to interact with all parts of the value chain, removes friction and automates low level tasks will help Conveyancers reduce costs and increase transaction times. Feedback from Conveyancers on the trial was that the ability to see the entire transaction and the status of each involved party was hugely powerful and meant they were no longer ‘flying blind’ as they knew exactly the status of each activity and more importantly knew that everyone from the lender, estate agent and counterparty Conveyancer all agreed on the current status and next steps.

In terms of flow of funds, the smart escrow or settlement node allowed funds to flow between the Buyer and the Seller based on the rules of the smart contract, removed risk and operational overhead from the conveyancing process.

Conveyancer Hypothesis, Benefits and InsightsHypothesisLegal firms want to reduce the operational / processing costs, the risk of fraud, provide new automated digital services, and reduce the burden and risk of handling deposits and money. In the longer term, legal firms would explore new services lines in micro conveyancing associated with fractional ownership.Achievement would deliver benefits of reduced costs and increased revenues, reduced exposure to fraud and greater level of certainty leading to an improved customer experience.


The systemised contract template available for the parties to use would need to be sufficiently flexible to enable negotiation on an ongoing basis. Simple upload and download services are unlikely to work as Conveyancers would likely take the process offline circumventing the process and undermine the benefits of transparency.

With respect to the automated generation of a completion statement, provision should be made for Buyers’ and Sellers’ Conveyancers to each separately include additional items to the sale of the property (both for residential and commercial sales), with the option of including / excluding such items for the calculation of applicable taxes, including Stamp Duty Land Tax (SDLT).

Conveyancers await feedback from the Law Commission as to whether legislation is required to confirm deeds can be executed electronically. And, if so, what the formal requirements might be.

Creation of any offer must be marked “SUBJECT TO CONTRACT” to prevent the terms agreed becoming binding at that point.

The Seller should confirm nobody other than the Seller is in occupation of the property being transacted as, if tenants occupy the property, there needs to be a process for enabling tenants to waive any rights.



This has far reaching potential to turn the entire home buying and selling process on its

head, forever.

- Search Acumen

TRIAL FEEDBACK

Benefits100% of respondents believed that IPN, in time, could enable a faster quality-assured service by appending results to a smart property record.

Search Acumen commented “We’re excited to be the first land and property data provider taking part in the Instant Property Network’s (IPN) distributed ledger technology (DLT) trial. DLT has been an industry buzz word for some time now, and it’s great to be part of an international team of like-minded PropTech businesses who are putting that word into meaningful action. The results will help transform the current antiquated transaction process into one that’s modern and technology driven, where information is automatically verified and shared securely. The IPN trial has immense benefits for commercial property lawyers in particular, who want to be on the cutting edge of PropTech for large corporate clients and developers”.

Surveyor/Search Hypothesis, Benefits and InsightsHypothesisSurveyors / Search services want to increase the reuse of data e.g. survey, reduce the operating costs associated with providing their services and provide their services digitally and where possible in a real-time automated way. In the longer term, Surveyors / attesters would explore new market opportunities in offering Micro Survey services through fractional ownership. Achievement would deliver benefits of increased revenue opportunities through the provision of new innovative services, and faster, quality-assured search results appended to the Smart Property Record.


The Smart Property Record could be dynamic, essentially maintained in real-time with search and data updates ‘pushed’ from a search data provider as part of a service of maintenance agreement.

Similar to the above, a commercial property equivalent would benefit from data updates pushed from a service provider.



TRIAL FEEDBACK

BenefitsAutomated data verification features native to Corda DLT could be leveraged to significantly reduce data entry input errors.

Over 60% of participants believe IPN could reduce the cost of confirming and validating requests to change the register and 70% that the speed of register update would be increased, and the risk of fraud reduced.

In identifying participants in the process Land Registry can be auto selected.

Insights Some insights and considerations gained throughout the trial process are set out below:

Perhaps more important in some jurisdictions than others, from an end-to-end process perspective, the Land Registry principally participates at the end by completing registration. A token does not need to be created but a title number does need to be identified. This could be via a link to the Land Registry mapping service which the agent could use to identify the correct title when creating the Smart Property Record.

The Seller’s details could be matched to the Registered Proprietor details on the register as an initial fraud tag, augmented by querying the postal address database to view activity of interest such as recent change of name or forwarding address.

KYC and AML solutioning needs to consider aspects including (i) professional participants to the transaction and their evidential requirements and (ii) the end users. For the latter, attestation / compliance will need to be quick and convenient. The risks arising from time delays is a consideration in this regard as initial reporting of issues may not reach the Buyer / Seller quickly if identity verification is ongoing.

Any restrictions on title should be identified from the title at the Land Registry so that parties needing to consent to the transfer can be included for the purpose of confirming their consent to the transaction or the release of their restriction (Note - this could be a Trustee in Bankruptcy or Building Management Company).

Land Registry Hypothesis, Benefits and InsightsHypothesisLand Registries want to reduce the operating costs associated with providing their services, reduce the risk of fraud ensuring the integrity of the register and reduce the gap between contract and title exchange. In the longer term, they envisage fractional ownership will make property more affordable and liquid.Achievement would deliver benefits of reduced cost of confirming and validating requests to change the register, and increased speed of register updates with reduced risk of fraud.



IPN have managed to bring together over 40 impressive and key stakeholders to the home buying process from around the world to engage in an open and collaborative manner at proof of

concept stage

TRIAL FEEDBACK

BenefitsThe UK settlement service provider, Shieldpay commented, “This gives us great hope for what the proof of value stage will achieve. Shieldpay is excited to continue working alongside IPN and other stakeholders to bring to reality a piece of innovation that could have a significant impact on how property is bought and sold worldwide going forward. Shieldpay’s involvement in this project has allowed us to demonstrate the versatility of our instant digital escrow solution to bring efficiency and transparency to any transaction and builds well upon what we have built and intend to build.”

Smart Escrow (Settlement) Hypothesis, Benefits and InsightsHypothesisSettlement Services want to reduce the risk of participants transferring funds in a siloed way and bring together a seamless way to settle funds, contracts and title all in one process.Achievement of this would deliver a more streamlined clearance process which will reduce delays of payment and transfer title and funds all in one atomic transfer.

InsightsSome insight and considerations gained throughout the trial process are set out below:

Deposit money movement requires integration into the process such that the parties can confirm the deposit is with the settlement agent before exchange.



TRIAL FEEDBACK

Benefits

50% of respondents believed IPN could enable a greater certainty of compliance in the short term, rising to 100% overtime.

The automatic settlement of stamp duty successfully evidenced during the Trial proved the ability of Corda to enable business process automation, data synchronisation and real-time settlement of payments.

This technology could be used by Tax Offices in collaboration with participants within the tax ecosystem to enable ‘tax in real-time’ – for example, the automated real-time reconciliation,

validation and processing of stamp duty, capital gains, VAT and income tax processes.

Tax offices around the globe could leverage the unique features of Corda to support the modernisation of domestic tax systems to make it more effective, efficient and easier for customers to achieve compliance with the prospect of

materially increasing annual tax revenues whilst reducing the costs of administration and compliance.


The challenge for Tax Offices is that the data required to validate tax liabilities resides in siloed data stores, maintained independently by different public and private sector organisations. Collation, reconciliation and validation of data from multiple sources is expensive, time-consuming and prone to manipulation and inaccuracies.

Calculating tax liabilities relies on information from multiple 3rd parties. Stamp Duty, Capital Gains, VAT and Income Tax all rely on multiple data sources.

With respect to the automated generation of a completion statement, careful consideration would be required from an SDLT perspective to ensure appropriate accounting for other items included in the sale (curtains and carpets for example) and appropriate application of tax. This will be a complex area of rule building, with the template being self-generated with standard information but include fields for the buyer or seller’s Conveyancer to add in additional items.

In identifying participants in the process, Tax office can be auto selected.

Tax Office Hypothesis, Benefits and InsightsHypothesisDomestic Tax Offices want to reduce the operating costs associated with providing their services, increase tax compliance and reduce the costs of enforcement. In the longer term, they aspire to real-time taxation and being able to track taxation on micro transactions resulting from fractional ownership.Achievement would deliver benefits of reduced costs, increased tax yield and certainty of tax compliance.



TRIAL FEEDBACK

BenefitsDeploying facts to regulator node - Although not deployed in the trial the prototype regulator functionality is for participant nodes to be able to tag certain “facts” for sending to the regulatory e.g. when an AML check is complete that is automatically declared to the regulator node.

Stopping non-conformance – Smart contracts can also be designed to require certain actions prior to progressing. Using the AML example again the smart contract could be set-up to prevent a transaction completing unless a set of nodes on the network confirmed they have satisfied AML check requirements.

Insights IPN can deliver a step-change increase in regulatory oversight and reporting, enabling real-time regulatory compliance, supporting case management, selective filtering / monitoring, trending and reporting.

Regulator Hypothesis, Benefits and InsightsHypothesisThe IPN hypothesis was that Regulators want immutable data upon which to make decisions and to reduce the cost and effort associated with compliance checks and enforcement.Achievement would deliver benefits of real-time market information, and assured, attested to and auditable data.



BuyerSeller

The customer doesn’t want a mortgage, to view properties, to get insurance, to sign a contract etc… they want to buy a new home. How might business

collaborate to orchestrate a seamless home buying experience?

INSTANTESTATE

INSTANTSURVEY

INSTANTINSURE

INSTANTTAX

INSTANTESCROW

INSTANTREGULATE

INSTANTTITLE

INSTANTLEGAL

INSTANTMORTGAGE


Tim Robustelli from New America, Future of Property Rights Program published a paper based on researching a wide range of Real Estate DLT projects, entitled ‘Evaluating the Hype The Current Potential of Blockchain for Land Registries’ 7 where he identified 4 key success factors for projects:

1. Get the right people involved

2. Identify the problem you are trying to solve

3. Be realistic about your expectations

4. Make sure your solution can scale

This Global trial has demonstrated that these four elements are key to success and that the following significant opportunities exit:

Better Customer Experience The core value proposition of IPN is that market participants can join up their services and create a seamless end-to-end customer journey, which IPN Group call ‘orchestrated experiences’.

Organisations in the property market have a significant opportunity to step beyond coordinating the experiences within their control,

to collaborate with other market participants to create joined up orchestrated experiences for their shared customers. Businesses that do this will enhance their brand reputation and increase market share, as customers move to those organisations that can collectively offer a seamless experience.

Significant Opportunity for Costs Reduction

Distributed applications represent the next wave of value creation, presenting the opportunity to do to marketplaces what BPR and ERP did for organisations.

For market-level optimisation to be achieved, there needs to be careful consideration of the interactions between organisations within the marketplace, both now, and in the future.

During the end-to-end property value chain the process oscillates between highly optimised internal organisation processes to ad-hoc inter-organisational processes. This creates friction, cost, risk and delays, requiring individual heroics to manage the inter-organisational friction. These heroics are stressful and frustrating for organisations’ employees and customers alike.

Driving up the maturity of inter-organisation process from initial to defined and managed as illustrated in section 3.2.3 (Market-level Optimisation), represents a $160bn global opportunity. In UK mortgage origination alone, it represents in excess of a £200m opportunity; the Instant Property trial demonstrated how level 4 maturity (Quantitively Managed) could be achieved across 40 organisations at global scale.

The starting point is that all participants on the network agree to follow a standard set of shared business processes through the high-level value chain.

This common standard enables process transparency for both business and consumers on a per transaction basis, with all participants having a common real-time view of transaction

CONCLUSION



status. Unlike a centralised platform, this is a decentralised dashboard created from the shared information within each of the participating organisations’ databases.

Benefits of Centralised Platform without giving up Control R3’s Corda was developed specifically for transaction banking to provide smart contracts that allow parties to better manage agreements, and to reduce costs and risk in trade.

As opposed to the bitcoin blockchain, Corda is a shared ledger, which is designed to give participants more control over confidential and proprietary information.

With its unique approach to data privacy and security and more fully illustrated on page 15 (The Chosen Technology), data in a transaction is by default only shared with those parties to a transaction, enabling unprecedented levels of security and scalability making it the only appropriate DLT solution for regulated business marketplaces and government agencies.

Each of the participants within the property marketplace is entrusted with their customers’ data and they will want to keep it safe and own

that customer relationship, Corda is key to enabling participants to transact securely without compromising on data ownership and without risk of data commercialisation – a growing problem within centralised systems.

Regulatory Compliance From a regulatory standpoint, there is one single source of truth - “facts”, and these facts can be shared with the regulator for real time compliance reporting. Also smart contracts can be written to stop non-conformance and therefore make it a requirement to abide by a set of governing rules.

CONCLUSION



In the News Since the trial ended there has been significant industry and media interest including;

https://www.bloomberg.com/news/articles/2019-04-04/barclays-rbs-join-blockchain-trial-to-speed-property-sales

https://www.mortgagefinancegazette.com/fintech/new-platform-aims-cut-property-transaction-time-months-04-04-2019/

https://www.propertyweek.com/news/startup-completes-first-end-to-end-international-real-estate-blockchain-trial/5102192.article?adredir=1

https://www.showhouse.co.uk/news/new-platform-slashes-property-transaction-time-from-months-to-weeks/

https://www.legalfutures.co.uk/latest-news/blockchain-trial-has-potential-to-transform-property-market

https://propertyindustryeye.com/blockchain-trial-claims-property-transaction-process-can-be-cut-from-three-months-to-three-weeks/

Contact Details Instant Property Network is expanding its membership and participation post trial for further information contact [email protected]

CONCLUSION





mailto:mark.adams%40ipngroup.com?subject=IPN%20-%20Proof%20of%20Value



1. Improving the home buying and selling process (MHCLG) - https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/697939/Improving_the_home_buying_and_selling_process_response.pdf

2. University of Oxford Research Report ‘The Future of Real Estate Transactions’ - https://www.sbs.ox.ac.uk/sites/default/files/2019-03/FoRET-ReportFull_1.pdf

3. Lawyers pledge to speed up conveyancing: New website to bring more visibility to buying process. - The Financial Times Online, 13 February, Pickford, 2015

4. Paperless Conveyancing: The Rise and Fall of Veyo. Solomons Solicitors, 29 January, 2016

5. Blockchain and Property at the beginning of the end - by J. Michael Graglia and Christopher Mellon

6. Modernising the Home Moving Process - Conveyancing Association - http://www.conveyancingassociation.org.uk/wp-content/uploads/2016/11/Modernising-the-Home-Moving-Process-White-Paper1.pdf

7. Evaluating the Hype The Current Potential of Blockchain for Land Registries, Tim Robustelli - https://www.newamerica.org/future-property-rights/reports/evaluating-hype/

8. Platform co-operatives – solving the capital conundrum, by Simon Borkin February 2019 - https://www.uk.coop/sites/default/files/uploads/attachments/nesta_platform_report_final-web.pdf

9. Internet of Public Value - https://medium.com/corda/the-internet-of-public-value-de2938598fa8

10. British Blockchain Association Journal - https://jbba.scholasticahq.com/article/3708-the-internet-of-public-value

11. Digital Marketplace - https://www.digitalmarketplace.service.gov.uk/digital-outcomes-and-specialists/opportunities/6621

12. “Exploring Liquidity: recent survey findings.” Paper to the 7th Investment Property Databank Conference, Brighton. McNamara (1998)

13. House of Commons Library. Briefing Paper 06980 - Improving the home buying and selling process in England. by Hannah Cromarty & Laura Abreu. 27 February 2019

14. Improving the home buying and selling process in England - http://researchbriefings.files.parliament.uk/documents/SN06980/SN06980.pdf

15. Which Report - https://www.which.co.uk/news/2016/06/three-in-10-property-purchases-fall-through-442589/

16. Savills - https://www.savills.co.uk/blog/article/216300/residential-property/how-much-is-the-world-worth.aspx

17. Internet of Public Value - https://medium.com/corda/the-internet-of-public-value-de2938598fa8

18. British Blockchain Association Journal - https://jbba.scholasticahq.com/article/3708-the-internet-of-public-value

19. Digital Marketplace - https://www.digitalmarketplace.service.gov.uk/digital-outcomes-and-specialists/opportunities/6621

REFERENCES

Business Design CentreUnit 114 A,

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Mark AdamsPhone +44 7957 842781

Email: [email protected]

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Documents

TRANSFORMING THE REAL ESTATE VALUE CHAIN · Real Estate Agents wanted to reduce the time it takes for an end-to-end sales process so that more sales complete, improving revenue and