The recent history of the US and EU construction sectors can be summed up in two sentences. First, there was a construction and mortgage boom. Then the boom became a bust, leading to the global financial crisis that began with the bankruptcy of Lehman Brothers 10 years ago.
Since then the global construction market has recovered, reaching $10.6 trillion in 2017. It is currently expected to hit $12.7 trillion by 2022. It could be developing faster, but digital technologies and new investment are badly needed. The lack of each of these has created a crisis of confidence in the last few years.
Now though, the construction sector – that for decades was the backbone of economic growth – is seeing technological adoption to rival some of the most innovative industries. According to Jones Lang LaSalle Inc, in the first half of 2018 investors poured a record-high $1.05 billion into construction-technology startups. It is no longer an option to invest in technology, it’s an imperative, says Jones Lang LaSalle. The construction sector is getting used to 3-D printing, augmented reality, drones and…blockchain.
Using blockchain and smart contracts will help to streamline processes in project development, eliminate the need for intermediaries or third parties, and reduce expenses. Every time a smart contract is fulfilled – the architect has completed his plans and designs, construction workers have built the first (or the last) floor and electricians have installed the necessary infrastructure – the operations are verified by the smart contract itself and the relevant sum of money is transferred automatically from wallet to wallet. The project manager pays only for the work that has been completed and his contractors and sub-contractors receive their wages without delay. Meanwhile there is no paperwork for any party and no need to pay intermediaries to facilitate the necessary transactions.
Blockchain will also help project managers hire better sub-contractors and suppliers, quickly. The market is currently short of sub-contractors, and finding the right ones can delay work from being carried out and increase costs. However, companies whose sub-contractors’ work were to be accounted for daily and paid for instantly would enjoy a competitive advantage. Some sub-contractors may also enjoy receiving tokens for their work, the value of which could increase in future.
A number of organizations are already taking their first steps along this path. For example, the Dubai Land Department (DLD) is implementing a blockchain network to interface with all digital and manual processes across more than 200 combined projects in different stages of development. Blockchain technology should facilitate seamless exchanges between investors, buyers and developers – thereby reducing unnecessary time, effort and financial costs.
In the near to medium term, blockchain will help DLD to eliminate paper documents and introduce smart contracts to secure and simplify property transactions. On a longer time horizon DLD hopes to implement blockchain technology in even more spheres, from selling parking tickets to land & title deeds.
Manhattan has gone even further. The East Village contains 12 condos, and each has been tokenized on the Ethereum blockchain. One of those luxury condos has recently been valued at $30 million. This gives those who cannot afford to buy a luxury condo the opportunity to invest in a small portion of one instead. To do this, investors need to buy a certain amount of tokens, which is much easier than using traditional bank financing. Tokenization is a win-win both for buyer and sellers because it saves them heaps of money and effort, according to managers of the East Village.