Embracing new technology in Norwegian real estate
Introduction
The real estate industry is undergoing a digital transformation. Digitization is pushing its way into all phases of the property life-cycle, and into the surroundings and infrastructure around the property right up to urban development.
The proptech wave affects all businesses in real estate. 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, ownership of data and monitoring of portable technology, to planning and building law requirements. New models for transactions and financing can provide smoother processes, but also legal issues around licenses and permits for lending for the implementation of automatic and smart contracts, and related issues when introducing solutions based on blockchain technology.
Digitalization
Last year, the government presented Norway's first report to the Norwegian Parliament on data-driven economy and innovation. The report highlights that data as a resource, whether it’s data volumes from IoT1 sensors or increased use of AI, will become an important component of Norway's economy in the years ahead. Among other things, the government is focusing on property data being freely available, which can be used to create a digital twin of the whole society. That twin can then be used to create insights, new services and processes. More public datasets will be shared, and the quality of the data will improve. In addition, the government proposes that data related to property matters, which comes from land registration and property registration, be made freely available.
The government’s report points out that in surveys that measure the degree of digitalization, the real estate industry comes out worse overall than several other industries. In all cases, the industry is considered particularly "data-poor," in the sense that there is not yet a lot of operational data accumulated that can provide a basis for big data and algorithm-based solutions and services.
The government wants to contribute to facilitating sustainable consumption, re-use and digitization in the construction, construction and property industries. A collaboration council has been established between the industry and state authorities to promote effective digitization and interaction in the industry.
Big data
An interdisciplinary project group consisting of leading property owners and developers in the country will facilitate the sharing of solutions and expertise on good property management. The work is based on Norwegian and international experience, including the work linked to the EU's strategy Industry 4.0.
The sharing and re-use of data should provide an opportunity for increased innovation in the construction and property industry. Norwegian business could be in a great position to benefit if the potential for data sharing is exploited, not least due to a digitally mature population, good internet access throughout the country and the increased opportunities that come with 5G.
The vast majority of the approx. 4.2 million buildings in Norway were built before the digital age, and there is limited data on the buildings. For newer buildings, many of the data sources are locked up in proprietary tools and the information is unavailable to others. Making data sources available is one of the aims of the project, so the data can be used by the entire industry.
The ambition is a joint solution for data sharing that adds concrete value through higher customer satisfaction, better operating economics, and not least energy-, power- and climate-friendly solutions when operating buildings. In the long term, the aim is that the model can be scaled to the entire 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 operates within a short time.2 A typical example is the conclusion of smart contracts that automate services between parties according to predefined terms without the use of intermediaries. Blockchain will also enable many parties to have simultaneous access to information.
In 2019, OBOS, a leading Norwegian real estate developer, carried out (according to them) the world's first housing sale with blockchain technology. When a shared ownership apartment is sold today, it takes place in several manual processes. And an intermediary is used to ensure trust between the parties. Thus, it can take several months before all the steps have been carried out and the sale is formally in order. The blockchain prototype, however, handles the takeover in one automatic operation and ensures verification of transactions, between people or businesses, without the need for a third party to guarantee security.
According to Statistics Norway, only 1.0% of homes in Oslo can be bought on a nurse's salary.3 Going forward, crypto technology may be one of several measures against increasing inequality in the housing market. Tokenization makes it possible to break up the ownership of a home into small parts. By investing in such small parts, you can catch up with the price development in the market without having the money for a whole house.
It is not the property itself that is being tokenized as it is currently only the land register that provides valid legal protection for ownership and rights in property. What can be tokenized are the shares or shares of a company that owns a property or 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. At present, tokenization of property in Norway is in its early phase. To create efficient real estate markets based on tokens, work must be done from several sides. The digital platforms must be further developed, tokens must be issued that give partial ownership of properties and the authorities must look at the regulations.
For now, the traditional investment objects such as financing platforms or crowdfunding or more traditional vehicles such as real estate investment funds predominate. But there’s every reason to believe that the tokenization of real estate projects is growing and will in the future revolutionize the way real estate is invested. According to the World Economic Forum, as much as 10% of the world's GDP could be stored and transacted via DLT (distributed ledger technology) in five years. It’s estimated that the total value of tokenized assets will amount to USD24 trillion by 2027.4
Risk and regulatory
Financial supervision in different EEA countries has a different regulatory approach to assets based on blockchain technology. To achieve a greater degree of harmony within the EEA area, ensure innovation and address the new risks that come with the new digital services, the Commission presented the Digital Finance Package on 24 September, 2020.
Payment tokens (eg bitcoin) are used as means of payment, for investment purposes or storage of value. This type of token is not issued or supported by any central authority and is also used as a means of payment for other than the publisher's services. In Norway, exchange and storage services for payment tokens are covered by the Norwegian Money Laundering Act.
Investment tokens give rights to return or profit (for example in the form of ownership rights and/or dividends). This type of crypto asset can have many of the same characteristics as traditional shares or derivatives. To raise capital, one can issue digital tokens that give ownership rights or dividends in exchange for money or payment tokens (ICO). In its last annual report Financial Infrastructure5, the Central Bank of Norway points out that the tokenization of shares, bonds, property and other assets may result in a separate class of private digital money (PDP) being issued. These are not intended to be a means of payment, but a store of value that increases in value over time.
The EU Commission considers that investment tokens in particular can qualify as financial instruments as defined in MIFID II. Financial instruments are defined in the directive's Article 4, which has been implemented in Norwegian law through the Securities Trading Act. Transferable securities, money market instruments and shares in collective investment schemes are financial instruments.
Internationally, there’s also an extensive debate about the regulation of crypto assets. A preliminary agreement for the EU's proposed regulation of crypto-asset markets (MiCA - Markets in Crypto Assets) was concluded 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. The Member States are then given until 2024 to implement the regulations.
GDPR
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 Act (which includes the GDPR) places more and stricter requirements on companies' handling of personal data. This applies to both property owners, tenants and service providers. Among other things, there are clear requirements for limiting what the information can be used for, internal control, risk assessments, information security and data processor agreements.
1Internet of Things
2How Blockchain Technology is Changing Real Estate
3En sykepleier kan kjøpe 1 av 100 boliger i Oslo
4HSBC: The 10x Potential of Tokenisation
5Financial Infrastructure Report 2022
