The purpose of this paper is to address the integration of a layer-2 blockchain system, built on the Pecu Novus Blockchain Network, into government land registry systems and the integration of a digital tokenization system, as a layer-2 blockchain network, into real estate transactions globally. Putting a spotlight on the inherent issues faced by current processes and systems such as the legal challenges, archaic processes, the complexity of current centralized systems, time constraints and security breaches. FGA Partners has long been an advocate of the use of blockchain technology across all industries, having caused for the development of blockchain enabled systems to enhance security across the communication, financial and commerce sectors. MegaHoot Technologies is developing a blockchain enabled land registry system that any government can use to combat current inefficiencies in current inefficient digital and paper intensive land registry systems.
Transparency International stated that 20 percent of land service users worldwide admitted that they had to pay an incentive in order to register their property or verify land ownership information in certain countries. This reduces the efficiency of service delivery and undermines public trust in the government. Moreover, corrupt officials in an opaque government system can easily leverage their positions to manipulate land title data without risk of detection in a paper intensive or non-blockchain enabled digital system.
According to World Economic Forum, it is estimated that approximately 90 percent of all land in developing countries are “completely” undocumented. Delivering accountable digital land registry systems and particularly increasing validity of land titles is vital for present-day governments in terms of suppressing corruption, eliminating red tape, enhancing transparency, improving speed of the stated public service and eradicating risks of possible disputes. The utilization of the Pecu Novus Network to integrate blockchain technology into current digital system in place and systematically converting paper based systems into digital versions will eventually eradicate land fraud such as land grabbing and various land disputes as it relates to ownership.
We will also outline the value of a blockchain enabled real estate transaction system for commercial use which can work in concert with upgraded land registry systems. This will cause for seamless interaction between all government agencies focused on land registry, the commercial entities in the real estate industry and the general public.
The fundamental attributes of blockchain technology are being leveraged in profound new ways across the financial, government, manufacturing and real estate sectors. It is changing how societies operate, disrupting old archaic processes and creating exciting new possibilities. These attributes present a foundation for value creation, promoting increased investment and providing the potential for significant growth across all industries. Pecu Novus Blockchain Technology provides the technological basis for new avenues of value creation and the disintermediation of legacy systems and processes.
What has evolved over the past two decades are digital payment systems utilizing digital tokens that are layered directly on blockchain technology (layer-1 blockchain systems), which provide transparent, immediate, irreversible and immutable transactions. This has proven that two parties are able to engage in a permissioned or permissionless transaction, over centralized or decentralized platforms, and complete such transactions within seconds or minutes as opposed to hours or in some cases days and weeks. Such layer-1 blockchain systems have the ability to enhance security, speed, and transparency promoting trustless systems that governments, financial industry and the general public can rely on for accuracy and transparency.
Technology has advanced over the years and global markets have widely embraced blockchain technology and digital tokenization across many industries such as the financial industry all the way through to sovereign nations as an alternative to the current archaic systems available today. The integration of blockchain technology and digital tokenization in the real estate and financial industries have streamlined banking and lending services, reduced counterparty risk from fraud and decreased issuance/settlement timelines. It is inevitable that every industry and sovereign nation will be positioning themselves for the future via blockchain technology and digital tokenization.
The integration of blockchain/distributed ledger technology will become essential for government land registry records, record management of real property titles, mortgages / property encumbrances and financial data. Such systems would be held within a bespoke centralized layer-2 blockchain network operated by governments and shared with both financial institutions and the general public as required. Through the utilization of smart contracts, digital signatures and digital documents, property title verification and registration can be made simple, mortgage origination can be streamlined and swift, and the transfer of title can be made immediate at a closing, all of this can be done in a highly secure and immutable way.
This also leads to cost effective and swift processes as it relates to performing due diligence of land records, closing of real estate transactions, verification of identity and much more. The development of bespoke layer-2 blockchain systems for government utility will become crucial for governments to provide accurate and transparent records of real estate transactions, ownership records and financial encumbrances such as mortgages or tax liens. The integration of digital tokenization provides an immutable record of an exchange of value; it provides transparency, swift transactions, prevents fraud and provides governments with an immutable record of such transactions. The addition of the MegaHoot Decentralized Digital Identity System for such transactions promotes the adherence to current and future anti-money laundering “AML” and Know Your Customer “KYC” laws in place.
LAND REGISTRY PROBLEMS AND SOLUTIONS
What has always been done continues to be done; this is one of the biggest problems that arise from adhering to inefficient methods and systems. Many government land registry systems still rely on archaic paper intensive land registry systems. These are inefficient in many ways, its time intensive, costly and not secure. Such systems are not user friendly and do little to combat land disputes and fraud.
A digital National Land Information Management System has been launched in Kenya named “Ardhisasa”. This provides a digital version of the Kenya land registry system which has been mandatory to use in order to complete land transactions. Although a good effort has been put forward, it is still an inefficient system, still requires a high usage of paper documents, inclusion of many people in the process and has done little to promote confidence in Kenya’s land registry system.
An association of 47 banks has raised concerns about the Ardhisasa System available in Nairobi, Kenya, they have cited delayed transactions which according to the association have denied them billions in transactions. The Kenya Bankers Association have joined lawyers, legislators and the public in voicing concerns about the National Land Information Management System and are lobbying for change.
At the moment the Ardhisasa System is only available for properties in the Nairobi region with plans for the Land Ministry to roll out the Ardhisasa system in other counties. This can be disastrous for the government and general public, thus increasing the lack of confidence in the current land registry system, limiting foreign investment due to the lack of transparency and stunting growth. Lawyers in Kenya have cited that the new digital system has had a crippling effect on their real estate related practices, resulting in loss of income and frayed relationships with their clients.
In a memorandum sent to the Cabinet Secretary for Lands and Physical Planning Farida Karoney, Kenyan lawyers are claiming the electronic system has stalled multi-billion-shilling land transactions in Nairobi, arguing it is complicated to use and has been experiencing constant failures.
Through the Law Society of Kenya (LSK) Nairobi branch chairman Eric Theuri, the advocates also say the faulty online portal also has a ripple effect on the banking sector, in respect of ability to advance and secure loans. In a memorandum dated June 22, 2021, Mr Theuri stated that to date no single transaction has been successfully completed in the Ardhisasa system.
Theuri continues by adding that some of the functions on the digital system are not operational such as change of user and it prevents Limited Liability Partnerships (LLP) from registering on the portal, which prevents law firms and real estate firms from utilizing the system. He continues by adding that the digital system is complicated and not user-friendly at all, especially as it relates to the elderly and non-tech savvy clients. According to Theuri his real estate business has suffered in direct relation to these issues.
There issues are not unique to Kenya, it has impacted many countries through out Africa, South America, Europe and more. In South American countries such as Honduras, according to findings, some government officials boldly altered the country’s land ownership database, stealing properties for themselves including beachfront gateways. Similar actions took place in Ghana, Namibia, Uganda, Nigeria and many other countries across the globe. This has led to government owned property as well as property owned by citizens to be claimed by corrupt government officials.
In many African countries, more than 90 percent of rural land is not registered. In Ghana, 78 percent of land is unregistered, and the country’s courts have a long backlog of land dispute cases, which is both costly and time intensive for governments.
In India, millions of families living in rural areas, including farmers, lack legal ownership of their land. They work the land as a living but have no claim to ownership due to the inadequate land registry systems in place. The lack of secure land ownership is a bigger issue as it has been a root cause of poverty, a high illiteracy rate and lack of quality of life.
Brazil, the largest country in South America with robust ports, fertile lands and heavy commerce, does not have a single centralized land registry. Instead, about 3,400 private agents called “cartorios” register and check land ownership. The paper intensive system is confusing, involves many different government and nongovernment related individuals for a single real estate transaction. There have been many instances where there were several different versions of the same document for the same property which lead to an increase in land disputes and fraud.
These fragile and incomplete land registry systems in the developing world can have a global impact. In Brazil’s Amazon rainforest, illicit land grabbers forge deeds and use violence and bribery to falsely claim ownership of properties, often under false names, which the locals call “fantasms” or “ghosts”. They cut the down the trees in the rainforest, which can have a serious global environmental impact. They cloak the action and give it the title of “land improvement for pasture”, this makes these land grabbers eligible to register the land as the true owners of record. This has been a cycle repeated throughout history and has lead to widespread Amazon deforestation.
There are many hurdles that the government faces with outdated and inefficient systems for maintaining land records and providing the public with current and accurate land data. The local and national level land registries have inconsistent information due to lag time, the various departments often have issues with providing the most current land records and coordinating information accordingly. This has made the job of the government and the maintenance of land records even harder at its current state.
The integration of a layer-2 Blockchain system, built on the Pecu Novus Blockchain Network, into Land Information Management Systems can be seen as an evolution that can promote transparency in land records keeping, thus preventing land disputes and fraud. This can be seen as a true enhancement to the inefficient digital system currently in place and can create an efficient, cost effective, trustworthy system in both developing and developed countries. Providing a centralized National Land Information Management System that is trustless is key, one that local and national government agencies, real estate lawyers and professionals, as well as the general public can access easily and retrieve the exact same information seamlessly with confidence of its accuracy. This can lead to increased adoption globally, solving those same issues that have plague land ownership for so long. It can increase global investment in the regions thus boosting the local economies, increasing tax revenue and enhancing the quality of life of the countries citizens.
It has been a cause for alarm across real estate lawyers, professionals and investors that potentially some of the information shared on the system is flawed. Reports have come through that pointed to the digital system only bearing plat maps on the system but it did not directly correlate to actual physical lands. This is a vital flaw that a layer-2 Blockchain system built on the Pecu Novus Blockchain network would help to resolve while working with the current system in place.
This report is for informational purposes only and should not be construed as financial advice. The information contained in this report is based on sources that are believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. The information contained in this report is subject to change without notice. FGA Partners is not a financial advisor, the author of this report is not a financial advisor and neither provides financial advice. As such neither FGA Partners nor the author are responsible for any losses or damages that may result from the use of this report. Readers should do their own due diligence and research before making any investment decisions.