Abstract
Developers of real estate projects such as commercial, official, and residential properties are keen to have high return on investment (ROI), and this study was carried out to demonstrate the need and implementation of smart contract using blockchain technology to enhance ROI. Blockchain technology, with the dual objective to achieve 25% ROI, in the design, construction, and sale of a midrise building, with design life of 50 years. All transactions involving stakeholders' critical activities of the project, such as acquisition of land, design, construction, marketing and selling of office floors, shop spaces, and residential flats in general and design and construction phase in particular, were identified and their influence in the project cost and project schedule are assessed. By the implementation of smart contract using blockchain technology in the construction and design phases of this project, it resulted in enhanced ROI value of 42%, which was 17% higher than the expected value, without sacrificing the quality, durability, and specifications, as per standards and regulations.
TopIntroduction
Every transaction between a buyer (PMI, 2021) and a seller (PMI, 2021) often results in the exchange of goods, assets or services for mutually agreed monetary compensation. This feasibility study (Phillips, J. 2018; PMI, 2021; Mulcahy, R. 2021) was especially carried out for a real estate developer in Dubai, with the purpose of 25% ROI (Hastak, M. 2015; PMI, 2021), expectations as a minimum with the management of the total project cost and project schedule, with implementation of smart contract (Zaky, A. et al., 2021; EHAB, 2021; Scalisi, T. 2020), using blockchain (Stannard, 2021) technology for a midrise (AECOM, 2022) building. In the process, the buyers get their dream property which fulfills all the quality and durability requirements and with a final building design life (Government of Dubai, 2021) expectancy of 50 years. How, the developer (seller) and the consumers & end users (buyers) achieve their respective intended objective, with cost effective solutions is highlighted here in this study.
Present day Scenario of Real estate in Dubai
According to the international community, the demand for property in Dubai (Staff Writer, 2022; The Property Investor, 2022), is growing day by day and the investment in real estate in Dubai yield more ROI, due to long term planning of built environment, taxation policies, affordable properties to suit the budget, flexible visa availability for all investors, easy accessibility, expected increase in expatriate population etc.
Organization of the Feasibility Study
The study was carried out with the main intention to calculate and present the ROI values before and after the implementation of smart contract (Ye, X. et al., 2022) as ROI BISC & ROI AISC for comparison and analysis as explained in methodology (Markarand, 2015; PMI, 2021). Thus, the entire frame work of this study is presented, explained and concluded in five sections, introduction, literature review, methodology, results and discussions and conclusion & future scope of work.
Project Study Initiation and Optimization
The proposed project feasibility study was initiated to find out cost effective solutions to enhance the ROI for a midrise building with known land area and floor area ratio (FAR). Based on the current market trend, demand and supply, the price of each commercial and residential apartment should be finalized in line with the applicable total saleable areas. Initial challenges faced were to enhance the profit by the optimization (Markarand, 2021; Markarand, 2015) of, 1) the purchase of land with optimum FAR, 2) unit cost of design and construction of the building with and without smart contract, 3) total saleable value of the building, 4) the initial investment cost of the building with appropriate leverage, 5) cash flow and project funding for the entire project duration, 6) equated monthly installments (EMI) values for seller and buyers with escrow accounts managed by a common third party or a bank, without smart contract.
The Phases of the Project
The considered, design, build and sell project cycle, consist of five phases (Markarand, 2015; PMI, 2021) namely, acquisition of land, building design, building construction, marketing and sales and it is mainly predictive or water fall in nature as shown in Figure 1., even though it is iterative during the design phase. Moreover, the marketing and construction phases were executed in parallel.
Figure 1. Phases of this project: predictive or water fall project cycle
RERA and Escrow in Dubai
The escrow law in Dubai (Jaxaadmin, 2018) is monitored by the real estate regulatory agency (RERA), which is a governing body operating under the Dubai land development (DLD) umbrella. (Graglia, J.M et al., 2018). The RERA and escrow laws work closely together and enable people exploit prevailing property environment in Dubai.
Key Terms in this Chapter
Built Environment: The term built environment refers to human-made conditions and is often used in architecture, landscape architecture, urban planning, public health, sociology, and anthropology, among others. These curated spaces provide the setting for human activity and were created to fulfill human desires and needs.
Supply Chain: A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products which later being distributed to end-consumers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.
Circular Economy: A circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible.
Return on Investment: Return on investment or return on costs is a ratio between net income and investment. A high ROI means the investment's gains compare favorably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments.
Escrow: An escrow is a contractual arrangement in which a third party receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties.
Sustainability: Sustainability is a societal goal that relates to the ability of people to safely co-exist on earth over a long time. Specific definitions of sustainability are difficult to agree on and have varied with literature, context, and time. Sustainability is commonly described as having three dimensions (or pillars): environmental, economic, and social. Many publications state that the environmental dimension is the most important. For this reason, in everyday use, “sustainability” is often focused on countering major environmental problems, such as climate change, loss of biodiversity, loss of ecosystem services, land degradation, and air and water pollution. The concept of sustainability can be used to guide decisions at the global, national, and individual levels (e.g. sustainable living). A closely related concept is that of sustainable development, and the terms are often used synonymously. However, UNESCO distinguishes the two thus: “ Sustainability is often thought of as a long-term goal (i.e. a more sustainable world), while sustainable development refers to the many processes and pathways to achieve it.
Blockchain: A blockchain is a decentralized, distributed, and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.
Commercial real estate: Commercial real estate, also called commercial property, investment property or income property, is real estate intended to generate a profit, either from capital gains or rental income.
Smart Contract: A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control, or document events and actions according to the terms of a contract or an agreement.