Transforming Real Estate in Pakistan through Blockchain: An Agent-Based Simulations Study

ABSTRACT

Blockchain technology has the potential to transform Pakistan’s industrial sector, particularly the real estate market, by enhancing transparency, reducing transaction costs, and minimising market frictions. While blockchain adoption is increasing globally to improve market efficiency, Pakistan remains behind in integrating this technology. This study aims to bridge this gap by simulating the impact of blockchain adoption on real estate market efficiency, focusing on Islamabad. Using an Agent-Based Modeling (ABM) approach, the study tests four key hypotheses: (i) the effect of blockchain on transparency and fraudulent cases, (ii) its impact on average sale time and liquidity, (iii) the role of price discovery in the absence of traditional dealers, and (iv) changes in transaction costs due to blockchain implementation. The simulation results reveal that blockchain adoption significantly enhances market efficiency by reducing asymmetric information, increasing transparency, improving liquidity, and drastically lowering transaction costs. Through tokenisation, smart contracts, and decentralised ledgers, blockchain disrupts the role of intermediaries, leading to a more efficient and transparent market. By eliminating dealercentric liquidity and introducing decentralised mechanisms, Islamabad’s real estate sector can achieve true price discovery based on supply-demand dynamics rather than speculation. However, the Capital Development Authority (CDA) plays a crucial role as both regulator and innovator. Balancing blockchain’s disruptive potential with existing legal and institutional frameworks is essential for its successful implementation in Pakistan’s real estate sector.

1. INTRODUCTION

Blockchain technology (BCT) has rapidly evolved, transforming industries such as hospitality, healthcare, manufacturing, education, and real estate by enhancing efficiency, security, and transparency in digital operations, over the past decade [(Acikgoz, et al. 2024); (Agbo, et al. 2024); (Li, et al. 2018); (Louki, et al. 2021) and (Wouda and Opdenakker, 2019)]. As a decentralised ledger, BCT securely records and verifies transactions, ensuring data integrity through cryptographic links between blocks. Unlike traditional centralised databases, blockchain operates on a peer-to-peer network, where any modification requires consensus from all participants, making it highly resilient to tampering [(Schmid, et al. 2023); (Esmat, et al. 2021)]. 

In recent years, the global real estate sector has witnessed a surge in interest regarding the integration of blockchain technology (BCT) to enhance transaction processes. Traditional real estate transactions often rely on intermediaries for verification and record-keeping, which can introduce inefficiencies, increased costs, and potential for fraud. Blockchain offers a decentralised ledger system that promises increased transparency, security, and efficiency in property dealings (Yang, et al. 2025). 

Blockchain technology is increasingly being adopted in real estate globally, enhancing transparency and efficiency. Swiss urban housing firms use blockchain for secure property records, while the U.S.-based Propy has pioneered blockchain-based real estate transactions and NFTs. Singapore’s government integrates blockchain into property management to streamline transactions, and Georgia has transformed its land registration system with the technology. Similarly, Japan’s LIFULL HOME’S has developed a blockchain-powered real estate platform to improve transaction efficiency. These global implementations highlight blockchain’s potential to revolutionise real estate markets, reinforcing its role in reducing intermediaries and enhancing trust [(Witzig and Salomon, 2019); (Park, 2020); (Chow, 2022); (Ciccio, et al. 2019) and (Rogers and Dutta, 2020)].

Blockchain technology (BTC) is transforming the real estate sector by enhancing security, efficiency, and accessibility while introducing new investment models such as fractional ownership and asset tokenisation [(Baum, 2021); (Mottaghi, et al. 2024) and (Dubrovina, 2023)]. By leveraging a decentralised and immutable ledger, blockchain minimises fraud risks, ensures transparent property records, and provides real-time tracking of transactions [(Redekar, 2024) and (Spielman, 2016)]. The elimination of intermediaries accelerates deals, reduces costs, and streamlines due diligence by automating property verification and contract execution. Additionally, blockchain facilitates fractional ownership, allowing investors to acquire property shares with lower capital, thereby increasing market liquidity. Asset tokenisation further democratises real estate investments, enabling seamless trading of digital property tokens. Moreover, blockchain enhances global accessibility by enabling secure, cross-border transactions without intermediaries, fostering international real estate investments. The integration of smart contracts automates leasing agreements, property transfers, and payments, reducing paperwork and errors while ensuring compliance and trust [(Ullah and Al-Turjman, 2023); (Laarabi, et al. 2024); and (Karamitsos, et al. 2018)]. Collectively, these innovations create a more transparent, efficient, and inclusive real estate ecosystem.

In Pakistan, the real estate industry plays a crucial role in economic development, driven by rapid urbanisation and increasing investment trends. However, the sector faces persistent challenges, including high transaction costs, fraudulent activities, unauthorised property claims, and a lack of transparency [(Uzair, et al. 2018); (Sheikh, et al. 2023); (Naz, et al. 2024)] The Pakistan Institute of Development Economics (PIDE) has highlighted inefficiencies such as market sludge Haque, et al. (2022), asymmetric information, and the dominant role of intermediaries, which further complicate property dealings. Blockchain technology presents a viable solution by introducing transparency, reducing fraud, and streamlining transactions through secure and immutable digital records. By eliminating intermediaries and automating verification processes, blockchain can significantly lower transaction costs while enhancing trust and efficiency in Pakistan’s real estate market, fostering a more secure and accessible investment environment.

The objective of this study is to simulate the impact of adopting blockchain technology (BCT) on the real estate market of Pakistan, using Rawalpindi and Islamabad as case studies. This study tests the hypothesis that adopting blockchain technology (BTC) in Pakistan’s real estate market reduces market frictions and enhances market efficiency. Market efficiency is evaluated based on key parameters, including increased transparency and trust levels, reduced average selling time, improved liquidity, and enhanced price discovery effect. Additionally, the study examines whether blockchain technology minimises asymmetric information and lowers overall transaction costs. By analysing these factors in the context of Rawalpindi and Islamabad, the study provides empirical insights into the ongoing impact of blockchain adoption on the real estate sector’s operational efficiency and effectiveness.

2. LITERATURE REVIEW

Wright and De Philippi made a significant advancement in academic research regarding the application of blockchain for governance by presenting their concept of “Lex Cryptographia” (Wright and De Filippi, 2015). “Lex Cryptographia” refers to regulations governed by self-executing smart contracts and decentralised autonomous organisations. The researchers highlighted that blockchain technology has the potential to diminish the role of intermediaries, who have traditionally been key economic and regulatory actors in society. Their study identified key areas for future development, including automated contract negotiation, execution, and enforcement; the expansion of the peer-to-peer economy; the rise of smart property and machine-to-machine communication; realtime distributed governance; algorithmic decision-making; and the regulation of decentralised systems (Konashevych, 2020b).

A variety of reviews have explored the potential, benefits, and challenges of blockchain technology in the real estate sector, primarily focusing on specific areas like land administration (Ekemode, et al. 2019; Ferreira, 2021). Bennett et al. incorporated blockchain into their systematic research synthesis of emerging data technologies within the global land administration sector, offering a comprehensive analysis of blockchain’s potential in land administration in 2019 (Bennett, et al. 2019). Nonetheless, Bennett et al. determined that in 2019, it was premature to make extensive assertions regarding the potential effects of blockchain on the sector. 

Furthermore, the real estate sector, particularly land administration, has been identified as a viable blockchain application in systematic literature reviews from various perspectives, including smart city initiatives and e-government (Khanna, et al. 2021; Majeed, et al. 2021), smart contracts (Alotaibi and Alshamrani, 2021; Xu, et al. 2021), and general industrial applications of blockchain (Sanka, et al. 2021). Nevertheless, in contrast to the frequency with which real estate is cited as a potential application of blockchain in academic literature, there is a notable absence of systematic reviews that offer a current and comprehensive understanding of blockchain’s potential across the entire real estate sector, extending beyond land administration (Ferreira, 2021).

Bennett, et al. (2021) finds that a hybrid system that combines smart contract use with current technological infrastructure preserves the position of a land registration agency as the final arbitrator of legitimate claims. This should reduce interruptions and maximise advantages. Results suggest that the hybrid strategy meets land dealing business criteria, and that proofs-of-concept are essential for development.

Yang, et al. (2025) examine the factors influencing BCT adoption in real estate using an expanded TAM and Task-technology fit. The study find that adopting BCT can increase efficiency, cut transaction costs, and boost security for real estate purchasers and sellers, according to the study. The study reveals that BCT automation can enhance title transfer and allow customised agreements. Yeoh, et al. (2024) examine the factors that affect the acceptance of blockchain technology among real estate buyers and sellers. The research indicates that real estate stakeholders ought to prioritize psychological factors over technological factors in the adoption of blockchain. This study contributes to the current body of knowledge and offers important insights for real estate stakeholders regarding the implementation of blockchain technology.

Blockchain can enhance real estate systems even in hybrid environments, complementing existing frameworks (Saari, et al. 2022). Konashevych (2020a) explores blockchain’s role in real estate, emphasising the need for integrated technologies to address data accuracy, digital identity, privacy, and scalability. Konashevych (2020b) introduces real estate tokenisation and the Title Token concept, a blockchain-based ownership record. The study highlights blockchain’s potential to automate legal processes while reducing bureaucracy and governance inefficiencies. Key real estate investment benefits of tokenisation include inclusion, efficiency, improved liquidity, and cost reductions. Blockchain enables inclusion by fractionalising and democratising real estate assets, lowering entry barriers, and attracting more investors [(Bennett, et al. 2021); (Baum, 2020); (Kalyushnova, 2021); and (Stoica, et al. 2019)]. A greater global pool of prospects may result in cheaper capital-raising costs and improved value for corporate real estate purchasers and sellers (Shtofman, 2019). Tokenising real estate assets allows for more diversification through fractionalisation and customisation [Latifi, et al. 2019), (Smith, et al. 2019); and (Gupta, et al. 2020).

New investment and utility products may be customised using tokenisation, opening new options. Tokenisation might increase real estate market liquidity by developing efficient secondary markets and expanding the investor pool and global investor base [(Baum, 2020); (Smith, et al. 2019); and (Gupta, et al. 2020)].  

Real estate investment tokenisation faces legal issues like blockchain-based property transactions. Regulatory ambiguity and terminological disparities exist [(Smith, et al. 2019); (Morrow, 2019)]. Most governments prohibit directly tokenising real estate assets, necessitating intermediary institutions like SPVs or real estate funds. Unlike real estate, tokenised securities that provide access to real estate assets, debt, or funds are regulated (Baum, 2020).

Token categorisation is crucial for regulatory compliance, since security tokens must fulfill strict standards. Additionally, organisations doing security token operations must have license and follow applicable standards (Gupta, et al. 2020). Real estate investment tokenisation may have unintended economic consequences. Liquidity increases through primary and secondary markets and fractionalisation may reduce real estate’s illiquidity premium, hurting returns (Baum, 2020). Price volatility and a wider bid–offer spread are further concerns of higher liquidity (Baum, 2020).  

Additionally, if there is insufficient market demand for real estate investment tokens, the assets remain illiquid, requiring significant participation to achieve liquidity benefits (Haddad, 2021). Currently, huge institutional investors dominate the real estate investment sector, providing liquidity. Institutional investors want funds that meet their investment and risk profile as part of their portfolio allocation (Chang and Wang, 2021). Lastly, the economic viability of tokenising specific real estate assets is uncertain due to unproven demand and fractionalised asset management (Baum, 2020).

Smart contracts might automate compliance, document verification, trading, and escrow, making token-based investment transactions quicker (Baum, 2020), cheaper, and more transparent [(Smith, et al. 2019); (Gupta, et al. 2020); and (Morrow, 2019)]. 

3. THEORETICAL FRAMEWORK

This section provides a detailed framework of blockchain technology and its impact on real estate market efficiency. Generally, real estate market in Pakistan is plagued with structural and deep-rooted inefficiencies—opaque pricing structure, high transaction costs due to overwhelming sludge and ingrained bureaucratic legal processes, and the dominant role of the dealer in liquidity provision. Specifically, the role of a dealer is one of the key reasons of asymmetric information in market, and its balance sheet constraints to determine shadow prices, and leading to the market deviation from its equilibrium (Akerlof, 1970).  Given such a structure of the Pakistan’s real estate market the Treynor’s (1972) model for dealer markets will provide us a framework which theorises the relationship between adoption of blockchain technology and real estate market efficiencies for Pakistan—tokenisation, smart contracts, and decentralised ledgers, which will disrupt the role of dealer or intermediation, and will bring down the cost of sludge or transaction costs, and will be helping to determine market prices with true supply-demand dynamics rather than a market speculation. The transition of the real estate market from traditional mode to adoption of blockchain technology will evaluate the role of regulators like Capital Development Authority (CDA): making this transition successful or unsuccessful, and their role will be crucial in reconciling decentralised systems with legal frameworks.

3.1 Framework of Treynor’s Dealer Model: Market Frictions

Since in real estate market, a dealer is considered as liquidity provider, Treynor’s (1972) model has conceptualised the role of dealer who mitigate two key risks: (i) inventory risk (cost of holding illiquid assets), and (ii) asymmetric information or adverse selection from trading with informed market agents (Glosten & Milgrom, 1985). Similarly, real estate market in Pakistan face risks as follows:  first, the dominance of a dealer is quite visible. Because dealers act as quasi-market makers and leveraging their inventory holdings to determine prices that reflect their balance sheet capacity rather than fundamental value. For example, a dealer with excess inventory may lower prices to incentivise sales, distorting market signals (Grossman & Miller, 1988). Second, transaction costs incurred due to legal procedures for transferring ownership titles (e.g., registry verification, stamp duties) are time-intensive and costly, inflating bid-ask spreads (Coase, 1960). Finally, asymmetric information between buyers and sellers, and a dealer creates a “lemons problem” (Akerlof, 1970).

The above discussed framework of the Treynor’s model has identified the inefficiencies in the real estate market due to the role of dealer and highlighting the liquidity and pricing power are more centralised rather than decentralised, which ultimately causes market inefficiencies.

3.2  Adoption of Blockchain Technology: Replacing Dealers

The adoption of Blockchain technology will reconfigure the framework presented by Treynor’s model by eliminating the role of dealer’s intermediation through three pillars of blockchain technology:

3.2.1 First Pillar: Tokenisation and Fractional Ownership

To eliminate the role of a dealer, there will be real estate tokenisation, representing property rights as digital tokens on a blockchain. This will dissolve the need for dealers to hold inventory or files of plot. The liquidity will be democratised or decentralised by enabling fractional ownership through blockchain technology (Tapscott & Tapscott, 2016). Decentralisation will be based on two key principles: liquidity pools, and reduced inventory risks. The liquidity pool will be based on automated market makers (AMMs) on decentralised exchanges (e.g., Uniswap-style protocols), and it will replace the role of dealer-mediated trading, will allow 24/7 price discovery (Chiu & Koeppl, 2019). While the adoption of blockchain technology will reduce the inventory risk through tokenisation which will shift the asset holding from centralised dealers to a more democratic and distributed network of investors, which will be aligning with the “shared liquidity” paradigm (Biais, et al. 2023). Hence, through tokenisation and fractional ownership-based principal, the adoption of blockchain technology will reduce the role of a dealer from the real market and will be reducing the market frictions.

3.2.2 Second Pillar: Smart Contracts and Transaction Automation

The second pillar of blockchain technology is smart contracts and transaction automation. The smart contracts-executing code on a blockchain will streamline the legal and financial processes. The ownership rights will be programmatically verified and updated on-chain, will reduce the episodes of delays incurred through manual registry checks (Yermack, 2017)—a smart contract could automatically transfer a tokenised title once payment is confirmed, and it will avoid weeks of bureaucratic delays. Moreover, it will be cost effective through automating compliance (e.g., KYC, stamp duties). As a result, smart contracts will cut intermediation fees, and it will be narrowing bid-ask spreads (Catalini & Gans, 2020). In a nutshell, the adoption of blockchain technology will reduce the sludge in the real estate market.

3.2.3 Third Pillar: Decentralised Price Discovery

The third pillar of blockchain will mitigate the asymmetric information from the market through transparent ledger. All transactions will be publicly visible and will reduce the chances of price manipulation (Nakamoto, 2008). Moreover, blockchain technology will be provide real-time trading data, which will reflect the true demand, and eroding the dealers’ ability to set shadow prices (Böhme, et al. 2015).