The Impact of the EU AI Act on the Real Estate Industry

Artificial intelligence (AI) has long since found its way into almost all industries and is significantly changing how companies design processes, make decisions and generate value. The real estate industry is also affected by this trend. From automated property valuation and data-driven forecasts of rent price trends to intelligent building control systems, AI has long since arrived in the real estate sector.

With the adoption of the EU AI Act, the world's first comprehensive regulation of artificial intelligence, a legal framework has now been established that is of considerable importance for companies in this industry.

This topic is particularly relevant because the real estate industry is highly data-driven and is increasingly integrating AI-supported systems into business models and projects. At the same time, the question arises as to what legal challenges this entails and how entrepreneurs, investors and project developers can position themselves in a legally compliant manner.

The AI Act takes a risk-based approach. Certain applications in real estate projects – such as biometric access systems or algorithmic risk assessments – will potentially fall into high-risk categories. This results in increased compliance requirements, liability risks and documentation obligations.

In the following, we highlight the legal implications of using AI, how companies can get to grips with AI compliance projects and what recommendations for action can be derived for practical application.

Why is AI a Legal Issue in the Real Estate Industry?

The EU AI Act aims to create uniform rules for the use of AI within the European Union. It is based on a risk-based approach that divides AI applications into four categories: prohibited systems, high-risk applications, AI systems with limited risk, and AI systems with minimal risks. For the real estate industry, this means that different obligations apply depending on the use case.

The first fundamental aspects are the identification of applications in the real estate sector that could fall under the legal regulation and the categorisation of AI systems within the meaning of the AI Act. Practical examples and the legal implications include:

• Automated property valuations: AI systems that calculate property prices or rental yields can lead to misevaluations and must be designed to be transparent.
• Smart building technologies: Intelligent building control systems based on usage data may fall within the scope of personal data.
• Tenant and credit checks: The use of algorithmic risk assessments in applicant screening will often have to be classified as a high-risk application and will require enhanced compliance measures.
• Security and access systems: Facial recognition or biometric access controls are generally considered high risk and are also subject to strict obligations.

These aspects are highly relevant for real estate companies, builders and investors, as they open up new opportunities – such as efficiency gains, improved forecasts and cost savings – but also entail new legal obligations. Violations of the AI Act can result in substantial fines based on the company's turnover.

The legal implications primarily concern the obligation to assess risks, transparency and documentation requirements, and responsibility for the quality of the data used. In future, real estate companies must ensure that AI systems do not have a discriminatory effect, that results remain traceable and that the systems used are continuously monitored. This means a considerable need for organisational and legal adaptation and the implementation of an effective compliance management system in the field of AI.

What Legal Considerations Apply when Using AI?

The entry into force of the EU AI Act presents a wide range of legal challenges for companies in the real estate industry. The following areas are particularly relevant:

a) Liability issues: The real estate industry operates in a liability-intensive environment. Incorrect forecasts or discriminatory systems can lead not only to financial losses but also to reputational damage. Who is responsible if an AI system makes an incorrect property valuation or an applicant is disadvantaged due to an algorithmic error? Clear provisions on warranties, liability limits and recourse options are recommended in all contracts with service providers. The AI Act also stipulates that companies using high-risk AI must comply with comprehensive testing and documentation requirements. Violations of these obligations are subject to significant penalties. Companies should therefore establish internal quality assurance processes and clearly assign responsibilities.

b) Compliance and data protection issues: Many AI applications in the real estate industry process personal data, for example in credit checks or when using smart building systems. Here, the requirements of the AI Act overlap with the General Data Protection Regulation (GDPR). Companies must ensure that AI systems are operated in compliance with data protection regulations. This includes, among other things, conducting data protection impact assessments, minimising data risks and ensuring transparency towards data subjects. When it comes to granting loans or managing (tenant) applicants, the regulations on profiling under the GDPR must be observed.

c) Organisational challenges: The AI Act requires that high-risk systems may only be used under strict conditions. These include setting up a risk management system, documenting how the system works, human oversight, and continuous monitoring. Companies must therefore create internal compliance structures that combine both legal and technical expertise.

Solutions: A multi-stage approach is recommended to overcome these challenges:

1. Inventory: Identification of all AI systems used in the company.
2. Risk classification: Classification according to the categories of the AI Act.
3. Contract adjustment: Revision of existing and future contracts with AI providers.
4. Compliance integration: Establishment of an internal control and monitoring system.
5. Training and awareness: Employees must be trained in the legal requirements.
6. External consulting: Collaboration with specialist lawyers and IT security experts.

In this way, real estate companies can ensure that they minimise legal risks while taking advantage of the benefits of new technologies.

How can I Ensure Compliance when Using AI in my Company?

In order to successfully implement the legal requirements of the EU AI Act in practice, real estate companies should adopt a strategic approach. The following recommendations and best practices are particularly relevant:

1. Develop an early compliance strategy: Companies should not wait until the AI Act is fully applicable, but should start creating internal structures now. This includes setting up a compliance management system that is specifically tailored to dealing with AI.
2. Build interdisciplinary teams: The legal requirements affect not only the legal department, but also IT, data analysis, sales and facility management. It is therefore advisable to set up an interdisciplinary team that combines legal, technical and business expertise.
3. Systematically review and adapt contracts: Since many AI systems come from external providers, purchasing and licence agreements must be drafted in a legally compliant manner. It is particularly important to clarify liability issues and ensure contractually that providers meet the requirements of the AI Act.
4. Ensure transparency and documentation: Companies should implement processes to document the functioning of AI systems in a comprehensible manner. This is not only a legal requirement, but also strengthens the trust of investors, tenants and business partners.
5. Consider data protection and ethics: In addition to the minimum legal requirements, companies should introduce voluntary standards in the area of ethics and data protection. This creates competitive advantages and signals a sense of responsibility towards stakeholders.
6. Monitoring and continuous improvement: AI systems are evolving dynamically. Companies should therefore schedule regular audits and reviews to ensure that the systems they use continue to meet requirements in the long term.

Best practices therefore consist not only of legal implementation, but also of proactive, strategic use of the technology. Companies that see the AI Act as an opportunity can strengthen their market position while minimising legal risks.

Conclusion and Outlook

The EU AI Act marks a milestone in the regulation of AI and has significant implications for the real estate industry. The key findings are that real estate companies will in future be obliged to subject their AI systems to a risk assessment, ensure transparency and documentation, and carefully consider liability and data protection issues. The biggest challenges lie in the practical implementation of these requirements, especially for high-risk applications such as credit checks or biometric access systems.

It is crucial for companies to develop a clear compliance strategy in good time and to establish internal structures that combine both legal and technical expertise. Those who act early can not only minimise legal risks, but also strengthen the trust of investors, tenants and business partners.

The outlook shows that AI regulation will continue to increase. Companies must prepare for rising requirements in terms of transparency, responsibility and ethical standards. Those who prepare in good time can use the AI Act not only as a regulatory obligation, but also as an opportunity to position themselves in the market.