A report sheds light on the major transformations that the real estate sector could experience thanks to blockchain and cryptocurrencies.
Is the real estate sector experiencing a 3.0 revolution? This is what the report entitled “real estate 3.0, from paper stone to crypto stone”, written by Florian Freyssenet, co-founder of the TheDiggers community and connoisseur of real estate, estimates. The latter had co-founded with the economist Robin Rivaton the association Real Estech which promotes innovation in real estate.
Since then, Florian Freyssenet has fallen into the bath of cryptocurrencies. “I consider that real estate and cryptocurrency, although competing financial assets, are made to move forward together and to provide mutual benefit”, explains Florian Freyssenet to BFM Crypto. The 60-plus-page report, which builds on the premise that the real estate industry needs to “evolve”, highlights the current bridges between real estate and blockchain and cryptocurrencies (tokenization, transactions, NFT… ). One thinks in particular of its application for the cadastre which lists the sales of real estate.
One phenomenon in particular is beginning to gain momentum, that of real estate “tokenization”, which can be compared to real estate splitting.
“Real estate splitting is not new and legal mechanisms already make it possible to set up deal clubs like Anaxago and even to invest in rental real estate from 10 euros as with bricks.co, to take French examples. The use of blockchain technology and therefore in essence decentralization breathes new life into this tool which is still too little used, to make the real estate market more liquid and accessible”, underlines the report.
Among the classic legal options that already exist, we can also cite the possibility of investing in real estate via SCPIs, where you hold a share of a real estate stock rented out (but where the entry ticket is rather 2000 or 3000 euros).
Concretely, tokenization, which uses the blockchain, will allow everyone in the world to be exposed to the real estate market from 1 dollar, but also to exchange these token securities anytime, anywhere. , with transparent and secure transactions.
Concretely, what does it look like? For example, a tenant of a tokenized property can choose to buy back 10 tokens from his house each month.
“This means that each month he will receive the return of the tokens (basically, he will pay part of the rent to himself). This allows to trigger a virtuous circle where his rent drops (since he pays part to himself), so his ability to buy tokens increases every month, and at the same time he is in the process of becoming the owner of the house by buying back all the tokens month after month” specifies Florian Freyssenet.
But there are obstacles linked to this type of investment, such as the problem of returns linked to the volatility of cryptocurrencies or even legal aspects, such as the responsibility of the various owners in the event of a problem. “Today in France, it is a priori impossible to tokenize a title deed, it is however possible to tokenize the associated flows (future returns, etc.) via a token-title linked to company shares”, specifies the report.
To date, there are about ten companies in the world that offer tokenization of real estate, including Algae-app or the Franco-American company RealT. The latter specializes “in the tokenization of high-yield housing for low-income people in the United States. The yield of RealT tokens is paid daily on the Ethereum blockchain, and annual returns range from 10 to 12%”, can -we read in the report. Concretely, the company tokenizes property in the United States and sells “blocks” (or pieces of house) of 50 dollars to investors, including French people. It will be recalled that in traditional rental real estate, the yields are rather around 5% before taxes and charges. A return of 10 to 12% is therefore linked to a riskier investment.
The author of the report is betting on a rise in power in this field, considering that if France does not get started quickly, American giants will soon emerge and will offer their products in France “massively, legally and more easily than local real estate players”.
Another subject covered in the report is the purchase of real estate in cryptocurrencies. A few weeks ago, an apartment in Portugal sold for 3 bitcoins, at the price of 110,000 euros at the time of signing. Real estate transactions in cryptocurrencies (although located in North and South America) have already existed for a few years: the first purchase in cryptocurrencies was made in 2017, with an apartment in kyiv in Ukraine which had sold for 60,000 ethers.
A first real estate transaction in France in 2019
In France, a first real estate transaction on the Ethereum blockchain took place in 2019, with the purchase of a private mansion located in Boulogne-Billancourt for a total of 6.5 million euros. The cryptocurrency used was not specified at the time. Since then, no transaction has been the subject of an official communication, although it is possible that individuals have carried out a transaction in cryptocurrencies, without communicating on it.
It therefore seems possible to carry out a transaction in cryptocurrencies, in particular in bitcoins, in France. But what are the practical aspects to consider?
“In itself, as the law does not prohibit the barter of a house against a herd of goats, it obviously authorizes the exchange of a house against a certain number of bitcoins. On real estate transactions in France it is quite simple: paying in bitcoin above all adds a legal, technical and negotiation overlay between the actors (at what bitcoin price do we define the purchase, how and when do we exchange it?, etc.). this choice does not deviate from any traditional purchasing process. So yes, we can do it, but it is above all out of conviction and it is better to be accompanied by a specialized lawyer. On the other hand, cryptocurrency can become interesting during international purchases, due to its ease and speed of exchange, even more so in countries where cryptocurrencies are well accepted”, underlines Florian Freyssenet.
Last April, an owner offered to rent his apartment in ether in Paris. A legal operation a priori. “To my knowledge, nothing prohibits agreeing to fix the price of the lease and the payment of the rent in cryptocurrency.article 1728 of the Civil Codeneither article 7 of the law of July 6, 1989 do not provide for payment of the rent in euros. There is also case law on the payment of rent in kind (example: the work carried out by the tenant)”, then explained to BFM Immo the lawyer Romain Rossi-Landi. But he specified that it should be mentioned. expressly in the lease.
Other problems remain, such as the difficulty of calculation when paying tax and transfer duties, which must be paid in euros to the tax authorities. “More broadly, it is the legal obstacles in most other countries in the world that prevent their international development”, explains the latter. Other criteria must be taken into account such as the question of the volatility of cryptocurrencies.
To date, the global traditional real estate market is worth around $326.5 trillion in 2020 (according to Savills data), while digital real estate, known as the “real estate digital security market”, is estimated to be around $25 million in 2020. according to figures from Security Token Market. In the first quarter of 2021, the weight of this sector is 32 million dollars. “In 2022 many projects were successful, and above all the hype took hold of the sector, we can reasonably imagine that at the end of the year it will have exceeded 150 million dollars”, considers Florian Freyssenet.
For the latter, two major obstacles still exist before creating a real revolution in the real estate sector 3.0. On the one hand, the legislation which is not currently adapted to the tokenization of real estate. On the other hand, according to him, there is a “lack of knowledge” of real estate professionals on cryptocurrencies.
“Yet there is a technology that will soon revolutionize the financial and distribution part of their sector on a global level”, he concludes.