How blockchain and cryptocurrencies could revolutionize the real estate sector

A report sheds light on the great 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 encrypted stone”, written by Florian Freyssenet, co-founder of the TheDiggers community and connoisseur of the real estate sector, estimates. The latter had co-founded the Real Estech association that promotes innovation in the real estate sector with economist Robin Rivaton.

Since then, Florian Freyssenet has fallen into the cryptocurrency bathroom. “I believe that real estate and cryptocurrencies, although competing financial assets, are made to move forward together and provide mutual benefits,” Florian Freyssenet explains to BFM Crypto. The 60+ page report, which is based on the premise that the real estate sector needs to “evolve”, highlights the current bridges between real estate and blockchain and cryptocurrencies (tokenization, transactions, NFT …). Think in particular of your application for a land registry 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 the real estate split.

“The real estate split is nothing new and the legal mechanisms already allow you to create business clubs like Anaxago and even invest in 10 euro rental properties as with, to give a French example. The use of blockchain technology and therefore, in essence, decentralization gives new life to this tool that 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 mention the possibility of investing in real estate through SCPI, where a share of a leased real estate is held (but where the entrance ticket is rather 2000 or 3000 euros).

In concrete terms, tokenization, which uses the blockchain, will allow everyone in the world to be exposed to the real estate market starting from 1 dollar, but also to exchange these token securities anytime and anywhere, with transparent and secure transactions.

In concrete terms, what does it look like? For example, a tenant of a tokenized property can choose to buy back 10 tokens from their home each month.

“This means that every month he will receive the return of the tokens (in practice he will pay part of the rent). This allows to trigger a virtuous circle where his rent is reduced (since he pays a part to himself), therefore his possibility to buy tokens increases every month, and at the same time 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 related to this type of investment, such as the problem of returns related 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 property title, however it is possible to tokenize the associated flows (future returns, etc.) through a token-title linked to the company’s shares”, specifies the report.

To date, there are about ten companies in the world that offer tokenization of properties, including Algae-app or the French-American company RealT. The latter specializes in “the tokenization of high-yield housing for low-income people in the US. The yield of RealT tokens is paid daily on the Ethereum blockchain and annual yields range from 10 to 12%,” we read in the report. Specifically, the company tokenizes properties in the United States and sells $ 50 “blocks” (or house pieces) to investors, including the French. It will be remembered that in traditional rental properties the yields are 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 an increase in power in this field, considering that if France does not start up quickly, American giants will soon emerge and offer their products in France “massively, legally and more easily than real estate players. locals “.

Another topic covered in the report is the purchase of cryptocurrency real estate. A few weeks ago an apartment in Portugal was sold for 3 bitcoins, priced at € 110,000 at the time of signing. Real estate transactions in cryptocurrencies (although located in North and South America) have already existed for some years: the first purchase in cryptocurrencies was made in 2017, with an apartment in Kyiv in Ukraine that had been sold for 60,000 ether.

A first real estate transaction in France in 2019

In France, a first real estate transaction took place on the Ethereum blockchain in 2019, with the purchase of a private villa located in Boulogne-Billancourt for a total of € 6.5 million. The cryptocurrency used has not been specified at the moment. Since then, no transaction has been the subject of an official communication, although it is possible that private individuals have carried out a transaction in cryptocurrencies, without notifying them.

It therefore seems possible to carry out a transaction in cryptocurrencies, in particular in bitcoin, in France. But what are the practical aspects to consider?

“By itself, since the law does not prohibit the bartering of a house for a herd of goats, it obviously authorizes the exchange of a house for 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 differ from no 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 “, emphasizes Florian Freyssenet.

Last April, an owner offered to rent his apartment in Ether in Paris. An a priori legal operation. “To my knowledge, nothing prevents us from 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 6 July 1989 they do not provide for the payment of the fee in euros. There is also jurisprudence on the payment of the rent in kind (example: the work done by the tenant) “, the lawyer Romain Rossi-Landi explained to BFM Immo. But he specified that it must be mentioned expressly in the lease contract.

Other problems remain, such as the difficulty of calculating when paying taxes and transfer duties, which must be paid in euros to the tax authorities. “More generally, it is the legal obstacles in most other countries of the world that prevent their international development,” explains the latter. Other criteria need to be taken into consideration such as the question of the volatility of cryptocurrencies.

As of today, the global traditional real estate market is worth about $ 326.5 trillion in 2020 (according to Savills data), while digital real estate, known as the “digital real estate security market”, is estimated at about $ 25 million. in 2020. according to data from the 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 has taken over the sector, we can reasonably imagine that by the end of the year it will have exceeded 150 million dollars”, considers Florian Freyssenet.

For the latter, there are still two major obstacles before creating a real revolution in the 3.0 real estate sector. On the one hand, the legislation that is currently not adequate for the tokenization of properties. On the other hand, according to him, there is a “lack of knowledge” of real estate professionals about cryptocurrencies.

“Yet there is a technology that will soon revolutionize the financial and distribution side of their sector globally,” he concludes.

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