With blockchain, you can reduce the cost of buying real estate. It is also faster: With just one click you can buy real estate or shares in it. But the blockchain does not solve the core problems either.
he buying a property associated with bureaucratic hurdles. Brokers, appraisals, notary appointments, land register entries cost time and money. In the future, this should be much easier. At least real estate investments can already be concluded with a few clicks on the smartphone. And it does not even have to be a minimum investment amount of several hundred euros, as with crowd investing , which is already widespread .
The Hamburg start-up Klickown enables participation from just ten euros. Currently at a residential building in Lüneburg. The historic building with a surface area of over 1,000 square meters, of which more than half is commercial space, costs around 2.5 million euros. Other residential buildings in Berlin are to follow, says Philip Moffat, one of the founders and board members of Klickown.
The special thing about this investment is that investors buy the property indirectly via a so-called security token , which digitally represents ownership. The tokens are associated with an asset – in this case the property or better: a bond, the share of which in the property is registered in the land register.
A token holder thus becomes a co-owner. Klickown promises an interest rate of four to seven percent, distributed in euros. According to Moffat, it should amount to five percent. There is a BaFin registration.
“The high capital requirements for real estate investments have always been a problem. Therefore, the basic idea is good to offer real estate investments via a blockchain, ”says Michael Voigtländer, real estate expert at the Cologne Institute for the German Economy (IW).
No protection from scrap property
A blockchain is a decentralized, digital booking system. The information is stored in limited data records, the blocks. They are linked together like a chain and build on one another. Because of this and because the blocks are stored redundantly on many computers, manipulation should be impossible.
A secure property right anchored in a blockchain apart from the land register and notaries could make it possible for 100 or 1000 small investors to share a property, which was previously hardly possible, according to Voigtländer.
“Of course, it can also happen that someone tries to sell their scrap property using security tokens,” Voigtländer points out. As with real property purchases, a good location and quality are important: “The trick is to find the right properties in this new form of investment. Therefore, investors should also pay attention to the terms and conditions and not be blinded. “
When the tokens are offered to the public, it is something like an IPO and is called the Security Token Offering (STO). “By intelligently using blockchain technology, we can significantly reduce costs compared to traditional investment opportunities in the real estate world,” said Wladimir Huber, founder and CEO of Klickown.
With the tokens, investors would participate in rental income and possible increases in the value of a single property or property portfolio.
Biggest property purchase also with tokens
The basis is the so-called Stellar blockchain, which enables particularly inexpensive and fast transactions. A separate digital real estate bond with associated tokens should be issued for each real estate project .
This technology is intended to make real estate investments cheaper, more transparent and more easily accessible, promises not only Klickown but also other providers who enable participation in their real estate by token:
Finexity offers investors starting from 500 euros. The Hamburg company Bloxxter also wants to charge at least 500 euros for its first property financed by STO at the end of the first quarter of 2020, according to the head Marc Drießen.
An exotic among the few token-based property deals to date is the Swiss Brickmark AG, which announced last Wednesday that it intends to make the largest property purchase in the world so far, partly with tokens .
An office and commercial building in Zurich’s Bahnhofstrasse was bought for 130 million Swiss francs (120 million euros). The seller, the international real estate investor RFR, accepts between 20 and 30 percent of the purchase in tokens, said Brickmark CEO Stephan Rind. “We are breaking new ground for the real estate industry.” Further investments, for example in Dresden or Frankfurt, are to follow.
Objects must be flawless
The tokens are called Brickmark and would make the rights and claims of the token holders binding, according to Rind – for example, regular payments from rental income and a share in the company’s growth in value. However, small investors are left out.
First of all, Rind wants to finance the development with professional investors. There is a lot of interest, for example from family offices. A later IPO is not excluded, but there is no date.
The Hamburg-based company Exporo does it a little differently: It prepares security tokens for real estate investments from one euro. A holiday home on Rügen is the first project. But Exporo also enables investors to take part in project financing at short notice through purchases of loan receivables with amounts of more than 1,000 euros. In December, however, it emerged that two projects in Hesse had become insolvent because Exporo obviously overvalued property were turned on fraudulently.
It cannot be ruled out that hundreds of investors who have invested around four million euros in the two houses will not see their money again. In the small print, Exporo excludes any responsibility for the disaster. It is quite conceivable that something like this also happens with token-based financing.
“Especially at the start, our objects have to be flawless,” says Klickown founder Moffat. After all, it is also about building investor confidence in a new investment opportunity. His company can rely on a network of experienced real estate experts.
Fulminant change through cryptocurrency
The property in Lüneburg has a net purchase price factor of 21.8. The rental income of 21.8 years corresponds to the purchase price of 2.52 million euros – which is comparatively cheap in the current market situation. However, the gross purchase price factor rises to a worse 26.4, even if the “pre-financing costs” of around 500,000 euros are included in the prospectus.
“First of all, our aim for target investments is that, due to their quality and location, they are very resistant to market fluctuations ,” says Bloxxter CEO Drießen. The investor bears no project development risks, one is limited to the leading metropolises and only invests in core locations.
“We also implement our investments with a balanced ratio of equity and debt. The investor is ranked directly behind the long-term financing of the bank. “One plans with an investment horizon of 15 years. In this way, realized losses in value can be prevented in short-term weaker market phases.
Investors and consumers are unlikely to get past cryptocurrency in the future. “The blockchain is disruptive for the financial market, ” says Sven Hildebrandt, head of Hamburg-based management consultancy Distributed Ledger Consulting.
The German term for this would be “advice for distributed cash books“. The so-called technology deals with digital systems for recording transactions. And that includes the financial blockchain. Hildebrandt is convinced that “it will ensure the most brilliant change in the field of financial transactions since 1900”.
Not suitable for old-age provision
He is also certain that there will be no new smartphones without a blockchain account in two years. “The new Samsung S10 already has a built-in Ethereum wallet “, an Internet wallet that is based on the Ethereum blockchain.
Consumer advocates point out that despite all the technical finesse, the quality of the investment is important. “With security tokens, a distinction must be made between the technical handling of corporate financing and the opportunities and risks of using funds, i.e. capital investments,” says Niels Nauhauser, pension and loan expert at the Baden-Württemberg consumer center.
From the perspective of investors, technical processing is only one criterion among many, whether it is based on security tokens or on classic securitized certificates. “The regulatory rules of the game are the same for securities,” said Nauhauser. “The future will show whether there is a specific potential for abuse.”
It depends on where the investors’ money ends up, what risk is involved and whether the expected return is appropriate for the risk to be borne, according to the consumer advocate. All providers duly warn against the possible total loss of the investment . Klickown, for example, warns in its terms and conditions that the tokens are not suitable for old-age provision .
A problem could also arise if providers could benefit from the lower costs of blockchain-based financing, but would not pass these savings on to investors.
According to the Hamburg Fundament Group’s securities prospectus, investors pay almost 13 percent of the investment amount as the cost of a BaFin-tested security token – including the five percent premium known from the fund industry. Questions from WELT regarding the foundation regarding the bond remained unanswered.
Bloxxter boss Drießen is more willing to provide information: “Due to the digital implementation and because we do without intermediaries as much as possible, the costs for investors are only around three percent initially and 0.2 percent per year.”
Foundation investors can buy and sell their tokens through the Ethereum blockchain. However, a possible transferability does not automatically mean liquidity, so that the investment could only be sold at a large discount. After all, Klickown offers the redemption of the tokens after their term of three to ten years at their original value.