Bettina BlassHow many providers of real estate tokens are there? Figures on this question are now available for the first time. They were determined by Hamburg Commercial Bank (HCOB) and the Blockchain Center of the Frankfurt School of Finance and Management (FSBC). The study, published at the end of September 2021, shows the following results:
- First in the rankings is the United States. According to the study, there are 13 companies there that tokenize real estate and offer it on the market.
- In Germany, there are six, in Switzerland four.
- The top three are followed by the UK with three and Luxembourg and Estonia with two providers each.
- In eleven other predominantly European and Asian countries, one company each offers an investment in tokenized real estate.
Intransparent market for tokenized real estate
“However, the market is very intransparent,” explained Jonas Groß at the virtual press conference to present the study. “For example, the number of projects could not be seen, only the number of providers.” The study notes that the market is still manageable, with the number of projects per provider ranging from one to four tokenized properties. “Outliers are companies such as Exporo and Finexity, which are pioneers of the scene with 14 and 10 tokenized properties, respectively,” the experts write in the study. Both companies are based in Germany. Incidentally, the first property in Europe was also tokenized in the Federal Republic – namely by Berlin-based financial services provider Brickblock in Wiesbaden, the capital of Hesse.
Providers in Switzerland and Germany
The following companies are leading the way in tokenizing real estate in Europe, especially in Switzerland and Germany.Switzerland: Swissreal Coin, Blockimmo, Brickmark, Fundamenta Group Germany: Bloxxter, Exporo, KlickOwn/iFunded, Finexity, RTX21
This list does not constitute an investment recommendation. Check the provider carefully before investing!
For whom are Immo-Tokens interesting?
It seems almost ironic that Germany, of all countries, is such a pioneer in the tokenized real estate market: In the Digital Riser Report 2021 by the European Center for digital Competitivness in Berlin, Germany ranks 38th, second to last, ahead of Albania. Switzerland is in 24th place.
When it comes to investing money, Germans also tend to be conservative:
- According to information from the Deutsches Aktieninstitut, for example, only 12.4 million citizens invest in shares at all, which corresponds to 17.5 percent of the population aged 14 and over.
- Of the Swiss, 27 percent of those surveyed by the online comparison service moneyland.ch at the beginning of the year invest in shares.
Philipp Sandner, Head of Frankfurt School Blockchain Center (FSBC) Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB) Jonas Groß, Project Manager Frankfurt School Blockchain Center (FSBC)
European blockchain and token specialists participated in the study.
Four reasons to buy tokens
After all, German shareholders include around 600,000 investors under the age of 30 since 2020. This corresponds to an increase of 70 percent compared to the previous year, according to the press release. They could also be the ones most likely to be interested in the tokenized real estate market, according to experts at Hamburg Commercial Bank. “NFT tokens, classic car tokens, diamond tokens – these types of investments appeal especially to younger people,” said Cyrus de la Rubia, chief economist at HCOB at the press conference. If you buy tokens of a classic car today, you could be interested in real estate tomorrow, he added.
Advantages and disadvantages of the investment
There is a second reason why younger people in particular might be interested in this form of investment: They are often aware that they have to provide for their own old age. But their money is often not enough to buy promising securities. Tokenized real estate, however, is already available for very low entry sums. So investors at least have the chance to build up a fortune with little money. “A property can be fractionated in such a way that investors can get in with very small amounts,” says Philipp Sandner, head of the Frankfurt School Blockchain Center. Even investments in the single-digit euro range are conceivable. Exporo, for example, also offers investments starting at 100 euros, which can be increased in one-euro increments, according to the study. The yield margins of the providers range from two to about 20 percent, the study continues. So significantly higher than, for example, interest paid on overnight money.
Risks and legal uncertainties
However, this also comes with a corresponding risk. Investors must accept that there are still
- there are still legal uncertainties
- the land register is not yet digitized in the blockchain,
- an incorrectly programmed smart contract can lead to a loss of the tokens, and
- there may be coordination problems among stakeholders if the project runs into financial difficulties.
Still, Sandner is confident, “There will be fewer problems. But it’s likely to take some time. There’s a lot of potential – a revolution seems to be coming.”
Tokenized real estate - narrow and broad
Whoever talks about tokenized real estate must distinguish the following cases precisely:
- In the narrow definition, according to Jonas Groß, project manager at the Blockchain Center at the Frankfurt School of Finance and Management, we are talking about real estate in which others have a stake. They assume rights and obligations and are thus truly (co-)owners of the building.
- The further definition is based on securities that relate to a property. Here, the investor is entitled to a portion of the cash flow related to the property. There are short-dated and long-dated tokens. The short-dated ones are usually related to development projects, the long-dated ones to existing properties.
Closed-end fund or crowdinvesting?
The study distinguishes three investment options for real estate tokens according to costs and minimum participations, among other factors:
- Real estate tokens: minimum investment in the projects studied is between 100 and 500 euros. Investor can invest in several properties due to the low entry amounts and thus diversify his portfolio. Disadvantage: There is not yet a large secondary market to resell the tokens. But at least many tokenizers offer a secondary market at all.
- Closed-end real estate fund: minimum investment rather from 5000 euros, higher costs than with tokenized real estate. Due to the high entry sum, diversification is difficult. If you invest in an open-end fund instead, you cannot selectively choose individual projects. Here, the investor is dependent on the compilation by the fund manager.
- Crowdinvestment: Subject to upper limits in Germany. Also included in the gray capital market. The issuance of real estate tokens, on the other hand, must be approved by BaFin. Accordingly, investors may feel safer here than with a crowdinvestment.
FAQ – Frequently asked questions
The entry sums are significantly lower than with many other investment opportunities. At the same time, the costs are lower and the potential returns higher than with traditional investment products. Furthermore, real estate is basically an interesting investment object in times of rising inflation.
It is important that the provider has a secondary market, so that you can sell your shares again. It also makes sense to ask how long the issuer has been on the market and what projects it has already realized. For this, one searches the Internet for the experiences of other investors and media reports. In addition, one should take a look at the general terms and conditions.
The secondary market is a trading place where investors can resell their asset shares (tokens). This is important, for example, when you need money: You can buy a new car with money, for example, but not with a share in a property. But if you want to sell a property, you have to place an ad, be contacted by potential buyers and need a notary. With real estate tokens, this effort is not necessary: Through the secondary market, sellers and buyers find each other quickly and easily, saving time and bureaucracy.
