Proposal for a Blockchain enabled Peer-to-Peer Real Estate Platform (for Germany)
Introduction to the German Real Estate Market
Germany is the 4th biggest real estate market in the world. It’s a very mature and stable market, which makes it a potential and lucrative investment target for conservative and risk averse investors. The current concept to own a flat in a condominium system or a sole house in Germany is based on hundred of years of trade customs, laws and the central ledger “Grundbuchamt”. The public land title register is organized by the federal state and the municipalities. To file for a submission to the public ledger one has to use a notary who ensures that the information in the public ledger “Grundbuch” reflects the will of the contractual parties during a property transaction.
General Problems with Real Estate Investments in Germany
- High cost of transaction due to the needed use of the public ledger “Grundbuchamt” and the notary office
- Time consuming process due to the non-digital execution of contracts
- Certain processes have to be manually agreed on by the seller and executed by the notary (and official register), therefore to become the registered owner of a property can take months and in some cases even years.
- The parties have to trust the “middleman” of the public ledger which is not decentralized and vulnerable to fraud.
- The typical notary digital office structure is not organised decentralized, therefore also vulnerable to fraud.
- In most cases the personal presents of the seller and buyer, or at least of their representatives/attorneys is necessary.
- Limited diversification of investors in locations and asset classes due to big tickets. Typically in Berlin, the capital of the Investments in Germany in residential real estate start from about 100.000 Euros and upwards.
- Limited possibility to sell just a fraction of the property, or to co-own.
- Limited possibilities to borrow money from third party (while using the property as a collateral).
- Purchase process requires personal presence in Germany (or in a German consulate office).
- Cost of transaction is high (purchasing side costs, taxes and fees account for up to 15% of the total purchase price)
- Limited performance measurements due to either limited transparency by administration or the lack of implementation of technology to actually generate data.
Therefore, the benefits to use a system based on blockchain technology seems inevitably reasonable. However, the implementation is a high hurdle, not only the judicial and but also legislative institutions need to be convinced about the benefits of the system.
A lot of people in the real estate industry hope that the land title or land register so-called “Grundbuch” in Germany could be revolutionized by the blockchain technology.
But it is most likely that this change will take a long time to integrate in the minds of the politicians and the industry participants in Germany.
For that reason, we propose another bottom-up approach and grassroot initiative to start with a blockchain enabled real estate transactions in Germany. It’s a initiative using existing laws and regulations to the benefit of a peer-to-peer network.
Our model takes the “use what’s there” approach to solve the missing blockchain framework on the land title register level.
First of all we will create a model to “tokenize” properties, which will be fully in compliance with German laws. Secondly and more importantly we will build a platform to trade these tokenized properties. And and last but not least we will introduce a model to borrow money using the tokenized property as a collateral.
- System to tokenize properties in full compliance with German laws
- Platform to enable trade of tokenized properties
- Platform to finance (borrow money with a token as the collateral)
The ultimate goal is to:
- reduce ticket sizes dramatically
- reduce transaction costs
- increase tradability
The Overall Goal
In the long run the platform will replace marketing and sales platforms like immobilienscout24.de, at least partially brokers and agents, banks and credit platforms, to a certain extend notary services and the public ledger (Grundbuch).
- The properties become tradable like a share, without a middleman and for a fraction of the costs of a typical transaction, making real estate truly accessible for everybody.
- Real estate investments can be done without the hassle of transactional burdens, such as appearance in person in front of a German notary or German Embassy to sign the purchase contract.
- Reducing the potential exposure of property owners in one property and/or one location and reducing therefore the portfolio risk dramatically.
- The high number of shares reduces the typical “big ticket” burden in real estate, making real estate investments truly accessible and affordable to any size of budget.
- The blockchain technology will enable the token holder to easily trade his share on the platform without the typical associated side costs and fees.
- The proof of ownership is tied to the ownership of a digital token and therefore mobile and not tied to a certain location or jurisdiction.
- The underlying asset (the property) is located in a very stable environment with a mature legal structure and beneficial taxation.
The Possible Disadvantages
- A traditional exit (a complete sale of the property) is only possible if the majority of token owners agrees upon a sale of the property or the shares. But the assumption is that capital gains will be as high on a per token sale as on a complete sale of the property. However, the sale of all token which we assume is not the aim of the shareholders will possibly occur after a wider acceptance of the model and the platform.
- Due to German laws, the ownership of shares has to be disclosed to the financial authorities if the numbers of shares/tokens exceeds a certain percentage.
- The CEO and his team of the management company as well as the CEO of the property management company has to be trusted by the token/share owner, as most important decisions concerning the underlying investment will be made by them.
- The purchase property can only be made in local currency (in this case: Euro [€]).
- The income of the property is produced in local currency (in this case: Euro [€]).
- Tokens sold/purchased in cryptocurrency have to be transferred in to local currency for the purchase of the property (in Germany/ in this case: Euro). Therefore, any fees or transfer losses due to a change in exchange rates have to be fully covered by the token buyer.
The Plan for future optimisation and expansion
- The main source for future income would be the fees of the trading platform for the property tokens.
- Another source of income would be the fees of the lending platform for lending on a per token basis. As potentially a loan could be put on each token. Enabling third party investors to participate in the investment as lenders, therefore at a reduced risk and with respective lower yields.
- Analytics platform for further and on going digitalisation of all aspects of the property with a 24/7/365 360 degree insights. By creating this platform, all token holders can review at crowd-based discussion and decision-making process.
- The analytic platform needs further implementation of technology in the property to generate data of usage.
This is a non-technical whitepaper draft and not an offer to the public.
Citizens of certain jurisdiction (as USA and Brazil) might not be able to participate or are not legally allowed to participate in this project, due to legal restriction currently implemented by the respective government.
In general always do your own research and use your own due-diligence before making any investments decisions.
Alexander Korte is Berlin based German property developer, with a passion for blockchain.
04. Sept 2017 Alexander Korte (author)
05. Sept 2017 Akseniya Sokolova (proofread),
07. Sept 2017 published
05. Oct 2017 published on medium.com