It’s done! The first real estate transaction using the blockchain technology has just been completed in Luxembourg. This new type of investment should disrupt a booming market and attract new individual investors willing to invest in bricks and mortar. Here is everything you need to know about this first tokenization of real estate assets in Luxembourg.
by: Charles-Louis Machuron
photo: Property Token S.A.
featured: from left to right, Michael Reichling, Director of Espace Invest SA, Bernard Olmedo, Director Creahaus SA, Laurent Olmedo, Director of Creahaus SA et Frédéric Reichling, Director of Espace Invest SA
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Startups and real estate professionals at the heart of innovation
At the helm of this great premiere are Bernard and Laurent Olmedo, directors of Creahaus, as well as Michael and Frédéric Reichling, directors of Espace Invest. The two key players in the Grand Duchy’s real estate landscape co-founded Property Token SA and successfully launched the first Luxembourg real estate token issue.
To carry out this first transaction, the two developers and builders called on the expertise of Tokeny – which made its token emission technology available – and CoinPlus – which provided the “zeroelectronic” physical vault where the tokens issued are securely stored. Not forgetting the architect of this solution, the strategy and innovation consulting firm INNO led by Wesley Deglise.
With the support of renowned business consultant and legal and tax advisors, this innovative “digital securitization” process has enabled a club of private investors to buy and hold tokens, i.e. a digital representation, registered on the Ethereum blockchain, of the rights relating to a luxury building located in the Grand Duchy, in Belval. Belval is the new trendy Luxembourg address that offers a unique mix of work, housing and daily life. In Belval, the economy meets science, cutting-edge research meets entrepreneurship, and today the real estate sector meets the blockchain!
Become a token owner from €1,000
Through this new type of securitization, investors were able to freely decide the extent of their down payment (the minimum was set at €1,000), with rents and any capital gains on resale being automatically allocated to them in proportion to their contribution.
For investors, there are many advantages: no operational management concerns – the building being managed by a real estate professional, easy access to financial leverage via a bank loan, total transparency on the property acquired – a token corresponds to a specific property clearly defined from the time of acquisition, and, last but not least, a very accessible entry ticket.
This product is a major innovation in a rather traditional and conservative real estate market and gives the sector new perspectives.
Tokenization, the new eldorado for real estate investors?
It is the Blockchain technology, and more particularly the “tokenization” process, that has enabled to cross the threshold by making it possible to achieve key functionalities such as the reduction of operational and administrative costs to a minimum, the transparency of a high-performance and robust technology, the integrated management of the distribution of rents to investors via “smart contracts”, the automated processing of investors’ onboarding (including the AML component), etc.
Overtime, the token exchange platforms that are under construction will allow investors to buy and sell their tokens at any time, making real estate products as liquid as shares or bonds.
This token issue made by Property Token SA is the first brick of a broader concept of “tokenization” of Luxembourg real estate programmes that will be structured in the Grand Duchy by leading Luxembourg players, in strict compliance with the applicable regulations. This innovative concept will be structured around a securitization vehicle in accordance with the law of 22 March 2004, audited by an approved auditor.
The future real estate program that will be “tokenized” has already been identified and will be made public by the end of the year.
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10 things to know
(1) A unique “digital” real estate offer which is designed and managed by Luxembourg real estate specialists.
(2) Tokeny, CoinPlus, and INNO: The technologies that made it possible to carry out the project have been developed by Luxembourg-based companies.
(3) The blockchain – and the tokenization process – makes real estate investment easy and accessible. The affordable entry ticket gives the token holder access to Luxembourg real estate, creating opportunities for financial return and potential capital gain much higher than the average performance observed for bank deposits.
(4) The blockchain automates operational tasks as well as the processing of investor onboarding (including the AML component), thus minimizing operational costs and administrative burden.
(5) This first issuance of Property Token’s tokens was not offered to the public but reserved to a club deal of « friends, family and fools ». Each of them received their tokens, that are duly registered in the blockchain, via a secured cryptographic physical vault (i.e. a “Zeroelectronic Solo card” designed by the company CoinPlus).
(6) In the coming months, subject to obtaining the necessary regulatory approvals and in strict compliance with applicable laws, the next property token issue will be open to the public. The future real estate project to be tokenized by Property Token has already been selected by the founders. This will be a “premium” project that will be unveiled and disclosed to the public before year-end.
(7) For each real estate project that will be tokenized in the future, the tokens will be issued by a Luxembourg securitization vehicle in accordance with the law of 22 March 2004, via a dedicated compartment.
(8) Only advantages, no drawback: despite investors will invest in one specific asset – they will not be gathered in a mutual fund that invests in a multitude of impersonal assets – they will not have to worry about the operational management of their asset (a real estate specialist will take care of rental, maintenance, etc.). No operational constraints to be expected.
(9) In the future, tokens should be tradable on token exchange platforms. Let’s take a look at what Euronext has in store for us following its recent investment in Tokeny!
(10) +9% increase in real estate prices in Luxembourg (country) over the last 12 months. +14% increase in prices in Luxembourg City. (Source: Observatoire de l’Habitat published the latest statistics with transaction prices for 2019 (1 April 2018 – 31 March 2019)).
Which electronic money was chosen?
Smart contract ERC20 on the Ethereum blockchain.
How did you come up with the idea?
It is the result of bringing together people from three different backgrounds: real estate, technology and finance, who have a common desire to innovate and invent.
How many investors can enter each project?
The concept does not impose a maximum per project. However, for each project, a specific set-up will be studied and the total number of tokens offered for sale will be defined.
What is the minimum ticket required in Luxembourg for a real estate investment at the moment?
Several hundred thousand euros for a modest property, with prices sometimes reaching much more than 10,000 euros per square meter in some premium locations.
How does the real estate sector lend itself to tokenization?
– The entry ticket into real estate in Luxembourg generally amounts to several hundred thousand euros. With tokenization, a few thousand euros are enough to invest.
– By definition, real estate investment is not liquid. Tokenization will provide flexibility and liquidity.
– Real estate investment is rightly considered as a safe investment. At the same time, it is considered a very conservative and traditional sector by nature. Imagine what you an do if you add a little bit of flexibility and innovation…