Asset tokenisation will increase financial inclusion by opening classes of illiquid assets to a wider base of investors. In real estate markets this value proposition is particularly relevant.
Metro 10 runs from the center of Paris to Boulogne-Billancourt, a commune in Paris’ western suburbs. It is one of France ‘s wealthiest cities, with an average household income almost twice the average French.
Walking along Boulogne ‘s streets one can find some of the country ‘s finest architecture, with lots of buildings worth millions of dollars. One such building is the AnnA Villa, valued at 6.5 million euro. Last week the building became France’s first ever property to be sold through a blockchain transaction.
Investing in a nearby Paris villa for as little as 6,50 euros
The transaction occurred in three stages. First, the building’s ownership was transferred to a joint-stock company called “SAPEB AnnA.” Second, the company’s ownership was split into 10 Ethereum-powered tokens that were distributed among the new owners. Each of these tokens was then further broken down into 100,000 units in the last step, meaning that each token has a face value of €6.50 each.
The deal was being handled by the blockchain investment management company Equisafe. The tokens had been bought by French real estate companies Sapeb Immobilier and Valorcim.
While this was the first property deal in France on a blockchain, similar transactions have taken place in Germany and Switzerland.
Looking across the pond, the U.S. has already seen its fair share of the larger security token offerings backed by real estate, with deal sizes of more than $30 million.
Meanwhile the use case is also being looked at by institutional investors. Earlier this year, Elevated Returns (ER) and Securitize said they will use the Tezos blockchain tokenize $1 billion in real estate assets. In Germany, last month, Peakside Capital introduced a tokenized real estate fund with a target amount of €200 m.
Use real estate cases: increased liquidity and financial inclusion
Property tokenisation is one of blockchain technology’s most exciting use cases. Globally, with a total asset value of $228 trillion, real estate is a more valuable asset class than the combined bonds and stocks.
Despite the huge size of the market, immovable property is still an illiquid asset class with high entry barriers. Investors would have previously needed €6.5 million to purchase AnnA, meaning the average investor could not afford to participate in the deal. With as little as €6.50 each could buy a stake in Villa AnnA in a tokenized market.
Increased financial inclusion will open up illiquid asset classes which the average investor has so far been out of sight of. Real Estate Investment Trust (REIT) funds may claim that they are offering the same value proposition, but REIT funds also come with minimum contributions and high upfront and brokerage fees. Since investors can buy and sell tokenized real estate through digital exchanges, there are virtually no minimum investments, and substantially lower transaction costs.
In addition to allowing a wider range of investors to access the asset class, property tokenisation will eventually also allow a liquid secondary market. When the issuer has listed a token for secondary trading on a digital exchange, the investors can resell their assets easily.
A functioning secondary market for safety tokens hardly exists at this point. Given the enormous value proposition, however, it won’t take long before the secondary token markets attract enough liquidity.
What is being said about real estate is equally valid for other classes of illiquid assets – such as arts or private equities. But considering the size of the real estate market, tokenization can make a big difference for investors, developers, and managers of funds.