Investing in real estate has many benefits, including stable cash flow, passive income, leverage, and diversification, and investors can make money through more than value appreciation and rental income. Property prices are predictably on the rise against the backdrop of economic uncertainty. House prices in the Eurozone appreciated by 1.9% in the second quarter of 2024 after stagnating in the first quarter. In the third, they slowed slightly to 1.4%, but that was enough to push them back to their peaks of 2022.
The continued outperformance of debt versus equity funds and the emergence of private credit make loans a preferred route for many investors to market on top of price increases of the actual property. The high cost of real estate property is an obvious deterrent. Part of the broader phenomenon of real-world asset (RWA) tokenization, real estate tokenization has become a new reality where people execute hundreds of transactions of a single property in under a minute.
Real estate is a highly illiquid investment, and traditionally, investors only engaged in the top markets. Tokenization also reaches smaller investors, offering the ability to match available market demand.
Blockchains enhance ownership and investment efficiency
There is now a platform that integrates traditional land registries with blockchain technology. Blocksquare, which offers blockchain solutions for real estate tokenization, recently announced the incorporation of Blocksquare SARL. It is launching in Luxembourg as the first-ever platform to directly integrate with land registries.
Tokenization of real estate is legally compliant with EU laws, with notarized transaction agreements. Blocksquare’s framework allows real estate property owners to maintain full ownership while tokenizing the economic rights to the assets. The framework involves Blocksquare Property Tokens (BSPT), which grant investors legally protected economic rights. The platform creates and allocates tokens for each tokenization, which the owner acquires via a borrowing arrangement. A lien is placed on the property title to collateralize the loan, and a notary facilitates the procedure. Then, the owner endorses a legally binding resolution to transfer the rights to BSPT holders. These rights come from lease income, property resale, and similar revenue streams, which play a prominent role in commercial property valuations, where most investors seek defined returns.
Following completion of the transaction, investors receive a stake in a property via BSPT tokens and trade them on secondary markets, improving liquidity.
Buying real estate with cryptocurrency is a stable trend
Similarly, purchasing real estate with digital currencies is set to become an established market practice. Cryptocurrency real estate transactions have been rising continuously since 2022, drawing attention to a significant shift in investment strategies. Buyers are increasingly using stablecoins for these transactions, which are less volatile than Bitcoin and altcoins. The shift is important not only for investors but also for property developers, real estate agents, and high-net-worth individuals, rendering real estate more accessible to all. Digital platforms are contributing to this trend by integrating the ability for third-party settlements, expanding market borders, and making global real estate easier to navigate.
Crypto real estate transactions can eliminate intermediaries like banks and lawyers. Parties complete transactions directly via a blockchain platform. Generally, the process transpires as follows.
The buyer chooses a property and lets the seller know that they intend to buy it with cryptocurrency. Then, the parties conclude an agreement with a blockchain-based platform that enables such transactions. They negotiate the sale terms, including the price, and conclude the sale contract. They open accounts with the platform and make a copy of the contract for the property available. Then, payment is made as per this contract. Some platforms convert the crypto to fiat, but the option to transfer the sale price in crypto also exists.
Crypto mortgages: No credit scores or down payments
Crypto lenders normally don’t consider the recipient’s credit and income. What’s more, no down payment requirement exists. Recipients must pledge cryptocurrency equivalent to the loan amount, but they may be asked for significantly less if using USDC. The property also serves as collateral for the mortgage.
People who obtain crypto loans can buy property without cashing in on their crypto assets. They are also used as collateral for the mortgage. The funds are held in an escrow account until the buyer pays off the loan. Essentially, they don’t have to sell their crypto to buy a property and don’t owe capital gains tax.
The absence of a down payment requirement is accounted for by the fact that crypto mortgages are secured by both the home and the crypto. The loan is overcollateralized, so no down payment is needed. Additionally, lenders may be more flexible about credit ratings thanks to that extra collateral, and few ask for credit scores.
Crypto mortgage lenders tend to offer lower interest rates than traditional lenders. As for the amount, loans of $5 million or more are available. The practice isn’t without risk: If the value of the currency plummets, the lender might ask the recipient for more money in crypto or fiat to keep the loan secured. This is known as a margin call.
Fees and taxes on real estate purchases with crypto
If you sell crypto that has increased in value since you acquired it, you’ll owe capital gains tax on the difference between the purchase price and its value at the time of the property purchase. The rates vary depending on factors like income, holding period, and country.
You’ll also pay regular property taxes (stamp duty, land transfer tax, etc.), just like a cash transaction. These depend on local laws. Some jurisdictions may require you to first convert the crypto into fiat before completing the transaction, potentially triggering additional fees and conversion costs.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
