Nowadays there are different ways to become a real estate annuitant. You can be a traditional annuitant via property annuities or by receiving dividends...etc. You can also be an annuitant but in a slightly less traditional way via property annuities but through the tokenisation of these assets.
In this new world of real estate tokenisation, the purchase and sale of real estate by investors, who may be institutional or not, is now done in a decentralised and secured manner.
1) Reminder and definition of what a Token is
As a reminder, a token is coming from "digital token". It is the process of registering an asset and the rights attached to that asset on a digital token, which is registered on a blockchain. Tokens can refer both to a cryptocurrency as such, but also to various digital assets created within a blockchain, with particular purposes.
2) Types of use via tokenisation
The Token allows its use in different forms. Indeed, it can first allow transactions between users of a blockchain. The token can also be used to raise funds, known as ICOs (Initial Coin Offerings).
Indeed, through its accessibility to all, the token allows people whatever their means to invest in projects or services whatever their nature.
These can be very different and are therefore divided into several categories of Tokens:
- Utility Tokens refer to services or products that the users buy. These are not considered as assets but it is still possible to play on speculation.
- Security Tokens. These are not assets although they are considered to be equal even if they do not have the same attributes. Via this type of token, users will be able to invest in ICO-type investment projects. These tokens do not offer any guarantees to investors. These tokens are considered to have no real value until the projects are completed.
- Equity Tokens are comparable to shares in a company. They are shares in a company but are still in the conceptual stage
3) Tokenisation of real estate
Thanks to Tokenisation you can buy assets as explained above and in particular real estate via an ICO, A fundraising of Tokens to finance a real estate. This new type of real estate investment has recently appeared in the United States as well as in France under different names: Honeybricks, Bricks or Algae App which stands out by offering all types of real estate in which to invest.
These tokens are generally purchased by investors via a cryptocurrency, such as Bitcoin or Ether.
4) Legislation of Real Estate investment via Tokenisation
One of the reasons why investing via Tokenisation is interesting is its fiscal attractiveness. This obviously depends on the country, but the taxation is still attractive. For example, asmentioned in a previous article (Link article), Portugal attracts many digitalnomads and crypto-friendly people.
Indeed for France, the taxation of an ICO applicable to the natural person investor, the 2019 finance law has specified that exchange transactions between digital assets do not give rise toany taxation. They are considered neutral from an income tax perspective. However, as soon as these assets are converted into money or used to acquire a good or service, the capital gain generated on this occasion will be taxable. Where an individual carries out such an activity on an occasional basis, the taxable capital gain will be subject to the "flat tax" (also known asa single flat-rate levy) of 30%, of which 12.8% is income tax and 17.2% is social security levies.) On the other hand, when the individual investor carries out this activity on a regular basis, the taxable capital gain will follow the industrial and commercial profits regime.
For the taxation of an ICO applicable to the legal entity investor, there is no provision dealing with the tax regime of utility token issuance. In these circumstances, where the legal entity investor intends to use the rights conferred by the utility token, the utility token is comparable to an intangible asset, which is then depreciable over its useful life. Where the legal entity investor does not wish to use the rights conferred by the token, the token will be recorded in the "tokensheld" account and valued at the end of the financial year on the basis of the latest reliable information available.
In some cases, VAT is applicable if there is a direct link between the service rendered or the good acquired and the consideration received. For more details on the applicability provisions or to find out about the existence of exceptions to taxability, it is strongly recommended to contact a specialised law firm.
5) Evolution of the interest in the tokenisation of real estate
Since a certain opacity of taxation on tokenisation and others in some countries, some actors have positioned themselves as change agents to promote real estate investment through cryptocurrency to promote access to property for all. This is in addition to the strong craze that many people are experiencing to get into crypto investing especially due to proposed high rates of return. Indeed, the handful of players already positioned on the market offer returns between 10and 12%. In traditional rental real estate, returns are rather around 5% before taxes and charges. A yield of 10 to 12% is therefore linked to a riskier investment.
An example of the increased interest in tokenisation of real estate is the sale of a flat a few months ago where the transaction was made in bitcoin. The flat, located in Portugal, sold for €120,000, or 3 bitcoins at the time of the transaction. In addition, a first real estate transaction on the Ethereum blockchain took place in 2019 in France with the purchase of a mansion located in Boulogne-Billancourt for a total of €6.5 million.
6) Cryptocurrency craze ingeneral
We are noticing a general attraction around crypto-currencies spreading around the world, with digital assets based on blockchain technology such as Bitcoin, Ethereum or Binance attracting the interest of more and more people. According to a survey conducted by Statista, India, South Korea, the United States, Canada and SouthAfrica are examples of countries where the number of cryptocurrency users andowners has increased significantly between 2019 and 2021. In India, for example, the number of those investing in cryptos more than doubled from 7% to18% over this period.
In other countries, the cryptocurrency craze has been more modest. This is particularly the case in France, where the share of crypto asset holders has increased from 5% to 7% between 2019 and the end of 2021. In Brazil and China, interest in these new forms of investment has even more or less stagnated over the period studied.
According to a Statista study from 2021, there has been an increase in the interest of the inhabitants of the countries mentioned below to invest in crypto. It should be noted that the growth between 2020 and 2021 for Western countries was lower, especially in the context of the health crisis, where people preferred savings or gold as arefuge.
Below, the representation of the evolution of crypto owners in percentage from 2019 to 2021:
Still, it is noticeable that cryptocurrencies are still attractive. This may further reinforce the uncertainty of some about investing in real estate via tokenization.
7) Evolution of cryptocurrencies
While there were a few hundred virtual currencies at the end of 2014, there are now nearly 20,000. This explosion over the last three years is mainly due to the fact that creating anew crypto-currency costs nothing and can be done in just a few clicks. If their number is increasing almost exponentially, this is not the case for their value. With an annualised volatility that often amounts to more than 100%, cryptocurrencies all experience huge fluctuations and remain high-risk investments. After the boom of 2021 and an all-time high of $3 trillion in November, the market capitalisation of the market has collapsed by more than 50% and currently stands at around $1.3 trillion. This figure is still high and remains larger than the valuation at the end of 2020.
As a chart from Statista shows, the weight of Bitcoin is tending to decline in the face of the rise of other digital assets such as Ethereum. Today, Bitcoin accounts for between 40% and 50% of the market capitalisation of all cryptocurrencies, compared to around 80% in 2014.
Below is a representation of the evolution of the crypto-economy:
Indeed, we notice that the increase in the number of cryptos does not correlate with the increase in value and especially in recent months where we have seen significant price drops. However, this does not mean that cryptos are in danger. The creation of new cryptos reassures to some extent the upcoming arrival of new investors.
In conclusion, we can note that investing via tokenization has a future and will do so for a long time to come.This is even more applicable for real estate investment via tokenisation where investors are looking to invest in reliable investments. We can therefore obviously become an annuitant thanks to tokenized real estate. However, you will have to take the plunge and convert your money into crypto and then obtain tokens on specialized platforms like Algae app!
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