Location Ranking (A, B, C & D)

Key Takeaways

  • The German real estate market is so diverse that it helps to rank cities among their attractiveness as a location
  • While A locations are the top 7 German cities, locations have a potential higher return on rent from B to C to D
  • The location ranking can help you to find the best location(s) in Germany to buy properties in

Introduction: A B C D Location Ranking Explained

If you would like to invest in real estate in Germany, one of the very first questions you are asking yourself is: In which location should I buy a property? The location ranking of German cities (A, B, C, or D) will help you to find an answer:

  • A locations are the top 7 cities that are the most popular and the most expensive to buy real estate in
  • B locations are major cities with at least 250.000 inhabitants and many attractive features (e.g. national significance)
  • C locations have at least 100.000 inhabitants and important relevance to their surrounding region 
  • D locations are small cities with a central function for their immediate surroundings (e.g. large employer)

As seen in the 2 examples from a popular German real estate website, it makes a tremendous difference if you are buying in an A (in Munich) or in a D location (Chemnitz). While you can buy a 36 sqm flat for 729.000€ (=20.000€/sqm) in Munich, you can buy for almost the same price an entire house with residential and commercial space in Chemnitz for less than 500€/sqm.

A Locations In Germany

The top 7 German cities are undeniably considered A locations as they are the most stable locations even if the overall German real estate market is going down.

The German capital Berlin with 3,7 million inhabitants, Hamburg with 1,8 million, Munich with 1,5 million, and Cologne with 1,1 million inhabitants are simply for their size an A location.

Frankfurt is the financial center of Europe after London lost that status due to Brexit. Stuttgart is the 6th largest city in Germany and home to many internationally known companies like Mercedes Benz and Porsche.

And last but certainly not least: Düsseldorf. Home of the “high society” in Germany with close proximity to A location Cologne. Together they are in the Ruhrgebiet, the economic powerhouse of Germany.

As of writing this article, Düsseldorf is currently the most affordable A location in Germany. That is why we decided to launch our first real estate security token in close proximity to Düsseldorf.

Examples of A locations in Germany:

  • Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart

B Locations In Germany

While the arguments for A locations are pretty obvious, it gets interesting with the B locations in Germany. B cities are second-tier locations that have a lot to offer in terms of attractiveness for real estate:

A large university with tens of thousands of students like Ruhr-Universität in Bochum, Universität Duisburg-Essen, or the Technical University in Dresden.

Dresden is also home to the tech industry association Silicon Saxony with more than 400 (international) companies and more than 40.000 employees.

A city that experienced incredible growth over the last decades and is now one of the fastest-growing cities in Europe is Leipzig. Therefore, Leipzig has been growing from a C location into a B location.

Proximity to an A location can also be an argument for a B location. Mönchengladbach alone might be considered more like a C location but becomes more like a B location with its close proximity to A location Düsseldorf. That is why we issued our very first real estate security token in Mönchengladbach.

Examples of B locations in Germany:

  • Augsburg, Bochum, Bremen, Dresden, Essen, Hannover, Leipzig, Mannheim, Mönchengladbach, Nuremberg, etc

Do you want to invest in real estate in B cities in Germany? Then check out our first real estate security token in Mönchengladbach by FiveRocks Development SE here:

C Locations In Germany

The further we go down the location ranking, the longer the list of German cities. There are a lot more C and D locations than A locations (just the top 7 German cities).

While B locations have a population of at least 250.000 people, C locations should have at least 100.000 inhabitants. This size makes C locations important to their region, even though they might not be that important to Germany as a whole anymore.

Aachen has almost a population of 250.000 and a large university and is therefore considered a very good C location. If the city continues to grow, it might become a B location eventually (like Augsburg was a C location back in the day).

Halle has almost 250.000 inhabitants as well and is in close proximity to B location Leipzig (like Potsdam is close to A location Berlin). That feature makes these cities very good C locations.

While a B location needs to be important in and of itself (e.g. population, university, companies, economic power, etc), a C location is more dependent on the surrounding area to be important.

Examples of C locations in Germany:

  • Aachen, Erfurt, Erlangen, Halle, Heidelberg, Kiel, Mainz, Potsdam, Saarbrücken, Ulm, Wiesbaden, etc

D Locations In Germany

The list of German cities is the longest when it comes to D locations. These D locations offer potentially the highest investment return while proposing the highest risk at the same time.

Small and medium-sized German cities that mainly depend on one large employer (SAP for Walldorf, Adidas for Herzogenaurach, Audi for Ingolstadt, etc) are D locations as they don’t offer much more than this one company.

The almost 1.500 sqm house on the +2.000 sqm plot for less than 500€/sqm mentioned in the introduction is also in a D location (Chemnitz). That explains why this property is so “cheap.” If the same house would be in an A or B location, it would be a lot more expensive.

Examples of D locations in Germany:

  • Bielefeld, Chemnitz, Herzogenaurach, Koblenz, Regensburg, Trier, Tübingen, Schwerin, Walldorf, Wolfsburg, etc

Are you interested to own real estate in many different A, B, C, and maybe even D locations without spending an enormous amount of money? Investing on our primary market starts usually at just 100€ minimum investment.

Should You Invest In An A, B, C, or D Location?

After learning all the details of the German location ranking that ranks cities in Germany according to their attractiveness for real estate investments, there is just one more question left to answer: Which location or locations should you buy real estate in? 🤔

The answer depends on a couple of different factors:

  • Your budget: Not surprisingly, properties in A locations are much more expensive than similar properties in C or D locations. Ask yourself how much you would like to invest in a property or how much you can afford to invest.
  • Your strategy: As properties in A and B locations are more secure, their return is potentially lower than properties in C and D locations. But be careful: A high return on rent on a D location can become a 0% return on rent if you don’t find a tenant in the middle of nowhere.

As ever so often in the world of investing and personal finance, diversifying is key to true investment success. Strive to build a real estate portfolio of many different property types in many different A, B, C, and maybe even D locations. Our blockchain-based real estate security tokens help you do exactly that. Register as an investor on GermanReal.Estate and experience the easiest way to invest in real estate in Germany.

Global Real Estate Crash In 2023?

Key Takeaways

  • The German newspaper Handelsblatt and the American bank Goldman Sachs are predicting falling real estate prices in 2023
  • Rising mortgage interest rates will increase the costs of real estate investing and bring down profitability
  • Other important factors that influence (German) real estate prices are left aside by Goldman Sachs and Handelsblatt
  • Will global real estate crash in 2023? We certainly have a mixed opinion on the real estate bubble discussion!

Introduction: Analysts Predict A Global Real Estate Market Crash

One of the largest German business newspapers Handelsblatt just recently published an article on their website that Analysts expect global real estate prices to fall from 2023 onwards. The article itself does not reveal who these “analysts” are supposed to be, but it is likely that Handelsblatt is referring to this article from Goldman Sachs published also in October of 2022 Why Home Prices are Poised to Fall.”

Are real estate prices all over the world going to crash in 2023? And if so, what would that mean for the German real estate market? That is what we will answer in this GermanReal.Estate blog post. According to our understanding of the property market in Germany, Goldman Sachs might have a valid point, but real estate has a lot more influencing factors than just rising mortgage interest rates.

Will Rising Mortgage Rates Cause A Real Estate Crash?

The one (and almost only) argument from Goldman Sachs supporting the real estate crash prediction is that interest rates are rising all over the world since the start of 2022. As of writing this article, the Federal Reserve in the US increased their Federal Funds Rate to 3,25% and our European Central Bank increased their key interest rate from 0% to 1,25%.

Consequently, when central banks around the world increase interest rates, banks are raising their mortgage interest rates as well. While German mortgage rates were between 0,5% to 1% at the beginning of 2022, they spiked up quickly to 4% with rising inflation and the war in Ukraine. The current mortgage interest rate when you are reading this article can be found in the interactive table below:

Examples of different mortgage interest rates:

  • A 100.000€ mortgage with an interest rate of 0,5% is costing 208€ monthly or 11.595€ in total interest until the loan is paid back
  • A 100.000€ mortgage with an interest rate of 4% is costing 500€ monthly or 65.066€ in total interest until the loan is paid back

As seen in the example above, the higher the mortgage rates, the higher the costs to buy properties and own properties. Consequently, investors can afford to buy less property or will shy away completely from investing in real estate. Meaning a low-interest rate environment will make real estate prices go up, and a high-interest rate environment will make real estate prices go down.

In this regard, we can agree with Goldman Sachs that real estate prices might fall in 2023. But there is one important question that is left aside here: Who is affected by the change in mortgage interest rates? While 40% of Brits need to refinance their mortgage in 2023 according to the Bank of England, standard German mortgages fix interest rates for at least 10 or 15 years. And 10 or 15 years ago we also had around 3% mortgage rates in Germany.

Rising mortgage rates will also raise the interest rates property developers pay to our investors. See how much interest rates you can get by investing in our real estate security tokens here:

Which Factors Influence (German) Real Estate Prices?

Aside from mortgage interest rates, there are a lot more economic factors that have an influence on real estate prices. When looking at just one factor alone, you will get a pretty incomplete picture and might come therefore to wrong conclusions when trying to predict the future of the German real estate market.

Factors supporting that real estate prices will fall in 2023:

  • Mortgage rates: Rising mortgage interest rates increase the costs for real estate investors and therefore decrease their returns when investing in properties (in Germany).
  • Income: If the income of the population is rising faster than mortgage rates, the costs to buy and own properties become more affordable for the population even though mortgage rates are rising.

Factors supporting that real estate prices will rise in 2023:

  • Demographics: If the population of a country is growing (like the German population which is currently at an all-time high), the demand for living space will keep on increasing accordingly.
  • Supply of living space: Germany is creating around 200.000 to 300.000 new flats every year while the demand for flats is 400.000 flats. If the demand outgrows the supply of living space, how are property prices supposed to fall?

As ever so often, a coin has multiple sides, and the question if real estate prices will fall in 2023 has multiple sides as well. In case you would like to take a deeper look into the real estate bubble discussion to make up your own mind, the 2 videos from our YouTube channel below will give you more insides:

Conclusion: Will The Global Real Estate Market Crash In 2023?

Nobody has a glass ball and can predict exactly what will happen in the future. The only thing we can do is to take statistics and data of the present to project what might happen in the future. Goldman Sachs is taking the rising mortgage interest rates to project that global real estate prices will fall in 2023 (as seen in the chart below).

This blog post showed that there are a lot more influencing factors on the (German) real estate market than just interest rates. Buying a great property in a great location will always lead to great investment success over the long term. And that is what we are trying to help you do: Approaching real estate investing with an investor mindset.

So if you would like to invest in real estate in Germany in the easiest way possible, then check out our real estate security tokens that are currently available on our primary and secondary markets. By investing in our real estate security tokens you do not have to find your own property, secure a mortgage, or deal with tenants. And that is why GermanReal.Estate is the true future of investing in real estate.

How Are Returns On GermanReal.Estate Taxed?

Key Takeaways

  • Taxation of blockchain-based investments can be confusing and is changing every so often with different regulations
  • Taxation of “security” tokens is easy: A flat 25% tax rate for all capital gains the investor makes on a personal level
  • Starting in 2023, investors can secure up to 1.000€/year in tax benefits when investing in real estate security tokens

Taxation Of Blockchain Investments In General

When making any investment decision, the taxation of potential profits should never ever be the major deciding factor to or against any investment. Taxation is definitely one factor of many to consider, but it should not be the one and only factor. Find out in this FAQ article how real estate security tokens are taxed and how they are treated differently than cryptocurrencies or NFTs.

The financial regulators at the Federal Financial Supervisory Authority (BaFin) and the tax regulators at Finanzamt have been trying to figure out blockchain-based investments and their taxation rules for many years now. The result is that tokens are taxed differently than any other blockchain-based investment. (Real estate) security tokens are even taxed differently than currency tokens or utility tokens, which is highly beneficial for investors.

Different profits of blockchain-based investments:

  • Capital gains: When buying any blockchain-based investment (other than security tokens) at 100€ and selling it at 200€, the 100€ capital gains are generally speaking subject to personal income tax of up to 45% (as well as solidarity tax & church tax). When holding a blockchain-based investment over the long term (+1 year), your tax rate might be 0% under certain conditions (if profit is below 600€/year).
  • Passive income: Depending on the type of passive income from cryptocurrency or NFT (e.g. liquidity mining, rewards, etc), the taxation can be different. Most earnings from decentralized finance (DeFi) will be taxed with the investors’ personal income tax rate of up to 45% in Germany.

As cryptocurrencies and NFTs are considered “other assets” and not financial products or financial securities (like security tokens), selling them is considered a “private sale” by Finanzamt. When making too many of these private sale transactions (Finanzamt has no specific number here), any private person can be considered as a business engaging in a commercial activity. As a business, all your earnings from the first cent onwards will be taxed with a roughly 30% tax rate (not 15% like for SPVs).

Taxation Of "Security" Tokens

While the taxation of blockchain-based investments can get confusing very quickly (depending on the type of profit), taxation of security tokens is as easy as possible. Profits above the tax-free threshold are taxed with the flat 25% capital gains tax rate. No matter if these profits come from the difference of buying vs. selling price (from rising real estate value), passive rental income, profit share, or interest rate.

Security tokens are taxed differently because they are the only blockchain-based investment that is considered a financial security by BaFin and Finanzamt. Financial securities are transferable to other investors (like on our secondary market) and give investors certain rights that are similar to other securities. Details can be found in §2 of the German Electronic Securities Act (eWpG).

Thanks to that classification as financial security, profits from (real estate) security tokens are taxed at 25% only. That makes taxation of rental income also more attractive than rental income that would be taxed with up to 45% on a personal income level. Rental income is taxed like regular income from work in Germany. Rental income from security tokens is taxed at 25% only.

Secure completely tax-free investment returns of up to 1.000€/year by investing in our real estate security tokens. Yes, tax-free income in Germany does exist!

Tax Benefits Of Investing In Real Estate Security Tokens

As real estate security tokens are considered financial securities, they come with another inherent benefit for investors: The 25% capital gains tax rate applies for profits above 801€/year only (starting in 2023 this threshold will be increased to 1.000€/year). Profits below 801€ (1.000€) are completely free of any tax thanks to the “Sparer-Pauschbetrag”.

When investing in our real estate security tokens, the first 801€/year (1.000€/year) in profits will not be subject to any kind of tax for everyone with a German tax ID. For married couples that file a joint German tax declaration, the amount is doubled to 1.602€/year (2.000€/year starting in 2023).

Utilize this rare opportunity to make tax-free profits in Germany by registering as an investor here.

Where Are Properties In Germany Still Affordable?

Key Takeaways

  • German mass media is suggesting for many years that properties in Germany are not affordable anymore
  • The real estate association of Germany (IVD) is creating a German real estate affordability index every quarter
  • IVD is looking at different locations: Average German locations vs. the top 7 German cities (A locations)
  • As well as different property types in order to get the most objective view possible of the affordability of German real estate

The German Real Estate Affordability Index

When reading about German real estate in the German media, you get the impression that property prices are not affordable anymore and the real estate market in Germany is about to crash. Headlines like the ones below make you wonder: Is real estate in Germany still affordable? And if so, where are properties still affordable?

The “Immobilienverband Deutschland (IVD)” is answering the question of how affordable properties in Germany are every quarter with their affordability index coming to different conclusions than the headlines above. In order to get the most objective view of German property prices possible, IVD is having a scientific approach when compiling its German real estate affordability index:

  • Location: Germany is split into average locations & the top 7 cities (also called A locations)
  • Property types: “Real estate” is divided into 4 different types: Existing flats, new flats, townhouses, and single-family houses
  • Mortgage rate: Current realistic interest rate for a mortgage that is paid back fully in 30 years
  • Closing costs: Mandatory notary fees & ground purchasing taxes for transferring a property (not for tokenized real estate)
  • Income: Net household income consisting of 1,75 full-time workers with the average German salary

The IVD is doing an incredible job in compiling their Geman real estate affordability index every quarter since the year 2010. They compile different property types in up to 285 different German locations to come up with property prices and affordability percentages (below 25% is considered affordable for IVD). See the 8 different results for yourself here:

  1. Existing flats in the average German location vs. the top 7 cities
  2. New flats in the average German location vs. the top 7 cities
  3. Townhouses in the average German location vs. the top 7 cities
  4. Single-family houses in the average German location vs. the top 7 cities

Affordability Of Existing Flats In Average Germany

Prices of average existing flats:

Property prices in the average German location went straight up since IVD started to publish its affordability index in 2010. Existing flats that cost around 90.000€ back in 2010, are costing 230.588€ today (= increase of 156%).

Affordability of average existing flats:

While 230.588€ is a lot of money for an existing flat, the question is how much money that really is compared to people’s income. Despite the increase in property prices, the IVD affordability index is still 13,3% (= people spend 13,3% of their net income on the mortgage).

Affordability Of Existing Flats In The Top 7 Cities

Prices of top 7 existing flats:

Property prices in the top 7 cities are much higher than in the average German location and increased much more as well over the years. Existing flats range from 275.616€ in Berlin up to 583.025€ in Munich. That is why the top 7 cities are considered A locations.

Affordability of top 7 existing flats:

Even though real estate in the top 7 cities is much more expensive than in the average German location, the IVD affordability index is still below 25% for all cities except Munich with 31,2%. Düsseldorf is the most affordable with 19,1% among the top 7 German cities.

The affordability of real estate in Düsseldorf is why FiveRocks started to develop Welcome Home close to Düsseldorf that you can invest in.

Do you want to invest in real estate in Germany without spending hundreds of thousands of Euros? Try our real estate security tokens:

Affordability Of New Flats In Average Germany

Prices of average new flats:

Property prices for new flats are significantly higher than prices for existing flats. The difference in the average German location is 230.588€ (existing) vs 335.156€ (new). Consequently, the question “Should I buy a new flat or an existing flat?” is probably a personal budget question when talking about a 105.000€ difference.

Affordability of average new flats:

New flats in the average German location are still quite affordable with an index of 19,9%. At the end of 2015, the affordability index was around 16% (= increase of 24,4% over just 6 years). If the trend continues, new flats in the average German location might soon reach the 25% limit of the IVD.

Affordability Of New Flats In The Top 7 Cities

Prices of top 7 new flats:

Property prices in the top 7 German cities are mostly far away from the average location (except Düsseldorf with 361.506€). The most expensive cities for new flats are Stuttgart with 517.190€ and Munich with 721.008€ (where flats in the city center cost sometimes up to 20.000€/sqm).

Affordability of top 7 new flats:

Newly built flats in 6 out of the top 7 German cities break the 25% barrier of the IVD. Only Düsseldorf, which has the strongest upwards trend, is below the threshold with 22,8%. Munich is again the most expensive German city with an affordability index of 38,6%.

“No matter which type of property you are looking at, Munich is by far the most expensive city to buy real estate in Germany.”

Affordability Of Townhouses In Average Germany

Prices of average townhouses:

Property prices for townhouses in the average German location are surprisingly cheap compared to newly built flats (only 67.000€ more for a house than a flat). The prices for townhouses more than doubled from around 200.000€ to 401.955€ (a little over half the price of a new flat in Munich 🫠).

Affordability of average townhouses:

Because of the incredible return of townhouses in the average German location, their affordability index is very close to the IVD threshold at 23,8%. If the price increase continues for just another year or two, townhouses will be not affordable anymore (according to the IVD).

Affordability Of Townhouses In The Top 7 Cities

Prices of top 7 townhouses:

While townhouses in the average German location cost 401.955€ only, townhouses in Munich cost almost 1 million €. The majority of the top 7 cities are about 50% more expensive than the average location with around 600.000€ (Cologne, Düsseldorf, Frankfurt).

Affordability of top 7 townhouses:

For the first time on this list, all 7 top cities break the 25% affordability barrier of the IVD (all above 30%). Cologne & Frankfurt are around 40% affordability and Munich is the most expensive with 52,7%, meaning the average earning household spends 52,7% of the net income just on the mortgage.

How can you invest in real estate in Germany without spending +50% of your net income? With our blockchain-based real estate security tokens that start usually at 100€ minimum investment!

Affordability Of Single-Family Houses In Average Germany

Prices of average single-family houses:

Property prices for single-family houses are by far the most expensive type of property in Germany. In the average German location, a single-family house costs 514.905€, almost 115.000€ more than a townhouse in the average location.

Affordability of average single-family houses:

For the first and only time on this list, the affordability of the average German location breaks through the 25% barrier of the IVD. Single-family houses cost the average earning household exactly 30% of their net income (just for the mortgage).

Affordability Of Single-Family Houses In The Top 7 Cities

Prices of top 7 single-family houses:

While single-family houses are the most expensive property type in Germany, Berlin is the exception of the top 7 cities. Single-family houses in Berlin at 469.710€ are cheaper than single-family houses in the average German location (at 514.905€).

Given this statistic, we might publish single-family houses on our primary market for you guys to invest in. 🤔

Affordability of top 7 single-family houses:

Like townhouses, single-family houses in the top 7 cities are not affordable anymore for the average earning household. Berlin is the “cheapest” with 37,4% (+12,4% above the IVD barrier), and Munich is again the most expensive with an affordability index of 73,6%.

Including other housing costs (electricity, water, GEZ, insurance, etc) the average household would spend way over 80% for their home in Munich.

Special Purpose Vehicle (SPV)

Key Takeaways

  • A Special Purpose Vehicle (or Special Purpose Entity) is a regular German capital company (e.g. GmbH)
  • The SPV is created by its parent company for a very specific purpose (and time) only
  • SPVs offer different benefits for investors and the parent company (e.g. issuing security tokens)

What Is A Special Purpose Vehicle (SPV) & Why Do We Need It?

German financial regulation (especially the German Electronic Securities Act eWpG) is not allowing the tokenization of physical assets like real estate directly. That is why properties you can find on the GermanReal.Estate marketplace are held by special purpose vehicles (SPVs) or special purpose entities. These SPVs offer certain benefits not just for the issuer of the real estate security token, but also for investors in our blockchain-based securities.

A special purpose vehicle or special purpose entity sounds complicated and special, but it is actually just a regular German capital company. Generally speaking, SPVs are created as GmbH (short for “Gesellschaft mit beschränkter Haftung”) which would translate to LLC (short for Limited Liability Company) or AG (short for “Aktiengesellschaft”) which would translate to a stock corporation.

While there are no differences between a regular company and an SPV from a legal perspective, there are various differences from a business perspective. SPVs are usually created by another company (parent company) for a very limited and particular task only. Let’s make the example that a German property developer wants to create a new SPV for a new property they want to build:

  • Parent company (e.g. FiveRocks Development SE): German property developer that is developing multiple different projects at the same time or one after the other. As the parent company exists over the long term, its business purpose might be “Developing buildings in B locations all over Germany.”
  • Special purpose vehicle (e.g. Welcome Home MG GmbH): Created by the parent company for one specific project development only. The SPV, therefore, exists only for the time until the project development is complete. Its business purpose might be “Developing and holding a building in Munich.”

Thanks to the separation of the parent company (comp. holding company) and its SPV, the financials and the risk of doing business are completely separated. That makes it also very clear to everyone looking from the outside who is doing what and who owns the property exactly. The separation offers also other benefits for the parent company and for investors.

Do you want to invest in real estate in Germany in the easiest way possible? See on our GermanReal.Estate marketplace what kind of real estate security tokens are currently available:

Benefits Of A Special Purpose Vehicle (SPV)

Creating an SPV offers various benefits for the parent company as well as other business partners of the SPV (e.g. investors). That is also why we created our SPV “German Real Estate Token 1 GmbH” for our first community token which is separated from the parent company behind GermanReal.Estate (“German Real Estate GmbH”). The benefits include the following:

Taxation: Generally speaking, the earnings of a company in Germany are taxed with 15% corporate tax + 15% trade tax (slight variations in trade tax, as well as solidarity tax, ignored here). If a company is not doing any commercial activity, it can be freed from paying trade tax. Therefore, an SPV that is just holding a property and issuing a financial security might enjoy a tax rate of 15% only (compared to rental income that is taxed on a personal income tax level with up to 45%).

Share deal: In a regular transaction (from person to person), a property is transferred from seller to buyer. This transaction involves notary fees and taxes based on the property value. Instead of transferring the property itself, the seller could also transfer the SPV holding the property (share deal). A share deal will produce the same result (the desired property is transferred from seller to buyer), while significantly reducing the fees and the taxes involved in the transaction (like on our blockchain).

The benefits of SPVs (e.g. the decreased tax rate on a company level) allow us to increase returns for our investors that invest in real estate security tokens on our GermanReal.Estate marketplace. See for yourself what investments are currently available in our primary and secondary markets.

Why Are We Using The Blockchain Technology?

Key Takeaways

  • The blockchain technology allows everyone in the world to invest in German real estate security tokens (theoretically)
  • Transaction data from trading security tokens can be recorded very securely and fast on the blockchain
  • The increased efficiency of the blockchain technology allows us to reduce costs & increase returns for investors

Introduction: The Blockchain Offers Unique Advantages

In a previous article in the GermanReal.Estate Wiki, we discussed what a blockchain is already. Some investors have been asking why we are using the blockchain technology to trade our real estate security tokens (currently Polygon). Running our smart contracts on a blockchain offers different benefits that cannot be found in traditional financial services.

Read the full article to learn more about the unique benefits of the blockchain and why we are using this technology:

Blockchain Advantage #1: Global Technology

Real estate (in Germany) is an exciting asset class to have in any portfolio. Unfortunately, many people are facing different problems when trying to buy a physical property:

  • Not having the right financial situation: When applying for a mortgage, banks want to see low or no debt, a good Schufa score, etc
  • Not having the right job situation: To get a mortgage, an unlimited job contract and a completed probation period are required
  • Not having the money: Buying real estate involves high start-up costs in Germany (e.g. notary, taxes, real estate agent)
  • Not having the right visa: Securing a mortgage without a permanent residency or German citizenship is difficult

When investing in real estate security tokens on the blockchain, none of the requirements of traditional real estate investing matter. The blockchain technology allows (almost) everyone to invest in real estate security tokens through the internet. As investors can buy our security tokens directly with their wallets, there is no need to physically be in Germany.

Attention: While the blockchain technology allows global trading over the internet, German money laundering laws restrict some transactions. The internet doesn’t know any physical borders of countries, German law does. That is why there might be some issues when investing in our real estate security tokens with a non-Euro bank account.

Blockchain Advantage #2: Digital Processes

Buying a German property the traditional way will take weeks and months with all parties and steps involved (finding the right property for the right price in the right location, securing the mortgage, notary meeting, and changing the German land registry). And most of this traditional German bureaucracy still involves pen & paper processes.

Our smart contracts that run on the blockchain allow us to streamline the traditional pen & paper processes to an absolute minimum. GermanReal.Estate allows you to invest in properties in Germany in minutes, and not in weeks or months (indirectly with security tokens). All our investors need is a device that is connected to the internet.

GermanReal.Estate is the easiest way to invest in properties in Germany!

Blockchain Advantage #3: Secure Record-Keeping

Aside from being slow and bureaucratic, the traditional pen & paper processes of the German real estate industry are an invitation for human error as well. As the blockchain technology is digital, it is by far the most secure record-keeping system existing.

With every transaction of a real estate security token, a record is written below the latest transaction. After accumulating enough transactions, they are sealed in a block. Thanks to the unique hash (fingerprint), this block is linked to the previous block. Therefore creating a chain of blocks that cannot be changed anymore, as the faulty hash would cause the blockchain to break.

The transparency of the decentralized blockchain network makes transactions visible to everyone. If somebody would try to manipulate our transactions, hack GermanReal.Estate, or steal real estate security tokens from an investor’s wallet, we could just destroy the stolen security tokens and mint new ones according to the record we have before the hack happened.

Blockchain Advantage #4: High Efficiency

Thanks to the decentralized blockchain network, there is no need for middlemen when investors want to trade our real estate security tokens. While traditional financial services require an exchange (e.g. stock exchange) or a bank, the blockchain technology runs smart contracts automatically.

The increased efficiency will show its full potential with our secondary market (expected to go online in 2023). The GermanReal.Estate secondary market will allow investors to trade their real estate security tokens like stocks are traded on a traditional stock exchange.

While it is currently difficult for investors to cash out before the maturity date of the security token, the secondary market will give investors another option to make a profit. Depending on your future outlook of the German real estate market (if property prices will go up or crash), you will be able to buy more security tokens or sell your amount of security tokens completely.

Blockchain Advantage #5: Reduced Costs

The increased efficiency of the blockchain technology is benefitting us in two different ways: Allowing us to reduce costs and therefore increasing potential returns for investors. Real Estate security tokens have allowed us to eliminate all sales commissions for investors. GermanReal.Estate makes money by charging property developers that want to finance their projects, not by charging high sales commissions from investors.

While traditional real estate investments (like REITs, short for Real Estate Investment Trusts) require a minimum of 5.000€ or even 10.000€ investment, tokenizing real estate with the blockchain can be economical at much lower investment minimums. That is why the minimum investment on the GermanReal.Estate primary market starts at usually 100€.

2 Reasons For Rising German Property Prices

Key Takeaways

  • In early 2022, the 10+ year rally of real estate prices in Germany started to slow down significantly
  • Out of the 4 major economic factors that determine property prices, 2 indicate falling prices or even a market crash
  • With the German population being at an all-time high, the demand for living space keeps growing and growing
  • Germany is losing +100.000 flats every single year because we are not building or renovating enough

Introduction: The German Real Estate Market Changed

We introduced the 4 major economic factors that influence (German) real estate prices in the last GermanReal.Estate blog post. The first 2 factors (mortgage interest rates & incomes) indicate that real estate prices in Germany will fall, maybe even that the entire German real estate market will crash. The other 2 factors that will be discussed in this blog post, speak for rising german property prices.

Will the German real estate rally continue or is the party over and properties are not affordable for the German population anymore? In 2020, property prices in the average German location rose by +9,6% after inflation. In 20201, property prices rose by another 14,2% after inflation. Growth rates like these have many people worried that the market will turn eventually and the “bubble” will burst.

With the World Bank expecting a global recession in 2023, rising mortgage interest rates, the war in Ukraine, rising inflation in the Euro area, etc it is not looking positive for the German real estate market (at first sight). That is why this article will take a deeper look to find economic factors that will stand against the negative news. The real question is: Will these factors be enough to support the German real estate market? You will be able to form your own opinion after reading through the article.

Reason 1 For Rising German Property Prices: Demographics

The German population has been rising consistently since World War 2. Especially in the 1960s, the 1990s after the German reunion, and in the 2010s after the global financial crisis, a lot of babies have been born. That is why today, the German population is at an all-time high with about 83,2 million people (at the end of 2021). For real estate investors, it is more important what will happen to the population in the future, than what happened in the past.

Nobody can know exactly how the German population will develop in the future, but there are certain projections from the German Demographics Portal. Variant 1 in the graphic below shows the future development of the German population with absolutely no migration to Germany. As more people are dying than babies are being born, the German population would be shrinking fast without any migration.

With a little migration to Germany, the population would develop like in Variant 2. As there was always migration to Germany since the 1950s (up to 1 million people per year (net) as shown in this chart), it is extremely unlikely that the German population would shrink as fast as in variant 1. With little migration to Germany, the population would still shrink slowly over the next years and decades.

Migration will have a tremendous influence on the development of the German demographics. With a lot of migration (like in the year 2015 with +2 million), the German population would be growing for the next 10 and 20 years until the year 2040. Everything after that is highly speculative anyway. Trying to predict demographic changes over 10 or 20 years might lead to valid results. Trying to predict population changes over 40 years seems highly speculative given the fact that many variables are involved.

No matter which population variant you guess is the correct one, there will always be demographic trends driving up the real estate prices of certain properties. Always remember: Population growth is only one aspect of demographic change. There are a lot more variables involved in order to determine the development of real estate prices:

  • The amount of people living in cities will grow continuously. The graphic shows that the German population went from 68,1% in cities in the 1950s to 78,6% living in cities in the 2030s. So even if the overall German population could be shrinking (like in variant 1), the percentage of people in cities will grow and therefore make properties in the top German locations more valuable.
  • While the German population ranked in age groups looked more like a pyramid in the 1950s (as seen here), the pyramid shape slowly shifted as fewer babies were being born over the decades. This shift makes real estate catered to senior living (seniority homes, retirement homes, nursing homes, etc) more valuable.

There is no “one” German real estate that will be a good or bad investment going forward. The goal of investors has to be to diversify with different investment properties. That was our goal when creating GermanReal.Estate, to give investors the chance to invest in many different rental properties with the blockchain. What is difficult to do when buying real physical properties yourself (because of high prices), is easy to do when investing in real estate security tokens on our GermanReal.Estate marketplace.

Invest in many different (German) real estate trends here:

Reason 2 For Rising German Property Prices: Supply

The last major economic factor that influences (German) real estate prices is at the same time the most important one to everyone believing in the market economy. The law of supply & demand has been proven right and right again over hundreds of years. When trying to predict future property prices, you just need to compare how much living space is created compared to how much living space is needed.

If a country has a supply surplus of living space (more supply than demand), sooner or later property prices and rents have to go down as tenants and potential buyers have many options to choose from. There is no reason to pay high property prices or high rents. If a country is not creating enough living space, property prices and rents have to go higher and higher the more the demand outgrows the supply (excess demand).

In order to keep the supply of living space leveled, the German government plans to create 400.000 flats every year. Given the average lifespan of a property (±100 years), Germany needs to build, modernize, or renovate 400.000 flats every year just to keep the supply of living space at 0. Factoring in that the German population is at an all-time high right now, Germany would need a lot more than 400.000 flats each year in order to satisfy the demand.

To see how close Germany came to building 400.000 new flats every year, let us take a look at the graphic above that shows how many flats Germany has really been building over the last 20 years. In 2021, Germany didn’t even manage to create 300.000 flats. To make things worse: In the first half of 2022, even -2,1% fewer building permits were granted in Germany, making it extremely unlikely that Germany will reach its goal to build 400.000 flats in 2022.

Realistically speaking, Germany is losing at the very least 100.000 flats each year for the last 20 years. 300.000 flats were built just once (2020). It seems more realistic that Germany creates 250.000 each year when looking at the graphic above. Resulting in -150.000 flats each year, -1,5 million flats in 10 years, or -3 million flats over the last 20 years. Germany is missing at least 3 million flats.

Are you still wondering why property prices or rents in Germany have been exploding? The German population has been growing consistently over the last 20 years, meaning the demand for living space has been growing accordingly. At the same time, Germany has been losing on a realistic basis about 150.000 flats each year, lowering the demand. How are property prices supposed to go down or “crash” with these numbers?

Conclusion: What Will Happen To German Property Prices?

German property prices are determined mainly by 4 major economic factors. Before 2022, all 4 of these economic factors indicated the German real estate market will continue to grow. At the beginning of 2022, the 2 factors mortgage interest rates and incomes started to turn, meaning that the years of growth might be over.

The other 2 economic indicators (demographics & supply of living space) lead to the conclusion that property prices in Germany will continue to rise. If you believe in the market economy value the law of supply and demand (like us), it seems impossible that real estate prices in Germany will go down significantly over the long term. Some properties in some regions might lose value (become affordable again), but the overall German real estate market will stay strong.

In order to help the German real estate market out of this misery, there is only one thing we can do so that rents and property prices will normalize going forward. Companies in the real estate industry (especially property developers) need money so they can build more living space. If you want to support the cause while earning a nice return for yourself by investing in tokenized real estate, check out how you can help property developers on our primary market.

Security Token

Key Takeaways

  • (Security) tokens get often confused with coins (like Bitcoin or Ethereum) or NFTs (non-fungible tokens)
  • While there are some similarities between tokens, coins & NFTs, there are major differences as well
  • Only GermanReal.Estate security tokens are considered financial securities (like traditional securities, just digital)

Difference Between A Coin Vs A Token

Some investors seem to mix our real estate security tokens with cryptocurrencies like Bitcoin or Ethereum every once in a while. Even though tokens & cryptos are blockchain-based, there are major differences between the two. Because of the word “token”, security tokens are also confused sometimes with NFTs (non-fungible tokens). What are the differences exactly? 🤔

A cryptocurrency or coin like Bitcoin or Ethereum use their one blockchain technology in order to store data (e.g. transaction data), validate transactions, or run smart contracts. Therefore, the bitcoin blockchain is completely separated from any other coin or blockchain out there. Tokens do not have their own blockchain and use an already existing blockchain as their infrastructure.

As of writing this Wiki article, we run our real estate security tokens on the Polygon blockchain. Therefore, we do not have to develop our own blockchain from the ground up, worry about the validation process, or run a virtual machine that is capable of processing our smart contracts. The Polygon blockchain that is existing already is giving us the entire infrastructure.

Thanks to the Polygon blockchain, we can focus on providing a great product for our investors by tokenizing German properties into real estate security tokens that you can trade on our marketplace (as well as producing content on YouTube, our blog & FAQ). Are we stuck with using the Polygon blockchain forever? Once the interest in our real estate security tokens from investors picks up, we could branch off from Polygon at any time (maybe even develop our own blockchain).

What Is A "Security Token"?

Now that we know what the difference between a coin vs a token is, what is a “security” token? As there are different types of tokens (utility tokens, commodity tokens, currency tokens, etc), it is even harder to understand exactly what security tokens are. According to §2 eWpG security tokens are financial securities as they are tradable between investors and have rights that are similar to traditional securities.

Security tokens are minted by us to represent ownership of the properties that can be found on our GermanReal.Estate marketplace. Historically speaking, ownership of any asset (e.g. real estate, gold, a company) was represented by a physical piece of paper. Security tokens function the same, they are a digital symbol of ownership.

Imagine that you would like to invest in real estate as it is a really good asset class to have in your portfolio. Unfortunately for you, investing in real estate is not as easy as it seems with the search for the right property for the right price, handling your tenant(s), filing extended tax declarations, taking care of renovations, etc. To make your life easier, you can invest in real estate security tokens that are issued by the SPV holding the property you would like to invest in.

If you would buy 100% of all security tokens of any given property (e.g. Mönchengladbach: Welcome Home), you would be entitled to 100% of the net rental income as well as 100% of the resale value of the property (generally speaking). When buying 50% of all outstanding real estate security tokens, you would profit from 50% of the net rental income and resale value. And with any other percentage accordingly.

The example above also separates our real estate security tokens from NFTs (non-fungible tokens). NFTs are non-fungible, meaning they are unique identifiers that prove ownership (usually used in digital photos or videos). Security tokens are fungible, as no security token differs from another security token of the same product line (e.g. security token #69 from GRE2 can be replaced with security token #420 from GRE2).

How Can I Earn Money On GermanReal.Estate?

Key Takeaways

  • With traditional real estate investing, you have only 2 ways to make an investment return (rising property value & passive income)
  • When investing on GermanReal.Estate, you have up to 3 ways to make an investment return (incl. our investor referral program)
  • When participating in our investor referral program, both you and your friend will earn a reward based on his investment

Option 1 To Earn On GermanReal.Estate: Rising Security Token Value

The investment returns you can achieve with traditional real estate investing are quite obvious: The difference between the buying price of your property vs. the selling price, as well as passive rental income. Investors that invest in real estate security tokens on our GermanReal.Estate marketplace have been asking if the types of return are the same, or if they have also other ways to make a return.

Generally speaking, investors can benefit from 3 different types of return when investing on GermanReal.Estate. The first and most obvious way is to invest in real estate security tokens that are most of the time valued at 1€ on our primary market. Over time and with increasing demand from investors these security tokens might rise from 1,00€ to 1,10€ in value, maybe even 2,00€, or whichever value is possible.

Why would anyone pay more than 1€ for a real estate security token with a nominal value of only 1€? Because of increased property value (if the property is in the right location) and increased demand from investors means increased value for any investment. As of writing this article, the Deutsche Post stock price is at 36€ of market value while the nominal value is still at 1€. Due to demand from investors, the Deutsche Post share price outgrew the nominal value.

The same logic can be applied to our real estate security tokens once our secondary market is going online (expected in 2023). As soon as investors can trade our security tokens on our secondary market, it is their job to determine the fair market value of any given real estate security token (like on any regular stock exchange). Even though the nominal value of this specific security token will still be at 1€, despite the market value.

Option 2 To Earn On GermanReal.Estate: Passive Income

The second option to make an investment return when investing in our real estate security tokens is the internet’s favorite way to make a return: Passive income. As security tokens are one of the most flexible financial products existing, there can also be a wide range of different types of passive income.

Rental income: With existing buildings, investors might receive a share of the net rental income. Depending on the number of security tokens, investors will receive a percentage. If an investor has 1% of any given real estate security token, he would be entitled to 1% of the net rental income from the underlying property. Taxed a lot better at just 25% with security tokens rather than 45% (including tax-free earnings of 1.000€ in 2023).

Fixed interest rate: As there are no tenants with newly built property developments, no rental income can be shared with investors. That is why property developments pay mostly a fixed interest (e.g. Mönchengladbach: Welcome Home). Issuers of the security token can decide on the amount of interest paid as well as how often the interest is paid to investors (monthly, quarterly, twice a year, or annually).

Profit share from property sale: If the underlying property of the real estate security token is being sold, investors can benefit from the resale value. When the issuer (e.g. FiveRocks Development SE) bought a property or constructed a property for 100.000€ and sells it for 200.000€, investors can participate from the 100.000€ profit from selling the property. Attention: Property values can also go down. A rising property value is not guaranteed.

Profit share from SPV: Properties listed on the GermanReal.Estate marketplace are mostly held by special purpose vehicles (SPV) or special purpose entities that also issue the real estate security token. When that SPV makes a profit, a certain percentage of that profit can be paid out to investors. The community portfolio token we are working on will reward investors with a profit share.

Please be aware that not all real estate security tokens that are listed on the GermanReal.Estate marketplace will pay all 4 different types of passive income mentioned above. As each and every security token is different, the passive income opportunities of every security token will also be different (e.g. different amount of fixed interest paid to investors).

Option 3 To Earn On GermanReal.Estate: Investor Referral Program

The third and last option to make an investment return on GermanReal.Estate is an option that does not exist in traditional real estate investing. We work very hard in order to provide the best possible investing product for our investors. If you enjoy investing in our blockchain-based security tokens, you can tell your friends about us by sharing your investor referral link.

If one of your friends registers as an investor on GermanReal.Estate, he will be rewarded with a bonus that is based on his initial investment amount (currently valid percentage can be found here). You as the person who referred a new investor to us will also be rewarded with the same bonus as your friend. As of writing this article there is no limit to the amount of friends you can refer or the amount of bonus that can be paid out to you and your friend.

In this FAQ post, you learned about the 3 ways of making a return when investing in real estate security tokens from GermanReal.Estate. We wish every one of our investors happy investing and fun when utilizing the different ways to improve their very own financial future with security tokens.

Will The German Housing Market Crash?

Key Takeaways

  • Real estate prices (in Germany) are mostly determined by 4 economic factors
  • 2 of these factors (mortgage interest rates & incomes) suggest that property prices in Germany will fall or crash
  • The other 2 factors (population development & supply of living space) indicate that the German real estate market will keep rising

Introduction: 4 Factors That Influence Real Estate Prices

Crash prophets always find a reason to predict falling prices in any financial market. Especially recently, more and more “news” got published that the German housing market will crash in the near future. Depending on the news website, headlines in the German media report very contrary price predictions for the German real estate market:

After reading these headlines, which were published in a very short timeframe within each other, one might wonder what will really happen to property prices in Germany. That is why this GermanReal.Estate blog post will check the facts to find out what is really happening in the German real estate market.

According to (real!) experts, property prices are determined by 4 economic factors: Mortgage interest rate, income, population development, and supply of living space. One could probably find hundreds of influencing factors that have somewhat of an influence on the German housing market, this article will examine these 4 major factors only in order to predict what will happen to property prices in Germany.

As 2 out of these 4 factors changed in the first half of 2022, this might also be the reason that leaves many people scared the German real estate bubble will finally popp (and properties become affordable again).

Reason 1 For A Real Estate Crash: Mortgage Interest Rates

Mortgage interest rates have been falling with interest rates around the world since the global financial crisis in 2007/2008. While German mortgage rates were at almost 9% in the mid 1990s, one could finance his property for around 0,5% interest in 2019 and 2020 (10-year fixed rate). After an almost constant decline in mortgage rates for 25 years (as seen in the chart below), interest started rising again in 2021.

Especially in mid 2021, mortgage interest rates started skyrocketing to about 4% in just a couple of weeks with increased inflation concerns, the war in Ukraine, and rising the rising key interest rate from the European Central Bank. The comparison below is showing how severe the increased mortgage rates are that 8x.

Comparison of a 100.000€ mortgage with different interest rates:
  • 0,5% interest: 208€ monthly payment, totaling 11.595€ in interest until the mortgage is paid off
  • 4% interest: 500€ monthly payment, totaling 65.066€ in interest until the mortgage is paid off

Aside from a monthly mortgage payment that more than doubled, an 8x mortgage rate results in +53.000€ more in interest payments during the duration of the mortgage. The increased mortgage rate drives up living costs for homeowners and brings down returns for real estate investors.

Additionally, it has gotten increasingly difficult to secure a mortgage in the first place, as German banks started increasing their equity requirements. Also, with inflation in the Euro area to be expected 10% in October 2022, the ECB is expected to increase its key interest rate again in the near future.

While the increased lending rates hurt property buyers applying for a mortgage, other investments (i.e. bonds) are getting more attractive as interest rates around the world keep rising. Property developers financing through our platform pay interest to our investors, instead of paying interest to a bank. That is one of the many benefits of tokenized real estate that investors can earn more money when interest rates are rising.

Invest blockchain-based in real estate security tokens here:

Reason 2 For A Real Estate Crash: Income

As (disposable) income determines how much property people can afford, the second economic factor is the real income of the population. While the average German net income was 2.439€ in the year 1960, the average German will earn 25.583€ net salary in 2022 (see statistic here). When inflation rises by 10% but average incomes only by 3%, the real income is going down.

When the real income of the average German population goes down, real estate prices have to follow eventually as fewer and fewer people can afford to buy a property. That is why we decided to have investing minimums in our real estate security tokens as low as economically possible with 100€ to allow everyone to invest in real estate in Germany.

The world bank stated in a press release in September 2022 that the risk of a global recession in 2023 keeps rising. If the recession is happening, it is expected that some incomes will at least stagnate and some people might even lose their job. Bringing another strong argument that real estate prices will fall accordingly.

Especially the number of homebuyers is expected to decrease significantly during a recession, as people do not want the pressure to pay off a mortgage for decades if they are not sure how secure their income really is. Ask yourself: Would you like to get a mortgage if you are not sure how secure your job really is? 🤔

2 Reasons For Rising Real Estate Prices

The 2 arguments above leave many people worried and scared that property prices in Germany will fall in the near future (especially German people). Should you be scared as well that the German real estate “bubble” will finally burst?

Panicking is a highly emotional reaction that is never good when trying to make rational investment decisions. We recommend looking at facts rather than clickbait from German news websites that are just trying to get you scared. There will always be a reason for crash prophets to predict falling prices. Be it because of the pandemic, inflation concerns, the war in Ukraine, rising interest rates, etc.

Nobody has a glass ball and knows exactly what will happen to real estate prices in the future. The remaining 2 factors on the list of 4 major factors that influence (the German) real estate market give strong arguments for why property prices in Germany will continue to be strong. Regionally, some real estate prices might decrease a little over the short term, but over the long term, the overall German real estate market is going to be fine.

What Is A Blockchain?

Key Takeaways

  • A blockchain is a technology based on a chain of sequential blocks that contain unique information (hash).
  • The information of a blockchain is distributed across many different computers (distributed ledger).
  • If the hash (comp. fingerprint of humans) of a blockchain is manipulated, the connection to this block is broken.

How a blockchain works

A blockchain is a chain of blocks that contain information (mostly transaction data). For this, you can imagine a real chain with links, like the one you might have hanging around your neck. The premise in the case of the blockchain is that each link is an independent block of information. In the last link, you will find the data for today. In the second to last link the data from yesterday and so on, until the first link, where you have the very first piece of information recorded in the history of that specific blockchain.

The difference between the blockchain and the chain around your neck is that each block on the blockchain is unique. Each block has its own kind of fingerprint. This is called “hash” in technical jargon. It also makes sense that each blog is unique because the information within each block is also unique. What exactly is mostly the information of a block? (Mostly) transaction data.

Since each block knows the unique hash or fingerprint of the previous block, past transactions cannot be changed because that would also require a change in the hash of the previous block. This is how the chain is created, and it is also exactly what makes the blockchain so secure. In fact, the blockchain is one of the most secure record-keeping systems ever invented in human history.

The Bitcoin blockchain

Blockchain technology became really popular when Satoshi Nakamoto used it to invent the cryptocurrency Bitcoin. For Bitcoin, the blockchain is basically a list of transactions that everyone can see on the internet. Every time, an investor makes a Bitcoin transaction, i.e. sends or receives Bitcoin in his wallet, a record is written in the Bitcoin blockchain.

This record is open and transparent to the public. So if someone would try to manipulate a Bitcoin transaction, the entire world could see it, and in addition, the change in the unique hash or fingerprint would cause the link to that faulty block in the blockchain to break. This technique makes sure that returns for investors are safer than with other record-keeping systems.

Who is in control of the blockchain?

There is no direct single entity that has control over any particular blockchain. This is what we call distributed ledger. The information on the blockchain is spread across many computers, countries, and institutions around the world. Whoever wants to participate in this decentralized network can do so, and since the entire network can see all transactions, they must first agree that each new block is correct before it is added to the blockchain (comp. proof of work). Hence, everyone controls everyone else.

This is exactly what makes a blockchain so great. It gives the power back to the people, and that is also what we do with GermanReal.Estate. We are giving people the opportunity to invest in landmark buildings in Germany with security tokens worth 1€ (minimum investment starting at usually 100€).

Therefore, we are using a new development on the blockchain called “smart contracts”. A program stored on the blockchain that is used to automatically exchange our real estate security tokens based on certain conditions. More information is in our FAQ post on the benefits of tokenized real estate.

How To Register As Investor

Key Takeaways

  • In order to invest in our real estate security tokens, investors need to verify their identity and create their wallet once.
  • Our managing director Axel recorded himself during the registration process so you can follow along.
  • This article will help you to go through the 7 registration steps as smoothly as possible.

GermanReal.Estate Investor Registration Process

Before investing in real estate security tokens on the GermanReal.Estate marketplace, investors need to create their account (only one time before the very first investment). This registration process involves the verification of the investor’s identity as well as the setup of the wallet. Investors can follow these 7 steps to register as easily as possible and start investing in tokenized real estate:

In order to start the registration process, investors can click on any of the “Invest Now” buttons on the GermanReal.Estate website. Before investing, we strongly advise reading our general risk disclosure as well as the specific risks of the respective investment that are mentioned on the specific real estate security token website. After reading about the risks of the investment, investors may continue with their registration.

1. Investment Data:

To start the investor registration process, we need some personal information about the investor (e.g. name, address, birthday, email address, etc). This step also involves agreeing to our terms & conditions if you would like to invest in our real estate security tokens. After finishing the first step, the investor will receive an email from us to confirm his email address and determine his investment amount (starting usually at 100€).

2. Knowledge & Experience:

To make sure our investor registration process is aligned with German financial regulations, the second step is to ask investors about their qualifications, occupation, and investing experience. The questionnaire is voluntary, investors can also click on “I do not want to give any information.” if they choose to do so. We strongly advise to take just a minute and fill out the questionnaire about the investor’s experience.

3. Confirm Investment:

After completing the questionnaire, it is time to read and accept the legal documents of the respective real estate security token (e.g. consumer information, basic information sheet, security conditions, etc). We strongly recommend reading the investment documents before accepting them. However, there is no need to download the legal documents as they will be sent to the investor’s email address.

4. Verification Of Identity:

To be compliant with German money laundering laws, investors need to identify themselves. That is why the next step is to verify your identity. As of writing this article, we are working together with IDnow as our identification service provider. If you face problems with your identification process, please send us a message with your ident ID (format: ABC-DEFGH) and we will clarify the issue for you.

5. Payment Of Investment Amount:

After the identity of the investor has been verified, we will send out an email with the payment details to transfer the investment amount for the real estate security token. By clicking on the “View Payment Data” button in the email, investors will be redirected to their GermanReal.Estate investor dashboard. Important: Make sure to use the correct “reference” (Verwendungszweck in German) when making your transfer. This account will also be used to pay profits (e.g. from rising security token value). You can change your reference bank account later on in your GermanReal.Estate dashboard when you change your bank account.

6. Saving The Wallet Account Connection:

Once the issuer received the investment, investors will get another email confirming their investment in the respective real estate security token. In order to finish the registration process, investors can now choose their custody option with the instructions that are sent by email. Our GermanReal.Estate app can be downloaded on the Apple App Store and the Google Play Store. By scanning the QR code, the app will connect automatically with the GermanReal.Estate investor dashboard and create the 12-word recovery phrase that investors should write down and store safely.

7. Saving Taxes When Investing:

As real estate security tokens are considered financial securities, everyone with a German tax ID (11 digit number) can secure an annual bonus of 801€ (1.602€ for married couples) in capital gains taxes when investing on GermanReal.Estate. As of writing this article, the German government is likely to increase that 801€ tax-free threshold to 1.000€ (2.000€ for married couples) starting in 2023.

After completing the 7 steps, investors can see their portfolio in their GermanReal.Estate dashboard, earn rewards, make changes to their account, or new investments in other real estate security tokens. Hopefully, our video tutorial and blog article was helpful for every (potential) investor that wants to register on GermanReal.Estate in order to start investing in real estate security tokens.

Mönchengladbach: Welcome Home Security Token

Key Takeaways

  • FiveRocks is constructing a new building with its development company (SPV) Welcome Home MG GmbH
  • The building with 8 residential units & 4 commercial units will be in Mönchengladbach, North Rhine-Westphalia, Germany
  • Investors will receive a fixed interest rate of 4% p.y. + 20% profit share if the property gets sold during the duration
  • The real estate security token will mature on 31.07.2023 (with the option to extend for 6 months until 31.12.2023)

Why Did FiveRocks Choose Mönchengladbach As Location for the real estate security token?

Tobias Hänschke and Michael Schröder are the managing directors of FiveRocks Development SE (holding company of Welcome Home MG GmbH). They will explain here why exactly they chose Mönchengladbach as the location.

TOBIAS: The Rhine-Ruhr metropolitan region is the largest in Germany (by population & GDP) and the fourth largest in Europe. That is why Mönchengladbach is a very interesting location for us with its proximity to the most affordable A-city in Germany (Düsseldorf). In particular, the industrial and business demand there is enormous. Also, the connections between all the cities in the Rhein-Ruhr metropolitan region give us more flexibility to address potential tenants from both the commercial and residential side. This was basically one of the main points for us to decide to develop this property in Mönchengladbach.

MICHAEL: There is also an initiative from Mönchengladbach to create more green and sustainable areas in the city center, including green living and commercial space. In terms of the micro-location, “Welcome Home” is a very exciting plot because we are right next to the newly built city hall. So we are very close to the heart of Mönchengladbach and still a little bit away from the traffic. That is an important reason why we chose to build this property.

Why Did FiveRocks Choose A Mixture Of Residential & Commercial Usage for the real estate security token?

This property is in a very good B-location right next to many A-locations (Düsseldorf & Cologne) which is why the return can be very good. Especially with a mix of commercial and residential use. What is the advantage for investors exactly?

TOBIAS: First of all, we have to develop according to the plan of the city of Mönchengladbach. The zoning plan says that we need commercial and residential space in this area. So we want to optimize that mix of commercial and residential usage. Also, commercial buildings yield a higher return than residential real estate. Yet, there is a lot of demand for residential space in the heart of Mönchengladbach. We think the mix is perfect and the potential returns are attractive for investors. 

MICHAEL: There are many retail stores very close to our property already (including the large shopping center Minto). That is why this property is ideal because we already have all the stores of daily life and the very quiet location is ideal for living. What is missing in the city center of Mönchengladbach so far is high-quality office space, which we are targeting with “Welcome Home.” That is the reason why we decided on this particular split between high-quality office space and high-quality residential space. Commercial space offers a higher return, that is why “Welcome Home” is very attractive for investors.

What Is The Current Status Of "Welcome Home" in Mönchengladbach?

Being a real estate investor, especially developing real estate yourself, is a lot of work. What is the current status of the property development?

MICHAEL: We acquired the plot about a year ago and have been in discussions with the city since then. We have received the first positive feedback from the city for our development plans, the design of the property, etc. We have now submitted our building permit application with the goal of receiving it by the end of 2022 or early 2023. Until then we are willing to negotiate possible changes or improvements together with the city council of Mönchengladbach.

TOBIAS: Planning and developing the perfect property with the perfect mix of commercial and residential space takes time. Once we have the building permit, we will start developing the property and find the right tenants after that. After finishing the construction in 2024 we could sell the property (with a 20% profit share for security token investors). Preferably, we would like to keep the property together with investors for passive rental income (tax-efficiently with security tokens). The flexibility we have here is the major advantage of tokenizing a property development like “Welcome Home” with the blockchain technology.

What Are The Next Steps For The Property?

As of writing this article, FiveRocks is far from done with the work. When is the planned completion date for the construction and what is your plan with "Welcome Home" afterwards? Usually, property developers sell the properties after they are completed, but you have something very special in mind.

MICHAEL: We plan to finish the project in the first half of 2024. I think we are well on the way to accomplishing this. But if necessary, we always have a plan B if things get delayed.

TOBIAS: This project is absolutely awesome! It would be great to find as many real estate security token investors as possible to keep “Welcome Home” as an asset and get cash flow from passive rental income in the future. That would be the best scenario! FiveRocks would manage the property and everyone would benefit from a modern & sustainable building in a very attractive area in Germany.

Investment Details Of the real estate security token "Welcome Home" - Mönchengladbach

AXELFiveRocks is offering investors 450.000€ divided into 1€ security tokens to participate in this project development. Therefore creating together with us an exciting investment opportunity that didn’t exist before. In order to reach the goal and hold the property after construction, the funding goal of 1 million € is required. If that goal cannot be met, FiveRocks will sell “Welcome Home” after completion.

Investors will receive in both scenarios a fixed interest rate of 4% until the duration of this blockchain-based Welcome Home security token on 31.07.2023 (with the option for the issuer to extend for another 6 months until 31.12.2023). If FiveRocks has to sell the property, investors will receive an additional 20% profit share of the sale value (an additional 8,8% return equaling a 12,8% return for one year according to FiveRocks calculations). 

What Are the Benefits of Tokenized Real Estate?

Key Takeaways

  • The traditional process of buying real estate in Germany is very lengthy and costly (up to 15,64% in transaction fees).
  • Tokenization of properties streamlines the process tremendously & cuts out most, if not all middlemen.
  • Real estate security tokens allow investors to invest in properties in minutes (and not in weeks or months as previously).

Tokenized Real Estate Will Cut Out Most Middlemen

Investors have many different options when looking to invest in real estate in Germany. Tokenization of properties offers investors a couple of unique benefits that are none of the existing options to invest in real estate offer yet. To understand the revolutionary impact of real estate security tokens, let us remind ourselves of the traditional process of buying a property in Germany.
 
  1. Finding the right property in the right location for the right price (that fits the investors’ personal financial strategy)
  2. Securing the right mortgage with a bank that will result in a financing contract
  3. Negotiating the purchase price with the owner that will result in a (preliminary) purchase contract
  4. Notary meeting to sign the purchase contract & change the German land registry
  5. Buyer pays all bills for the notary (2%), purchase taxes to Finanzamt (3,5% – 6,5%), and real estate agent (3,57% – 7,14%)

The entire traditional property purchase process as shown above is taking weeks or months of work and costs anything from 5,5% – 15,64% in closing costs on top of the property value. That is anything from 5.500€ up to 15.640€ for every 100.000€ of property value that is being transferred from the seller to the buyer.

The fundamental idea of Bitcoin was to transfer money (across international borders) without a bank in the middle. Tokenizing real estate with security tokens is bringing the Bitcoin idea to a whole new level as it allows people to transfer ownership of properties without middlemen, therefore saving a lot of time and money while increasing returns for investors.

Investors can register on GermanReal.Estate and after the one-time identification process and setting up the wallet, they are immediately the “owner” of properties in Germany (indirectly through security tokens). The real-world owner of every property listed on the GermanReal.Estate marketplace is a special purpose vehicle – short SPV in English (GmbH in German).

Tokenized real estate securities will revolutionize the traditional German real estate market. Be part of this revolution and profit from the upcoming change!

How Real Estate Security Tokens Improve Investor Experience

Instead of transferring the ownership of a German property in the real world (which would involve the process and the fees mentioned above), real estate security tokens allow the transfer of the digital ownership of a property much faster & more cost-efficient. Thanks to the blockchain technology, real estate security tokens can be transferred fully automatically by smart contracts.

Example: A property worth 100.000€ (either a project development or an existing building) can be tokenized into 100.000€ real estate security tokens. However many security tokens the investor wants to buy will be minted for him. Investing on the GermanReal.Estate marketplace starts usually at just 100€.

The key point that separates real estate security tokens from all other available forms to invest in real estate is the digital ownership thanks to the blockchain technology. No matter which investor owns how many security tokens, the real world owner of every property is a special purpose vehicle. Therefore, investors are saving the 5,5% – 15,64% transaction costs when real estate security tokens get transferred from one investor’s wallet to another investor’s wallet.