An interview with the Brussels start-up Byebyerent on access to property, rent-to-buy and co-ownership models
Buying a house is a complicated process. Between the down payment, the mortgage, and the looming shortage of property, prospective homeowners might find themselves thinking they will never get their hands on their dream home.
In this dismal landscape, alternative models have sprung up across the world. In this article, we’ll discuss two of them – the rent-to-buy and the co-ownership models. Benjamin Wayenberg, founder of the startup Byebyerent and strong advocate of the co-ownership model, joined us to discuss the challenges and common misconceptions related to property purchases.
Thanks for joining me, Ben. Could you tell us about the property situation in Belgium? What would be its biggest obstacles?
As you well know, buying a home can be extremely difficult. Prospective buyers have to overcome many hurdles. The main one? Saving enough money for the down payment.
Moreover, it is today more and more difficult to get your offer accepted. It sounds simple, but it’s actually a bidding war. It often happens that the seller of your dream home accepts a higher bidder’s offer, with the winning bid coming in thousands over list price. It is not unheard of in these situations to see offers that exceed the asking price by 15 to 20%.
But that is temporary of course. It is the current market state and it won’t last forever.
Over 80% of tenants say they don’t have the capital to buy a property.
The majority of them will save for about 15 years before qualifying for a loan. When we know there are around 35% of tenants in Europe, that represents a considerable market share.
If you do the math, with the people who meet Byebyerent’s eligibility criteria, that’s over 50 million people in Europe only.
What would you say is the source of these barriers?
To get a mortgage, banks require owners to pay 10% of the price of the property, 20% if it is an investment property. For a €300,000 house that’s already €30,000.
Then you have to add to this amount notary and registration fees, which usually turn around 15% of the property purchase price.
This means that to get the bank loan needed to buy this €300,000 house property, you need to raise €75,000! No wonder most people have trouble obtaining financing…
But it is not the banks’ fault. Although they are often criticized for having too strict criteria, you should know that they are themselves regulated. They have no interest in preventing you from buying: on the contrary, the mortgage is what helps them attract new customers in the long run.
Which brings us to the next question: How can we overcome this problem? Can you tell us about the alternative models?
There are of course many models. But I’d say four new models are currently emerging on the international scene :
- Alt credit
- Reverse mortgage
- Rent-to-buy
- Co-ownership
Alt credit and reverse mortgages are banned in Europe. So that leaves us with the following two :
> RENT-TO-BUY MODEL: In a rent-to-buy agreement, you rent a property for a certain amount of time, with the option to buy it before the lease runs out. Some might see it as a smooth transition to ownership, a “try me” button.
But in my opinion, the model is much less interesting than it looks, both in terms of numbers and philosophy. After five years, the actual discount that can be obtained is too low to have enough equity to buy. So you end up with the same problem you started with – or worse because you might find you’re locked into paying more than the home is now worth.
There is also a big conflict of interest in this value proposition since the seller’s going to make more money with renters who default than with those who will turn into owners.
> CO-OWNERSHIP MODEL: Unlike the previous model, you’re a co-owner of the property from the start. This allows you to benefit from market appreciation, capital repayment, the possibility of making adjustments to the property, etc. Byebyerent acts a bit like a grandmother or more like a real estate investor and helps you with part of the down payment.
Who’s disrupted by the model? Do you face opposition from some of the industry’s players?
We actually provide a satisfactory solution for the majority of the players, whether they are banks, realtors, etc., by giving them access to a larger pool of clients.
But of course, since it’s a new model, some people will always be reluctant to take risks and some banks in particular. But they need to realize the need to adapt if they are to attract new customers.
I always take the example of the neobank Revolut. It has managed to attract 15 million customers in the last four years when the biggest bank has 1.5M users in Belgium. If that’s not a convincing argument…
What about your competitors?
In Europe, Byebyerent has only one direct competitor, the French startup We are Virgil. Internationally, however, we can see many disruptive models coming from the States, like ZeroDown, Point.com, etc.
What do you think will happen in the post-crisis real estate market?
It is difficult to say with certainty. However, I would say this :
In the short term, the gap between supply and demand will only widen. There is a strong sellers’ market in many parts of the country, and especially in Wallonia, with more buyers than homes available.
But this overheating of the real estate market will eventually subside, and in the long run, the Belgian market will go back to normal, with slight but steady growth.
On another level, I think real estate will develop outside of cities. The buildings will be organized into multipurpose hubs, offering a wide range of services such as shops, offices, sports…
Before we wrap things up, one last liquidity-related question. Do you think it would one day be possible to transfer its shares to another property? Can we envision a mid-point solution between rental and purchase, offering more flexibility and increased mobility possibilities?
Well, there is already a model that fits these terms in the States, and it’s called house flipping. Liquidity is very fast there because there are few fees and taxes. This made possible the emergence of iBuyers like Opendoor which allow you to buy a property in 24 hours.
I believe this sort of things would be very complicated, if not impossible, to establish in Europe, because we have a much more regulated market.
But if we’re talking about real estate tokenization, that’s very much possible and we could already do it with Blockchain.
Tokenization brings liquidity and transparency to a traditionally opaque market.
However, I doubt that the government will allow full flexibility on this matter.
As I mentioned earlier, registration fees and other real estate costs are an important source of income for the Belgian government. So it’s not in their interest to encourage that kind of system.
That said, I do believe the future’s going to be more flexible and mobile. We’re already talking about this internally within Byebyerent.
Thanks for reading us. The content of this interview has been edited for clarity reasons.
Liuba Diederich