In today’s real estate market, virtual and real worlds meet. Innovative real estate trends are changing the trade in houses, flats and new construction projects. Real property purchases with cryptocurrencies are just as much a part of this new world as trading in virtual real estate in the metaverse. Here we shed light on the new virtual reality in the real estate market in 2022.
Real estate purchase with cryptocurrencies: House for Bitcoins?
Does buying real estate with cryptocurrencies make sense? Virtual currencies are still very young and have experienced a real boom in recent years. Anyone who invested 40 USD in 2009 shortly after the introduction of the Bitcoin can now look forward to a virtual fortune of several million dollars. So the idea of buying real estate with the profits from cryptocurrencies such as Bitcoin or Ethereum seems obvious.
Overview:
o How does a real estate purchase with cryptocurrencies work?
• Are Bitcoins & Co a legal means of payment?
• Incidental purchase costs and cryptocurrency
o Dangers when trading real estate with Bitcoins & Co.
• Money laundering through real estate purchases with cryptocurrencies?
• Volatility of cryptocurrencies
• Danger from hackers when buying real estate virtually
• Loss through human error
o Are there advantages to buying real estate with cryptocurrencies?
• Uncomplicated transaction when buying real estate with cryptocurrencies
• Security through blockchains
• Lower transaction costs
• Capital security through wallets
• Participations instead of buying real estate
o Does buying real estate with cryptocurrencies have a future?
How does a real estate purchase with cryptocurrencies work?
A real estate purchase with cryptocurrencies works like a classic house purchase via a notary contract. However, the seller and the buyer agree not to settle the transaction via a real fiat currency, but to use virtual money. This form of payment is particularly interesting for people who invested in cryptocurrencies early on. Real estate is a way here to convert the large virtual profits into real assets. The investment leads, so to speak, via the abstract Bitcoin to real concrete gold. However, this approach is not yet very widespread and, moreover, not possible everywhere.
Are Bitcoins & Co a legal means of payment?
In Germany and most other countries, cryptocurrencies are not recognised as a means of payment. El Salvador was the first country in the world to introduce the digital currency Bitcoin as legal tender in December 2021. In other countries, however, Bitcoin and other virtual currencies do not count as real money. Therefore, a real estate trade with cryptocoins is also not considered a purchase, but an exchange transaction. Consequently, financing like a mortgage loan is also not possible in the virtual space. Therefore, buying real estate with cryptocurrencies is currently more something for investors. They use this payment method to convert their large profits from virtual speculation into real values. For the family buying a house with small equity and financing, the classic mortgage loan is the more obvious way.
Incidental purchase costs and cryptocurrency
With every property sale, there are additional costs besides the purchase sum. An estate agent’s commission is often due and there are also notary fees, land tax and land registry entry. Some foreign companies already offer a complete transaction with real estate agent and notary via cryptocurrency. As a rule, however, all ancillary purchase costs such as land registry entry and land tax must be financed with real money.
Dangers when trading in real estate with Bitcoins & Co.
Buying real estate with cryptocurrencies offers some advantages, but also entails risks. While theoretically very easy to carry out, possible complications make the transaction more difficult.
Money laundering through real estate purchases with cryptocurrencies?
Since transactions in the virtual world are anonymous via codes, they simplify the possibility of money laundering. This has discredited cryptocoins as a means of payment for speculators and criminals. In fact, the virtual payment world offers loopholes for money laundering and tax evasion. But numerous governments, including in Germany, are working to make this more difficult. For example, notaries are obliged to report all transactions and real estate trades with cryptocurrencies to the tax office within two weeks. When buying real estate with bitcoins, for example, the tax office quickly suspects money laundering. The buyer is obliged to prove where the money for his assets in cryptocoins came from. Under certain circumstances, he risks trouble with the tax office or possibly even proceedings for money laundering.
Volatility of cryptocurrencies
A high risk when buying real estate with cryptocurrencies arises from the large price fluctuations of the virtual money. For example, the Bitcoin reached its peak on 8 November 2021 with a value of €56,761.31 and (source: https://www.bitcoin.de/de/chart). In February 2022, it has now fallen again to just under €35,000. However, it is still around €8,000 higher than a year ago. Price fluctuations of tens of thousands within a few days are possible and therefore make trading with large sums a risk. A certain short-term stability during such a transaction is provided by exchanging into so-called stablecoins. These are tied to real currencies such as the US dollar. Tether (USDT) is such a blockchain-based asset that is pegged to the US dollar. It is therefore a stablecoin.
Danger from hackers in virtual real estate purchases
Real estate purchases with cryptocoins are anonymous. The virtual money flows from one digital wallet to another during the transaction by means of code. If hackers exchange addresses and divert the money, it is lost forever. This is a bitter loss for a large sum such as a property purchase using cryptocurrencies.
Loss due to human error
Investing a lot of money in cryptocoins to conduct real estate transactions carries further risks. To avoid hacker attacks, some prefer to store their Bitcoins & Co on their own hardware such as a hard drive or a USB stick. If the hardware crashes, the assets are irretrievably lost. The same applies if I forget or lose the private key to my wallet. With Bitcoin, for example, it is an automatically generated password. The user is not able to change it or retrieve it. If access to the wallet is blocked, the contents are lost.
Are there advantages to buying real estate with cryptocurrencies?
The fast and uncomplicated processing of the transfer when buying real estate with cryptocurrencies is considered a major advantage. Nowadays, a transfer usually only takes a few minutes. International bank deals, on the other hand, quickly take days.
Security through blockchains
Due to decentralised storage and processing via blockchains, data exchange in the world of virtual currency is considered particularly secure.
Lower transaction costs
Banks often charge high fees for large transactions. Especially for international money transfers, these are not insignificant and quickly run into the thousands. The transfer costs for cryptocurrencies are far lower.
Capital security through wallets
With a virtual transfer, the sum to be transferred is always secured. It is not possible to make transfers that exceed the amount that is in the wallet. There is no such thing as an overdrawn account or a bounced cheque with cryptocurrencies.
Participations instead of buying real estate
It is relatively easy and already possible for small money to participate in a property as an investment. Instead of buying an expensive property directly, the buyer only acquires a share in the property. This is also an exciting option for anyone who only wants to invest smaller amounts of cryptocoins.
Does buying real estate with cryptocurrencies have a future?
Globalisation is also having a significant impact on the real estate market. More and more international investors, often from Asia, are storming the real estate markets of major cities. Metropolises such as London, New York and now Berlin are transforming themselves into global cities, where international investors are buying up a large part of the real estate. For them, buying real estate via cryptocurrencies is particularly interesting. But with increasing digitalisation, a general simplification of real estate transactions via cryptocoins is also conceivable. The future lies in databases with blockchain technology. In the future, these will have the appropriate infrastructure and connection to administrative apparatuses such as the land registry and tax authorities.
The fee-based land registry entry at the office and the costly visit to the notary will no longer be necessary. At some point in the future, the relevant information will be automatically and forgery-proof directly transferable during the sales transaction. However, it will certainly take some time before virtual currencies and digital wallets are as normal as real money.
