How Can The Property Market Evolve Through The Use Of Cryptocurrency?

Purchasing, selling, or even renting a property can be a long and cumbersome process. Not only does it take forever but it can cost a fortune in fees of lawyers, estate agents, and surveyors.

Getting everyone to communicate in a timely and efficient manner can be an exhausting process, not to mention the costs incurred in getting documents signed and stamped before the next step of the process can be embarked upon.

Advantages of Using Cryptocurrency

In terms of the adoption of cryptocurrencies, there are lots of ways that they can be implemented into the house-buying process. Now that many tech-savvy millennials are taking the first steps on the property ladder, integrating cryptocurrency into the payment process is a sure fire way of encouraging both the burgeoning sector and reluctant youngsters.

Currently, in Manhattan’s East Village, there is a block of condos that can be purchased with Bitcoin. The developer was originally approached by one buyer who requested to be able to purchase the property with Bitcoin.

After consulting with his lawyers, the developer agreed and since then having been approached by other Bitcoin using buyers, he is now advertising that his properties can be purchased with the cryptocurrency.

When it comes to the advantages of buying immovable property with Bitcoin, there are several.

Firstly, if you buy a property today with Bitcoin – where each coin is worth around $8100- if the price of Bitcoin goes up, as it is forecast to, you could be in for one hell of a payday.

There are some forecasters that believe that the value of a single Bitcoin could surpass $100,000 by the end of the year alone, meaning if you have bought a property for 20 BTC, you will be sitting on a small fortune in 8 months’ time.

Whilst the above benefit is a little speculative and depends on the movements on the markets in the next few months, there is one clear advantage that will not fluctuate with the market.

This is the fact that for foreign buyers, in particular, paying in BTC means that the property can be purchased without having to pay hefty fees for transferring from a foreign account or exchanging from one currency to another.

As Bitcoin and other cryptocurrencies allow users to make instant and free (or at least very low cost) transactions, the money for purchasing the property can be transferred without any delay, hassle, or excessive cost which makes the whole process a lot smoother.

In March this year, RE/MAX announced that a number of their listings were available in BTC as well meaning that more and more sellers are becoming savvy to the power of Bitcoin and the fact that instant transactions and low fees are the way forward for many buyers.

If cryptocurrency becomes more widely used in the real estate market, it will no doubt open it up to a lot more international buyers. More foreigners will be incentivised to purchase in locations that are not their native country because of the ease of purchasing without fees, exchange rates, or any other concerns.

How Can The Blockchain Help Things Along?

Asides from Bitcoin and other cryptocurrencies having a huge impact on the real estate market, the technology that underpins it, the blockchain is making some significant waves as well.

Here are five reasons why blockchain will positively impact the property market.

  1. Faster transaction times- When using blockchain tokens and distributed ledger technology, there is no need to concern yourself with titles searches or any kind of middleman to secure the transfer of the title. By using a blockchain database to prove the authenticity of each transaction, the seller can easily transfer the title without the need for an expensive lawyer or agent. This technology could have massive and far-reaching implications for the real estate industry by effectively making escrow companies completely obsolete.
  2. Increased transparency- One of the biggest costs incurred in real estate transactions are attributed to the lack of transparency and transaction friction that is caused by so many middlemen. Remember the saying “too many cooks spoil the broth” this is very apt in this case. Using the blockchain will allow all transactions to happen P2P without the need for a third party, or middleman to slow down the process. Every step of the process is recorded on the blockchain so provides full transparency for all involved.
  3. Secure data storage- beyond just its function as a facilitator for cryptocurrencies, the blockchain will allow the processing, storage, and transfer of data in a secure and private manner. This means that theoretically, the blockchain can be used to store all property records such as deeds, surveys, title chain, contracts and more Blockchain could even eventually be a part of the multiple listing services as well.
  4. No need for title insurance- Using the blockchain will remove the need for title insurance whilst increasing efficiency and the confidence in each transaction. Issues such as not being able to afford a lawyer for issues pertaining to title and ownership problems will cease to exist.
  5. Make information more open- When it comes to buying and selling the property, the blockchain will function as a repository of information which will lead to diminished risks and increased confidence for all parties involved.

Dangers of The Property Bubble

Whilst the growth of the property sector is important to all global economies; the dangers of a property bubble are worth noting. A housing bubble is defined as an increase in housing prices that is fuelled by speculation, demand, and excitement.

A bubble usually starts with increased demand coupled with limited supply. This leads to an increase in rental and selling prices. Speculators then enter the market which further drive up the demand and the cycle continues.

At some point, the demand will either increase or stagnate at the same time that the supply increases, meaning that the prices will decrease sharply. This is when the bubble bursts and anyone that bought or rented a property at an inflated price, will be left with a loss. Whilst a housing bubble is considered a temporary event, its ramifications can last for many years.

The problem with property bubbles is not the effects it has on the property market, but rather the impact it has on society as a whole. They significantly affect people across all classes, neighbourhoods and the economy as a whole.

Property bubbles can force people into running up debt in order to pay their mortgages or to afford to get on the property ladder. They can also force people to delve into retirement saving funds to be able to stay in their homes and these bubbles are the number one reason why people end up losing their savings, or even losing their homes completely.

Any increase of people moving into the property market could lead to either a bubble, or it could be the catalyst that leads to one. Opening the sector to cryptocurrency purchasers is unlikely to cause a property bubble directly, but it could contribute to one occurring.

Money Laundering

When it comes to investing in property using cryptocurrencies, there are understandably many concerns around the fact that it could aid money laundering.

The very nature of cryptocurrencies such as Bitcoin means that they are either completely or at least partially anonymous. It is not possible to trace where the funds have come from and there is no distinct paper trail involved.

For example, if you use an exchange, or several exchanges to change dollars into BTC, put the BTC in your wallet and then use it to buy a house, no one has any way of knowing where that money came from. Likewise, you could be the recipient of BTC that has nefarious origins and it would be impossible to prove.

This means that whilst cryptocurrencies in the world of real estate are a positive thing in many aspects (instant and low-cost transfers), it does mean that from a compliance and due diligence point of view, it raises a few issues.

It is very difficult to comply with AML and DD regulations when dealing with cryptocurrencies and many experts are stumped about how to retain the integrity of the anonymity associated with crypto, without falling foul of the law. How this situation will pan out will depend a lot on how various global jurisdictions decide to regulate cryptocurrencies and blockchain technology.

Some jurisdictions such as South Korea and China have come down hard on cryptocurrency exchanges and those that invest or trade in crypto, whilst others such as Malta are working to create a supportive regulatory framework.

The problem is that many governments and regulatory authorities are not particularly au fait with how these currencies work and until they get to grips with the technology and the way it works; regulation will be hard. It does seem that several jurisdictions are in support of cryptocurrencies and that they will do their best to allow citizens to use them without contravening strict AML and DD laws.

When it comes to the property market, there is already a lot of concern about the fact that immovable property is often a preferred vehicle for the investment of illicit funds. Add this to the anonymous nature of cryptocurrency and it is not hard to see why the hackles of regulators and lawmakers are bristling.

Hopefully, as time goes on, a way forward can be found that retains the anonymity of cryptocurrencies, but that allows compliance with global AML and DD precautions.

Transactions Worldwide

Property transactions using cryptocurrencies are already upon us. At the end of last year in the UK, the first property was sold using Bitcoin instead of fiat currency.

Two properties were sold by a developer called Go Homes to buyers in their mid-twenties. The first was a four-bedroom detached GBP350,000 in Colchester which is still being built.

The buyer is a Bitcoin miner who made his fortune in the early days of Bitcoin and is now investing his wealth into the immovable property as a means of investment. He intends to rent out the property to those that want to pay their rent in Bitcoin through a Bitcoin-friendly rental company called The Collective.

The second property was also sold by Go Homes for GBP595,000 of Bitcoin and is a four-bedroom townhouse, just outside of London. The buyer made his fortune in Bitcoin through mining and playing online games.

But it seems that the Americans are one step ahead of their British counterparts with Bitcoin real estate agencies popping up all over the country. Some offer property in Bitcoin or fiat currency, others solely in Bitcoin and a number of transactions have taken place over the last few months.

Even in Australia, a homeowner in Melbourne is just one of the few property owners who has said that they are willing to accept Bitcoin in return for their property.

The Future

These are just a couple of examples which show that the property market is starting to react to the march of cryptocurrency.

One thing is for sure and that is that this is just the beginning – as cryptocurrencies become more widely adopted and understood it seems very likely that more and more people will want to use them due to their vast benefits.

Likewise with the blockchain, as we begin to realise its full potential we can expect to see it make its way into many aspects of the property ladder – simplifying processes and saving those involved time and money. What we are seeing now is just the beginning and where cryptocurrency and blockchain will take us in terms of the real estate market is still yet to be fully understood.

Read more about The Ways Blockchain Will Revolutionise The World.