Bitcoin and Real Estate

Bitcoin has been in the news a lot lately and most recently since it has entered the world of real estate in Canada. Although it is unclear at this point if any Canadian transactions have been completed in bitcoin, properties have started to appear with the option to purchase in bitcoin or even in one case, listed exclusively for sale in bitcoin.

At this point, there are a lot of questions surrounding bitcoin and Canadian real estate and it is not immediately clear how this will be regulated. Ontario’s real estate regulatory body, the Real Estate Council of Ontario (RECO), is raising some serious concerns about whether or not brokerages should be allowed to facilitate transactions in bitcoin but at this point they are currently reviewing the use of cryptocurrencies in real estate transactions and no decisions have been made. Any such decision made by RECO would be made based on the law, their code of ethics, as well as assurances that consumers would be protected.

While many details remain unclear, let’s take a look at what we do know.

What is bitcoin?

Bitcoin is a cryptocurrency which was created in 2009 with the goal of creating a “new electronic cash system”. Bitcoin is a digital currency, meaning there are no tangible bills or coins associated with it and it is not controlled by any government, institution (bank) or other authority. Owners of bitcoin are anonymous and are tracked using encryption keys in a public ledger called the BlockChain. This currency has gained popularity in the recent year causing its value to sky-rocket; one bitcoin was valued around $1000 at the beginning of 2017 and finished the year being worth approximately $19,000, but has also dropped thousands of dollars since the beginning of 2018. It’s this roller coaster valuation that attracts many investors and it has made many people rich. More and more places are starting accept bitcoins as a method of payment and it seems to be gaining popularity as it becomes more and more accessible to the general population.

Why Would Someone Want to Use Bitcoin?

Bitcoin appeals to many as an alternative option to investment and banking as it is not government or institution controlled. Its rollercoaster values have also made it an exciting investment opportunity with the potential to make lots of money.

When it comes to real estate, buying with bitcoin can be seen as a way to turn the profits of investment of bitcoin into assets. Listings currently being offered in bitcoin are aiming to appeal to those who have invested and turned a significant profit with bitcoin. There doesn’t appear to be consistent terms surrounding the purchase of real estate using bitcoin; in some cases, the purchase price (in bitcoin) is locked at the time the deal firms up and in others it is stipulated as current market value in Canadian dollars at closing. In all cases though, it is a gamble for both the buyer and the seller as the value of bitcoin can fluctuate rapidly.

Concerns

As mentioned above, RECO are currently reviewing policies regarding the use of cryptocurrency in real estate transactions as there are some very serious concerns surrounding this:

  • In Canada, there are many safeguards in place to ensure that property is not being purchased with the proceeds of crime or as a means of money laundering. All transactions must have complete paperwork that assesses the risk level for such things. Since bitcoin is not trackable by the individual, but rather by encryption keys, it makes the movement of money difficult to track.
  • Under Canadian law, the deposit paid for a real estate transaction must be held in trust by either a brokerage or a lawyer. It is unclear how this would work with bitcoin. The Real Estate Council of British Columbia, the regulatory body for that province, recently implemented a ban which prevents brokerages and lawyers from accepting a deposit in bitcoin. Ontario is expected to follow suit.
  • Different jurisdictions in Canada have recently implemented Foreign Buyers Taxes but since bitcoin does not have a country of origin, it will be difficult to track and it could be a way for foreign buyers to avoid this tax.
  • Realtors receive commission as a percentage of the sale price of a home. While it is possible that some may be interested in receiving their commission in bitcoin, but it is not clear how would it work for those who do not.
  • The risk involved with these kinds of transactions is quite high. In most cases, there will end up being a big winner and a big loser. While most bitcoin investors understand these risks (it is part of the gamble of owning bitcoin to begin with), it is being advised to seek out professional advice for this type of transaction. Many major brokerages are also choosing to not get involved in this for that very reason.

One thing is certain, this will be a topic of conversation for years to come and it will be interesting to see how it all plays out.