13 Sep How to buy real estate for cryptocurrency
In world practice, the use of cryptocurrencies as a means of payment when buying and selling real estate is not such a rare phenomenon. But Russian laws do not regulate these operations
Currently, buying real estate for cryptocurrency is allowed only in a few countries, including the U.S., Indonesia, Singapore and Switzerland
In recent years, the number of digital real estate transactions has gradually increased – as has the number of people who want to buy an apartment or house for bitcoins or other digital coins. Such a transaction makes it possible to buy real estate almost anywhere in the world. Together with experts, we understand the intricacies of buying and selling real estate for cryptocurrency.
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So far, buying real estate for cryptocurrency is only allowed in a few countries, including the U.S., Indonesia, Singapore and Switzerland. The transaction of buying a home for cryptocurrency is perfectly safe and legal – as long as it takes place within the laws of the country where the property is located.
“Here’s an example of how it happens in Indonesia. The buyer enters into a contract with the seller, which specifies the account of the selling company on the largest local cryptocurrency exchange INDODAX, and transfers there the equivalent of the value in U.S. dollars. The company, having received the cryptocurrency, sells it on the exchange and credits its account in dollars or local currency. The seller receives a receipt confirming that payment has been made. The transaction is the same as if you paid by wire transfer. There are no currency controls and no proof of origin.
In the U.S. the transaction follows the same pattern as in Indonesia, but the notary makes all settlements via escrow account and opens account at the exchange, too. The seller receives the money at the time of the transfer of title to the buyer. The notary supervises the whole procedure, but in the USA the buyer will be asked to provide proof of origin of funds.
So far, there are no clear set procedures for cryptocurrencies. In many countries you will be asked to disclose the ultimate economic purpose, so as not to be in violation of the securities law. In our experience, I can say that when we calculated transaction logistics, we realized that such a scheme can pay off only on mass typical transactions. It is still premature to buy a house in Europe or the U.S. in exchange for cryptocurrency for private use.
NFT token as the future of the real estate market
Real estate can also be purchased with NFT-tokens. The main difference between NFT-tokens and other cryptocurrencies is that they are not exchangeable (unlike the bitcoins) and are not divided into parts. That is, one coin contains all the information (the entire asset) about the object being sold. The information is stored in a blockchain, so the owner of the token can prove the origin of the item. This turns the purchase of an object into an understandable investment.
Transaction technology with NFT tokens
Selling a property for NFT tokens works as follows. First, it is necessary to legally prepare the sale of the property: the owner signs documents that will be assigned to a specially created NFT token. Along with these papers, the token can include deeds, reports, photos, and even videos. It is the NFT token that serves as proof of ownership. From a legal standpoint, whoever owns the token is also the owner of the property that the token represents.
“NFTs are stored in a distributed registry and put up for sale on an NFT marketplace like OpenSea or Gemini’s Nifty Gateway. Potential buyers bid. Once the winner of the auction is determined, they pay for the purchase in fiat or cryptocurrency. Within a limited time after the seller receives the money, the NFT is transferred to the buyer’s wallet and the buyer completes the paperwork. If something in this chain fails, the transaction itself is also cancelled.”
Scheme of conducting a real estate transaction in cryptocurrency
- Step 1 is to find a seller of the property who wants the cryptocurrency. You need to keep in mind that the price of the lot cannot be immediately determined in cryptocurrency due to its volatility. Therefore, the amount of cryptocurrency to be transferred to the seller is only determined at the time of the transaction.
- Step 2 is to conduct a legal analysis of the documents proving the seller’s ownership. These include: the documents on the basis of which the property was acquired into ownership, the technical plan, an extract from the Unified State Register of Rights.
- Step 3 – to inspect the real estate and make sure that its characteristics coincide with the information specified in the documents.
- Step 4 – make sure that the seller has a cryptocurrency wallet in the desired cryptocurrency. To do this, you can make a test transfer of a small amount of cryptocurrency from your cryptocurrency wallet.
- Step 5 is to approve the transaction scheme with the seller.
- Step 6 – mutual settlements between the parties. In the case of an exchange contract, there are no mutual settlements. In the second case, after the notary certifies the agreement of purchase and sale of cryptocurrency, the buyer of the real estate transfers cryptocurrency from his crypto-wallet to the crypto-wallet of the seller of the real estate.
“Both parties must receive confirmation of the crediting of the cryptocurrency to the seller of the property. As soon as such confirmation is received, the notary certifies the real estate sale agreement and the agreement on offsetting counter-mutual claims, and then sends the documents to the registry. In a few days the transaction will be registered, and the buyer will receive the necessary documents confirming his right of ownership to the property.
The first announcement about selling a home for bitcoins was published in March 2013. A house on a small plot of land in Canada was for sale, and the owner then stated that he needed the digital coins to develop Internet projects. In 2014, the first announcement about the sale of luxury real estate appeared. For 5 thousand bitcoins (about $3 million at the exchange rate at the time), a villa in Israel with seven bedrooms, five bathrooms, and a Jacuzzi was put on the market.
The first Russian developer to announce the sale of real estate for cryptocurrency was M9 Development in 2017. It put up for sale cottages in one of the settlements on the Novorizhskoe highway for bitcoins. But since there is no legislation in Russia regulating the taxation of cryptocurrencies, M9 hired an international law firm, which developed the structure of the transaction taking into account the peculiarities of our legal field.
And in June 2021, the Kiev apartment of Michael Arrington, the founder of the TechCrunch portal, was sold at an NFT auction. He purchased the apartment in 2017, and the transaction went down in history as the first sale of a real estate object entirely using blockchain technology. Now, the apartment has made history again, becoming the first property sold using NFT technology.