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Anyone who invested CHF 1,000 in bitcoin five years ago is sure to be able to buy a nice apartment with the proceeds today. And that’s exactly what’s happening: bitcoin millionaires are increasingly investing their wealth in real estate. But how does bitcoin actually work and what impact is the hype around the digital currency having on the property market?
The digital currency bitcoin was established in 2009 and enables fee-free transactions without involving banks. Bitcoin’s rapid growth has seen real hype develop. Today, the digital currency enjoys widespread recognition and is increasingly accepted as a payment method – and bitcoin also has the potential to shake things up on the property market, too.
How bitcoin works
Once you’ve registered with a crypto exchange, you can buy cryptocurrencies such as bitcoin for fiat money. You can keep your coins in a digital wallet. Once you have installed a wallet on your computer or smartphone, it generates a bitcoin address. You can then use this digital address to send or receive money. All transactions are processed in a blockchain, a distributed public ledger system.
The real estate sector is also dipping a toe in crypto. Apartments and houses can now be purchased in many locations using cryptocurrencies. Blockchain can make processes vastly simpler and more secure. However, buying and selling real estate with bitcoin entails risks, too.
New platforms for property transactions
Blockchain enables transactions on new online marketplaces or trading platforms. The first property was sold on blockchain in Baar, in the canton of Zug, in 2019. Part of the property value (approx. CHF 3 million) was tokenised or broken down and subsequently sold to four investors.
Enabling simplified investments
Blockchain also allows shared ownership. This means that investors don’t have to save up lots of money over a long period of time to invest in a property. Instead – like in the example above – they can simply buy and sell tokens, or shares.
Added transparency and fraud prevention
Blockchain generates personal, certified digital IDs, thus protecting against fraud. This system therefore offers a more up-to-date and reliable proof of capital than a traditional bank letter. Buyers and sellers can store their data securely and verify it on the spot. Blockchain makes tedious and often expensive interaction with banks and lawyers a thing of the past. Properties can be assigned an individual digital ID that provides all the details of the ownership chain.
Low costs and efficient processes
One major advantage of using cryptocurrencies to buy and sell property is the low costs involved – even for international transactions. Thanks to blockchain, buyers can avoid high transfer and currency fees and buy real estate in other parts of the world relatively cheaply.
In Georgia, land register entries are now being managed using a blockchain. The data is encrypted and cannot be manipulated. This makes it easier to change entries when a house is sold – a process that previously took several months and involved lots of paperwork and red tape. Today, people buying and selling real estate in Georgia can perform the same process is just a few days. Some cantons of Switzerland have already begun debating the prospect of a blockchain-based land register.
Risks when buying and selling with bitcoin
Sending large amounts in bitcoin still entails a certain degree of risk. If hackers switch the addresses, for instance, the transaction cannot be reversed. Many people also forget that tax is still due when a property is purchased with bitcoin. Paying with bitcoin is no grounds for a tax reduction. Dramatic fluctuations in price continue to be an issue. The bitcoin price has been known to drop by 30 percent in the space of just a few days. The buyer carries the fluctuation risk.
Time will tell whether cryptocurrencies actually have the potential to revolutionise the property industry. Despite the growth of digitalisation, Engel & Völkers values the power of providing personal advice on property. We look forward to meeting you.