Use bitcoin to buy real estate

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Bitcoin mania is all over town, with mom and pop investors such as Mr and Mrs Watanabe getting in on the action.

Real estate, long known for its old school sheen, is slowly getting into the action, with some sellers putting up their homes for sale by accepting bitcoin only.

How exactly will this work?

From the outset, the volatility of bitcoin is going to cause major concerns.

If a house were listed for say, 10 bitcoins, which at the time of writing is worth approximately US$18,000, the seller would have the peace of mind knowing if the transaction were completed there and then, he would pocket that amount.

But we all know that bitcoin isn’t exactly a currency and has wild moves in its value. One bitcoin was worth about US$19,600 just a few days ago. That’s an 8% drop in value over just a few days.

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If the seller had made the sale a few days ago, he’d have pocketed a cool US$16,000.

So this volatility is one reason why bitcoin hasn’t been exactly welcomed by central bankers.

There’s one way around it though – fix the price of bitcoin as of a certain date.

So going back to the previous example, if a buyer was interested in the property, the seller and buyer can agree to fix the price at US$180,000 (or 10 bitcoins at that point of time).

If in future the USD value of 1 bitcoin halves to $9,000, the buyer would need to cough up 20 bitcoins (or 20 x 9,000 = US$180,000).

In this way, the seller would be assured of his US$180,000.

The risk would lie with the buyer. Considering the volatility of the bitcoin, how many buyers would want to shoulder such a risk?

That said, if the value of 1 bitcoin rises to US$36,000, the buyer would only need to cough up 5 bitcoins or US$180,000. Buyer wins. Seller gets his or her 5 bitcoins, and if so desired, can exchange it for US$180,000 at that time.

One advantage of using bitcoin and its related blockchain technology is not needing to rely on an intermediary – a bank, escrow officer or the middlemen typically used in real estate transactions.

The existence of the blockchain and the transaction being embedded in it would authenticate a transaction, whether it’s over a title dispute or divorce proceeding.

Bitcoins can be transferred instantly without the hassle and pain of going through a bank.

Already, some properties in the US are being sold for bitcoins. I think the Chinese, who have a penchant for moving sums of money, clean or otherwise, would be keen on such deals.

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That said, there remain questions such as how mortgage would be incorporated and how title insurance would work.

The complicated and opaque nature of real estate could be one reason why bitcoin hasn’t taken off so strongly in that asset class.