Cryptocurrencies out of favour with real estate buyers
The use of cryptocurrencies to buy property has nearly ground to a halt after a rapid expansion in recent years, in the wake of a plunge in the value of digital money.
Over the past five years, global cryptocurrency payments for residential and commercial real estate had gone from almost nothing to about US$100 million, according to Kashif Ansari, co-founder and group chief executive of Juwai IQI, a property technology company.
But the cryptocurrency market has taken a dive this year. Bitcoin, the most popular digital currency, has sunk 58 per cent in the last six months to US$21,123 on Monday.
“We have seen a complete drop in the number of people using cryptocurrency to purchase real estate,” said US property broker Ryan Serhant, founder of the agency Serhant which did about a dozen such deals last year.
“No one is selling their cryptocurrency right now and taking losses so that they can buy real estate.”
Use of cryptocurrency has been largely limited to luxury homes because it tends to be mostly wealthy people who have such a diversity of assets at their disposal. Less expensive homes are generally bought by people who have less money and who tend to be less willing to take investment risks.
Bitcoin was the most commonly used cryptocurrency for buying property last year. Serhant saw its use peak in the autumn when it traded between US$50,000 and US$70,000.
“Cryptocurrency is incredibly risky,” Serhant said. “You have to be willing to lose it all because it can go up and it can [go all the way] down.”
For property developers, “cryptocurrency is just a marketing and sales tool”, Ansari said. In most cases, when a buyer pays for a home in digital currency, the developer immediately converts it to fiat money like the US dollar.
In Hong Kong, while paying for a property with cryptocurrency is not technically illegal, there are some prohibitive regulations, according to Hannah Jeong, head of valuation and advisory services at Colliers.
“If someone can use the STO [security token offerings] format to tokenise the property at the holding company level and sell via cryptocurrency, it is possible,” she said.
However, the company offering the STO needed licences from the Securities and Futures Commission and could only sell the tokens to professional investors who owned liquid assets of not less than HK$8 million, she added.
For investors elsewhere in Asia, meanwhile, the region’s capital controls mean they have not been buying much real estate in the United States, either in traditional or digital currency.
Interest has been strongest from places like South America and South Africa, where the home currency is weak and where there is little protection of assets.
“We saw a lot of wealthy people [from those places] putting their dollars into cryptocurrency, to move it and to diversify it, and to get it out of their country faster to store money, but also as a transfer of value,” Serhant said.