Virtual realty bites

Can the real estate industry bank on the digital currency that is gaining a foothold in the world’s luxury markets?

When Bitcoin was first introduced five years ago, it didn’t have significant use outside the sphere of the tech industry. It was virtually unknown to the rest of the world, which was just starting to feel the effects of a global recession that would persist for the next few years.

Today, Bitcoin users are mostly young, male, educated and of above-average wealth and based in North America, the United Kingdom and Western Europe are leading the way as the cryptographic currency gains more prominence and creeps its way into business transactions worldwide. Unconventional merchants and establishments, including Richard Branson’s Virgin Galactic and even the University of Nicosia, have added Bitcoin as one of their payments options. A real estate brokerage in Manhattan, Bond New York, claimed at the start of the year that it was the first firm to accept the young currency for property transactions.

A fad or the future?

“There is an amazing amount of potential there that can’t be ignored,” said Alan Silbert, founder and chief executive officer of BitPremier LLC, a website that specialises in luxury transactions online using Bitcoin. In February, Silbert’s company facilitated the biggest real estate transaction using the virtual currency conducted to date: a high-end villa in Bali, Indonesia, purchased for an estimated USD500,000 in Bitcoin by an anonymous North American-based acquirer.

A seamless and seemingly easy payment system is what makes Bitcoin real estate transactions appealing to loyalists, who are mostly looking to diversify their assets. A recent Forbes article claimed that Bitcoin “has the potential to transform the global financial services industry and raise the standard of living for all.”

Referring to the recently concluded Bitcoin transaction in Indonesia, Silbert noted: “Bitcoins were transferred between the US and Bali in a matter of minutes for virtually free. That is absolutely incredible. And it could have been a transfer for USD1 or USD1 billion, and it would have transferred the same exact way.”

As of this year, several virtual banks and wallet services are available online, including Xapo, BitPay and CoinBase.

“All you need is a smart phone or computer and a Bitcoin app, and a quick lesson on best practices in security to safeguard your Bitcoins,” he added.

Decentralised currency

The use of Bitcoin in real estate, however, faces some challenges. Due to the unregulated nature of the electronic currency, users are at risk and may not be entitled to any legal protection by any repository or government around the world, whilst the US Treasury branded it as a “decentralised currency”, as its performance could fluctuate abruptly.

When the Bali villa transaction was made, a Bitcoin was valued at USD610 based on a report by NBC News. Just a couple of months later, its value fell down to USD388 per Bitcoin, a massive drop from the all-time high of about USD1,100 per Bitcoin earlier in the year.

“With reference to Law No. 7 of 2011, Law No. 23 of 1999, and Law No. 6 of 2009, the Central Bank of Indonesia announced that Bitcoin and other virtual currencies are not considered a legal medium of exchange in Indonesia. With this announcement, Indonesia has taken a similar position as other Southeast Asian countries such as Malaysia, Thailand and China, which have taken a similar course of action,” according to Ingo Mueller, managing partner for Indonesia at international law firm Limcharoen.

“The Bank of Indonesia does not include a specific prohibition or regulation to ban Bitcoin in the country. However, it means that whoever trades in Bitcoin would do so without any legal protection in the ‘virtual currency’. Therefore, the decision to use Bitcoin as a consideration or mean of exchange in a property transaction is purely at the risk of the parties,” Mueller clarified.

Large growth market

Indeed, there are risks involving Bitcoin deals are like any other transaction, but this reality hasn’t prevented users from supporting and using it when selling or buying million-dollar homes. At the start of the second quarter, nearly fifty luxury properties, including homes, villas, ranches and even islands, have listed on BitPremier.com, and this practice is expected to continue in the future.

“I’m a big believer in Bitcoin and think it is here to stay. Everyday more and more people join the community and businesses start accepting Bitcoin,” declared Silbert. “Women are thankfully starting to gain in numbers, and I believe that in the near future the underbanked and unbanked populations, particularly in countries with unstable currencies, will be a large growth market.”

“Real estate brokerage is a service industry,” said Noah Freedman, co-founder of Bond New York, told the New York Post. “Our job is to make real estate transactions easy for our customers. Bitcoins are just another mechanism to help people facilitate transactions.”