Can you Purchase a Property Without Cash? Beware of the Dangers

Cryptocurrency (such as Bitcoin) has been on the rise in the last decade. More and more people are becoming interested in moving their money from banks into this digital form of currency. The question arises in the property market as to whether you can buy or sell a house in cryptocurrency. Even if you could purchase a property what are the risks and how does the law treat cryptocurrency. We will answer these questions below.

Is there precedent to sell and buy property with cryptocurrency?

While property sales by cryptocurrency has not entered the mainstream property market, there have been properties listed where sellers have listed a property accepting cryptocurrency as the purchase price. Australian Property Law has not yet regulated the use of cryptocurrency. The Real Estate Institute of Queensland has approved cryptocurrency for use to buy and sell properties in Queensland, but have warned the current property infrastructure is not designed for cryptocurrency.

There is no current legislation that prevents the use of cryptocurrency in property transactions. There have been Australian properties listed for sale where sellers are willing to accept cryptocurrency as the payment method for contracts. So the answer is yes, you technically can purchase a property with cryptocurrency, but you would need to find a seller who is willing to accept cryptocurrency as the form of payment, and you would need to find a property.  

Benefits and Risks

Dealing in cryptocurrency does not require the involvement of a bank. The seller may also accept a discount if you purchase the property using cryptocurrency. Purchasing a property using cryptocurrency may also be a good way to diversify your portfolio. 

The risks in using cryptocurrency far outweighs the potential benefits. An overarching issue is that property law does not address nor regulate the use of cryptocurrency for property transactions. So future disputes are hard to address available legal remedies or outcomes for.

Even though you can purchase a property with cryptocurrency, there are still aspects of the purchase that requires payment by Australian Dollars. There are tax payments associated with purchases that do not accept cryptocurrency as a payment method, including transfer duty and capital gains tax.

The value of cryptocurrency is also unstable – the Australian Dollar value for cryptocurrency such as Bitcoin varies on a daily basis. As the period between signing a contract and settling takes at least a month the value of the cryptocurrency no longer reflects the value of the property. There are a couple of concerns with the fluctuation of cryptocurrency value including:

• there is no way to obtain a loan from a bank for cryptocurrency. Therefore, if cryptocurrency value diminishes, you may no longer have enough monetary consideration to purchase the property. As banks cannot provide cryptocurrency loans you would need to have a back up line of credit ready in case of any shortfall;
• if the property consideration value is close to $750,000.00, the seller would need to apply for a Capital Gains Withholding Clearance Certificate. Constant variations to cryptocurrency value will impact the determination of whether a seller needs to apply for a Clearance Certificate with the ATO.

How to Best Protect yourself when Purchasing with Cryptocurrency

We recommend the following options to best protect the use of cryptocurrency in a property transaction:

1. have the contract purchase price listed in Australian dollars with a special condition inserted to pay by Bitcoin at settlement. This will allow the parties to calculate the amount of Bitcoin payable closer to the settlement date, where it is less likely to drastically increase or decrease in value;
2. have a back up line of credit available just in case cryptocurrency decreases in value closer to the settlement date. Arrange a back up loan in Australian dollars with a bank just in case of any shortfall;
3. do not expect that you can pay for your purchase with solely cryptocurrency. Government authorities where taxes are payable do not accept cryptocurrency as a payment method so payment of transfer duty, titles registration fees and any ATO taxes will need to be paid in Australian Dollars.

If you have any questions or require assistance with purchasing property using cryptocurrency or a conveyancing matter in Queensland, please contact the property team at NB Lawyers for more information.

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