The real estate industry around the globe has been going through tremendous changes during the pandemic. The data produced by the ups and downs of the real estate market in the short span of two years, in India alone, would have been quite unpredictable has this been a case study in a Harvard class in 2019.
Experts studying the market during the pandemic have a strong grip on how consumer sentiments are going through a more fundamental change. This is allowing the real estate market to be more predictable, as much as a business environment can be.
A new trend that has just started forming in the real estate markets in the west, in the United States of America to be more exact, is the emergence of the crypto rich as buyers of luxury real estate.
Recently, the Wall Street Journal published an article about a luxury real estate deal in the heart of one of the most expensive cities in the world, New York. Normally, a luxury apartment in Downtown Manhattan is of no interest to someone looking for property in India. But this one was a special case.
A ‘crypto-king’, rightfully called so by the Wall Street Journal, with over $600 million in cryptocurrency holding was looking to buy luxury real estate that cost $25 million. This is also not a stand-alone case. The Wall Street Journal article lists numerous other crypto-kings who have, for the loss of a better term, taken over luxury real estate in the US.
While it’s not something that’s happening in India yet, cryptocurrency has turned around the lives of a significant few here as well. This is why we need to look into the very real possibility of cryptocurrency becoming a more openly accepted transactional unit when it comes to real estate.
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Buying A House With Cryptocurrency
Although not possible in India yet, this is a very real phenomenon across the globe. People have started pouring their crypto wealth into real estate. Apart from the Wall Street Journal case that we talked about previously, many more have emerged.
Recently a million-dollar condo in Mountain View California was listed with the owner accepting offers made in cryptocurrency along with the traditional cash and loan offers. Two other properties in the Bay Area saw the same trend with sellers accepting cryptocurrency offers.
Why do buyers want to buy real estate with cryptocurrency?
Cryptocurrency has seen high capital gains in the past few years. People who had invested insignificant amounts of money in digital currency almost a decade ago have seen the currency rise by thousands of percentage points. Selling off this currency to liquidate their gains would mean hefty taxes that need to be paid to the government.
By making an offer completely in cryptocurrency, buyers are able to defer these taxes while also adding an asset to their financial profiles.
Another benefit of crypto as a real estate transaction currency is while making down payments. Homebuyers who are choosing to make a down payment using their crypto investments now have more buying power.
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Why do sellers want to sell real estate with cryptocurrency?
As for a seller, accepting offers in cryptocurrency do three very important things for them.
1. Set their listing apart from the other listings in the area.
2. Increase their potential buyer pool and attract more offers.
3. Allowing to list the house at a higher price.
All in all, accepting crypto is a win-win situation for a real estate seller. Crypto also allows for real estate sale transactions to be concluded within days making it even more tempting for the seller.
Challenges Of Buying Real Estate With Cryptocurrency
The risks associated with crypto transactions in real estate can surely not be overlooked. While it is proving beneficial for those participating in this exchange, this is not the most ideal time to be cashing out of your crypto holdings. With Bitcoin dipping right now, liquidating crypto might not be such a great idea. But that isn’t the only issue that using crypto as a valid transactional unit for real estate brings to the forefront. The following issues need to be dealt with before crypto becomes a widely used currency in real estate:
1. Transparency
The Indian real estate market is working on becoming more transparent for the buyer. We at Clicbrics have used technology and digitizations as tools to help forward this mission of bringing more transparency to one of the biggest investment decisions a person makes, buying real estate.
We have made the process of buying a home up till taking possession of the same easily trackable for our clients and keep innovating new ways to make every step of the process more transparent.
The biggest drawback of crypto is the opacity of its origins and transactions. The whole point of cryptocurrency is the intractability of its origins and exchange.
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2. Storage and Security
The security and storage of cryptocurrency are also unclear and prone to human error for now. Your crypto holdings are stored in apps and digital wallets that require a long password along with an equally long 12-word phrase. To access your digital wallet you must be connected to a secure internet network and remember these digital protection passcodes.
3. Volatility
This needs no explanation. Whether you have been involved in the trading of crypto or not, you would have heard about the high peaks and deep lows that the crypto market went through in 2020 and 2021. This volatility can make crypto a very unreliable currency for exchange in the real estate market.
4.Regulation
Crypto is largely unregulated. For the Indian real estate market to accept crypto as a valid currency for transactions, it needs to be accepted and regulated by the RBI.
Union Budget 2022: India Regulates Cryptocurrency
Since we started talking about how the regulation of crypto is one of the biggest hindrances in its association with the Indian real estate market, we need to talk about the Union Budget 2022. Rumours that the government of India did the rounds in the middle of 2021.
After effectively banning crypto in 2018, and being struck down by the Supreme Court of India, the rumours of a second banning really shook up crypto holders. Playing a smarter card, the Finance Minister of India, Nirmala Sitharaman, placed a hefty tax on the income generated by the sale of digital currencies in India.
Any income generated by the sale of cryptocurrencies in India will now be taxed at 30% and will be subjected to a 1% TDS. Unlike other assets, this tax cannot be set off against other capital losses. The taxation on crypto was based on the process of taxation on the likes of winnings like lotteries and game-winnings.
The crypto market in India is currently recorded at $5.37 billion. During her presentation of the Union Budget 2022, she also announced that the RBI will soon be launching its own cryptocurrency.
This takes away the speculation of any possible bans on the currency and focuses the efforts of the government on regulating it instead. This move, while harming a lot of existing cryptocurrencies in India, could actually make the possibility of a more regularised legal tender cryptocurrency more real.
Real Estate As A Crypto Asset: Metaverse
We’ve discussed how cryptocurrency and real estate are related, but a very fresh phenomenon still remains to be discussed. Digital real estate is the new thing capturing the minds of the tech world.
Nothing like its physical and tangible counterpart, digital real estate, is being sold online for prices higher than an average home. Since Metaverse has taken the tech world by a wave, people are buying plots of land in virtual worlds.
These plots of land have recorded sales of over $100 million in NFTs (Non-fungible Tokens), according to NWO.AI, and are going for costs as high as $2.4 million. The kicker is nobody has any use for this digital land, and it’s still being purchased, leased, and rented.
With crypto being exchanged for this real estate, it can cause significant side effects in the crypto markets. This is due to the Metaverse Real Estate not being an appreciating asset. This means the value of your digital real estate is likely to never appreciate.
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As the western world starts on its journey into using crypto as a viable source for real estate transactions, it remains a dream for Indian crypto investors. The issue is, we’ve seen financial trends fail and collapse economies in the west. The 2007 credit crisis of the USA is a huge testament to unstable financial markets leading to the financial fall of complete economies.
The instability in the crypto market resembles the unplanned low credit rates of 2007 America.
Whether the Indian real estate industry accepts crypto as a valid currency remains a big question. The plus side to this delay is that the experts will get more time and data points to analyse the positive or negative effects of crypto as a transaction medium to buy real estate.
For now, trading in your Bitcoin or Ethereum for your dream home in India isn’t a possibility. But only time will tell if it will remain that way.