Buy real estate with cryptocurrencies?

In recent times, much has been said about cryptocurrencies as a form of investment in the real estate sector. Portugal, in a more particular way, has attracted the attention of those who want to invest in cryptocurrencies due to the absence of legislation and tax taxation.

For this reason, applications from foreign citizens who intend to buy homes with cryptoassets have increased. In fact, the purchase of real estate with cryptocurrencies is already a reality in Portugal, since last May 5 was made public the transaction of a property entirely made in cryptocurrencies. This event marks a paradigm shift in the real estate Portuguese.

However, the doubts around this theme are still many. In this article, we will help you better understand what cryptocurrencies are and how cryptocurrencies work, and address the regulations that currently apply in Portugal for all those who want to invest in cryptocurrencies through real estate.

What are cryptocurrencies anyway?

Cryptocurrencies are not a new concept, although only in recent years have they gained more expression in our country. Simply, cryptocurrencies are decentralized digital currencies that are based on blockchain technology.

Unlike physical currencies such as the Euro, Dollar or Pound, cryptocurrencies are encrypted and there is no central authority responsible for their management and for defining their market value. These tasks end up being done in a natural way by their users, through the internet.

Cryptocurrencies can be used to acquire any kind of goods or services but today they are seen more as an asset than as an effective means of transaction. Those who want to invest in cryptocurrencies do so as if they are investing, for example, in stock exchanges.

This type of investment, despite enthusing many people, is also admittedly riskier, since it is necessary to fully understand the operation of the different cryptocurrency systems before making any kind of investment.

As a curiosity, know that there are currently more than 5000 different virtual currencies in circulation. The best known are Bitcoin (the first cryptocurrency that emerged) and Ethereum.

And how does blockchain technology work?

Blockchain technology works, in the background, like those old log books where our parents and grandparents wrote down all the expenses and revenues of the month. Now imagine this on a global scale.

In essence, we are talking about a network of distributed and shared records and data, the purpose of which is to create a global index for all transactions that have occurred. This network is constantly enriched by new transactions, which are recorded in encrypted blocks, and which connect to others by creating this chain (English terminology for chain) of cryptocurrency transactions.

Blockchain is already considered by many to be one of the most important technological innovations since the creation of the Internet and represents, nowadays, a climate change in the economy on a global scale.

But be careful because there is not only a single blockchain system, but several. This term is used whenever we refer to distributed registration technologies (in computer science the name dlt is given dlt – Distributed Ledger Technology), whose changes are made by transactions in cryptocurrencies. The first blockchain network that emerged was Bitcoin, followed by Litecoin and Dogecoin.

If there is no legislation in Portugal, how is it possible to buy a house with cryptocurrencies?

Now that you understand the technological concept that is the basis of cryptocurrency transactions, it is worth questioning how in Portugal it is already possible to buy a house as a way to invest in cryptocurrencies given the lack of legislation in the matter.

The truth is that there is no legislation regulating the cryptocurrency market, but there is also no legal standard that prohibits someone from buying a house through virtual currencies.

The challenges of buying real estate with cryptocurrencies

The main challenge to the realization of this type of business in real estate has to do with the obligations that result from the Law against Money Laundering and, consequently, with the duties that fall on all entities dedicated to the exercise of real estate activities.

To address this problem, the Bastonário of the Order of Notaries recently announced that a Regulation was being finalised for all Notarial Notaries, with detailed instructions on the procedure to be followed in the case of someone who wants to buy a property as a way to invest in cryptocurrencies.

The purpose of this regulation is to prevent illegal situations from happening in which real estate is undervalued in the deeds, the remainder being the amount paid apart (in cryptocurrencies) without any legal statements or records.

How is the purchase and sale of real estate in cryptocurrencies then made?

According to this new regulation that is being finalized, the Order of Notaries provides two different frameworks for the purchase and sale of real estate in cryptocurrencies:

Conversion of cryptocurrency into fiat currency (in euro, for example)
This is the simplest situation in which cryptocurrencies are converted to euros before signing the deed. In this case, the process follows the normal procedures of any real estate business, having the competent authorities to fulfill the usual duties related to money laundering, in particular to ascertain the origin of the funds.

Purchase of property with cryptocurrencies (without conversion into fiat currency)

But it is also possible to buy a property with cryptocurrencies as if it were a typical swap contract. In this case, cryptocurrencies are delivered in exchange for a property.

As in any traditional real estate business, it is possible to exchange one property for another, or for any other type of mobile asset (a car, a boat, a piece of art, etc.). In this case, the exchange will be made by cryptocurrencies.

Cryptobusiness and the duty of prior communication

For the purpose of Combating Money Laundering, these deals will be treated as risky businesses, so it will be necessary to collect additional information and communicate to the competent entities.

That is why all notaries will thus have the duty of prior communication (at least five days before the deed) of these cryptodeals. This is the information that should be communicated:

· The identification of the granting parties;

· The price of the deal;

· The type of cryptocurrency used with means of payment;

· Proof of purchase of cryptocurrencies (in particular registrations from the acquisition of virtual currencies to the date of the deal);

· Information about wallets (storage wallets);

· Indicate the date of the deed;

This data will be provided to the authorities, in particular the DCIAP and the Financial Information Unit, for the analysis of possible money laundering-related situations.

For cryptocurrency deals that exceed 200,000 euros

But be careful, because whenever the business exceeds 200,000 euros, it will be necessary to make a second communication. This obligation also determines that, after the formalization of the deed, the transaction is communicated again to the authorities.

Considering the large fluctuation in the price of cryptocurrencies, notaries should also compare the value of the various virtual currencies between the date of the promise contract and the date of the deed, in order to avoid any cases of money laundering.

Although we are still taking the first steps in this matter, it is natural that cryptocurrency real estate businesses will become part of our reality in the near future. So if you have questions about the subject, talk to a real estate consultant and enjoy your knowledge and extensive network of contacts.