In no way does this article condone the investment in Bitcoin. Invest to your personal level of risk tolerance and always seek advice before engaging in any form of speculative purchase. The company and its major shareholders are not holders or owners of Bitcoins.
There is an increasing public enthusiasm for cryptocurrencies. So it follows that we have had multiple discussions with our clients on property purchases and the use of Bitcoin. Here are are responses to the common questions we receive.
To complete any successful transaction, a deal usually needs to have a willing buyer and a willing seller. So if a vendor is happy to accept BitCoin as payment, then a deal should be good to go, right?
This might work for smaller items but there are a number of problems that are liable to crop up for a property transaction.
Councils base CVs and therefore rates on recent sales in the area. To enable this, a lawyer is required to disclose the dollar amount of the sale. We could assume the NZD value of the BitCoin on the day of settlement but that is only the first of the problems.
Have you ever wanted to be red-flagged by a number of government institutions as a potential money-launderer? You can jump directly to the head of the queue by asking to make large transactions in a de-regulated exchange like Bitcoin. The rules around anti-money laundering are extremely strict these days. You will need to have a verified ID in at least 4 different places when you buy a property. This leads you on to your final problem…
You’re going to struggle to find a lawyer to help you purchase the property using only Bitcoin. It’s likely the NZ Law Society won’t look kindly on a lawyer enabling a method of purchase specifically designed to circumvent regulated bodies. So the vendor needs to find a lawyer willing to stick their reputation and practice certificate on the line. The lawyer would also be challenged to process the settlement of funds through their Trust account as it can be assumed that their law firm doesn’t have a Bitcoin holding account.
There have been a few listings of vendors in New Zealand willing to accept BitCoin or other cryptocurrencies. The latest had a fixed price of $1.895m and was willing to accept digital currency, namely Bitcoin, for the property. Looking at the sale records for this property, it appears the sale didn’t go through in 2018. The latest sale for this property is recorded in 2006 (you don’t want to know what they got it for!).
It is legal to trade Bitcoin but it isn’t a legal tender like fiat money is. The banks will only ever deal in legal tender (ie; New Zealand Dollars). So to get a mortgage for a property, the purchase price will need to be denominated in NZDs too. In other words, if you require a mortgage and you have BitCoin, you will need to sell them in exchange for NZDs to show the bank your deposit for the property. A transaction can’t be made purely in Bitcoin if a bank is involved.
Bitcoin’s value is highly volatile meaning its price ranges considerably from day to day. At the time of writing (23rd August 2021), the price of Bitcoin was NZD$69,582. Actually, and I'm not even kidding, it was down at $68,773 earlier this morning. Exactly a month ago, the price was NZD$49,118. That’s a 41.6% increase in a month which isn’t even unusual. A great return if you bought it last month, but it is, in no uncertain terms, terrible storage of value.
So if a buyer had a value of $1,000,000 in mind for their house a month ago, they would have accepted 20.36 Bitcoins as a fair trade. A month later, you would have had a house that could have increased in value by $10,000 (based on Auckland property capital growth). Sounds good, except the vendor would now have Bitcoin worth a whopping $416,689 more.
Conversely, at $69,582 today (no, wait, $69,405 now), would a vendor take Bitcoin for their house knowing that it has been at these heights before and has dropped in half the price very quickly? Is this the top of the Bitcoin market or is it going to continue? In the listed property mentioned above, the value of Bitcoin was ~$90,000. Meaning the vendor, having accepted the Bitcoin would have lost money over the past 3 years. That's something that couldn’t be said for any property owner in the Auckland region over the same period.
With the significant amount of money that is being made (and lost) on Bitcoin recently, it is a natural jump to buying large assets. It would be foolish to say that we will never see transactions in cryptocurrencies in the future but at the moment, the rules for purchasing a property in New Zealand don’t seem to allow it in any way. Holders of Bitcoin will almost certainly need to convert their coins to dollars (if you'll excuse the pun) and purchase property the old-fashioned way.
Mortgage Lab’s mission is to be the digital town square for financial decision-makers to gain knowledge about their current and future mortgage. Follow us on Facebook and LinkedIn or subscribe to our newsletter to be notified of our latest articles.
If you have less than 20% deposit, you are referred to (by the banks) as a Low Equity (or Deposit) Borrower. You are required to meet a different set of…
This article is available in Chinese here. If you’re looking into whether you can afford an investment property, you’re not alone. Owning rental properties is a common kiwi dream. Many…