Buying property with cryptocurrency

28 Jan 2021 12:00 am

It is possible, because as long as we can attach a Rand VALUE to the property for transfer duty or VAT purposes and Capital Gains Tax, the receiver of revenue doesn’t worry how you actually pay, but it is foolish and ill-advised.

By now, we have all probably heard of cryptocurrencies, the most popular one, being BITCOIN. These currencies are highly volatile, not for the faint-hearted, and some are completely unregulated. People are known to have forgotten their passwords in order to gain access to their coins, and then there is no way to access them. Just last week BITCOIN shot up by 40% in value, only to come crashing down again over the weekend by 21%!

Many people have posted on Facebook that they know of people who have bought property with BITCOIN and this has given rise to an increasing number of inquiries, namely – How exactly is it possible?

Well, let’s just start by saying that we have yet to find any truth to these statements. Maybe it is being done overseas, but we have yet to learn of a transfer of immovable property in SA, where the buyer actually paid the seller, in BITCOIN or any other cryptocurrency – hereafter referred to as “CC”.

From the outset, the truth is that it is legally possible to do this. I can pay you with match sticks if we agree to this or coconuts, or even chewing gum! Doesn’t HAVE to be in Rands, physically! As long as we can attach a Rand VALUE to the property for transfer duty or VAT purposes and Capital Gains Tax, the receiver of our revenue doesn’t give a continental hoot, how you actually pay.

The question we should rather ask is whether we should even begin to entertain this notion, of paying in actual CC.

Paying someone in CC happens by transferring these cyber “coins” from one person’s “wallet” (an application on one’s cell phone or laptop) to another person’s “wallet”. And herein lies the problem. Traditionally, payment of the purchase price of immovable property (in SA), is secured, pending transfer, in one of 3 ways, and on date of transfer, the seller receives his funds: Option one: The buyer pays the funds in ZAR (SA Rands) into the transferring attorney’s trust account to be held in trust (i.e. as security) pending the transfer. Option two: The buyer instructs his bank to ring-fence the funds which are held in an account in a SA financial institution, and then to issue a bank guarantee in favour of the transferring attorney and maybe the current bondholder. Option three: The buyer has sold a property and his transferring attorney issues undertakings to pay funds to the other transferring attorney, once the buyer’s property has transferred. These are the most common ways to secure payment of the purchase price, pending transfer.

And herein lies the fundamental, and most important principle, of property transfers in SA: You want to do everything you can to ensure that when the property transfers, the seller actually gets paid! How does one do this with CC?

Well, the truth is, it is not possible. CC is not held in a bank or by a financial institution like Rands. So firstly, you cannot issue a guarantee against such funds. Secondly, you cannot transfer CC “coins” into an attorney’s trust account. And thirdly, if the buyer is a foreigner and one day wants to sell, if he/she cannot prove that the funds used to buy the property, came into SA via our forex division, then he/she will have some mountains to climb, to repatriate the funds out of SA again into a foreign bank account.

If however your seller really trusts the buyer enough, to believe, that on the day of transfer, the buyer will transfer the coins, (and believes that the buyer will still have coins of sufficient value, after the usual 2 months a transfer takes), then we suppose, it can (theoretically) be done that way. But the problem is, the payment cannot be secured.

With CC, as things stand currently, the answer is thus simple. It is possible but foolish, and ill-advised. The buyer should just sell his coins and put the funds (i.e. SA rands) into the attorney’s trust account, or any SA financial institution which can issue guarantees, and let us conveyancers do our work, the old fashioned way! At least until CCs are regulated like any other currency.

Miltons Matsemela Inc.