Potential buyers, including those from Hong Kong or mainland China, can now buy real estate with Bitcoin.
Magnum Real Estate said they will accept bitcoins as payments to the three ground-level shops worth US$29 million at a luxury residential project in Manhattan. This is another commercial move in New York City to accept a promising but volatile digital currency.
The stores at 385 First Avenue, also known as CODA, cover over 9,000 square feet of space and are currently leased to M&T Bank, Mighty Pita Restaurant and ProHEALTH Urgent Care Clinic. According to the developer, buyers will profit on them because they are fully built and are already generating income.
"We are a pioneer in bitcoin transactions and see a path where many more transactions can be done using blockchain," said Ben Shaoul, managing partner of Magnum.
This move makes CODA the first major income-generating asset to be offered to Bitcoin supporters. As such, Shaul said that any future resale of retail space can be made in foreign currency, depending on the buyer's preferences.
The firm also sold all of the apartments above the retail space, some of which were also paid for in cryptocurrency.
So, with an estimate of $ 29 million, the property is worth around 641 bitcoins at current exchange rates.
"I expect about two or three additional transactions in bitcoin this year for Magnum," Shaoul said, noting interest in luxury homes such as penthouses in Miami, condos in New York and mansions in Beverly Hills.
And according to Sonny Singh, chief commercial officer of BitPay, potential buyers from anywhere in the world, including Hong Kong or mainland China, can buy real estate. "The beauty of crypto is that it is a global digital asset," he said. "The buyer simply scans a QR code to pay."
To make it more clear, customers can make purchases in cryptocurrency, and BitPay verifies funds and accepts cryptocurrency on behalf of Magnum. The dollars are deposited into Magnum's bank account the next business day minus a 1% fee. But since the price is set in US dollars, the buyer will pay for the cryptocurrency at the spot rate at the time of purchase, Singh said.
"This investment could appeal to any Hong Kong or mainland Chinese buyer holding significant amounts of bitcoin and wanting the stability and cash flow of a long-term leased retail property in New York," noted Georg Chmiel, co-founder and CEO of Juwai IQI Group. "Unlike crypto, real estate cannot go to zero in value. This year alone, one bitcoin has been worth more than US$60,000 and less than US$30,000 [at different times]. That is more than a 50 per cent drop," he added.
James Pratt, director of James Pratt Auctions, which hosted the world's first online cryptocurrency real estate auction in Australia in April 2019, said: "With bitcoin, the transaction is rapid, and you do not lose out on an exchange or pay extra fees. [However] If you limit yourself to just bitcoin or cryptocurrency, you may [miss] some cash buyers not yet educated in cryptocurrency. The percentage of transactions with cryptocurrencies is still very low in countries like Australia and the US as compared to the mainstream method - at under 10 percent of all transactions over the last 12 months".
Nevertheless, Pratt expects a huge increase in crypto users, by around 5-10% over the next three years. But it will depend on the rate at which it is already growing and the fallout from the pandemic that has forced people to "research new ways of doing business".
However, the lack of sufficient regulation is a problem with Bitcoin and other cryptocurrency transactions, said Ken Lo, co-founder and chief strategist of HKbitEX. He also said that the settlement of payments using cryptocurrencies remains a challenge due to problems with money laundering, inadequate secure wallet options and lack of investor awareness.
Even so, Lo said blockchain technology provides better security and an easier way to track all transaction records, which could increase investor confidence. In addition, global legal and tax framework for cryptocurrencies is now evolving to cope with new developments.
And with the growing interest in cryptocurrencies around the world, increased regulation and wider adoption, Chmiel said it is reasonable to assume that cryptocurrency-only transactions could go mainstream, albeit not quite common, by 2025.