You may have heard all the news swirling around Tesla and Bitcoin (one of the major types of cryptocurrency).
In February, the electric vehicle and clean energy company announced that it would be accepting Bitcoin as a valid payment method for their cars. This saw Bitcoin prices surge to record new highs.
Less than 3 months later, Tesla did a U-turn and decided that they won’t be accepting Bitcoin anymore, due to its environmental impact. Unsurprisingly, Bitcoin prices plummeted.
With such a volatile nature, would cryptocurrency ever be an appropriate option for big-time purchases... like property?
We’ve taken on this question for ourselves, and spoken to industry experts on their thoughts about purchasing property with cryptocurrency in Malaysia. But first...
What Is Cryptocurrency?
Cryptocurrency can be a confusing concept to properly understand, given its intangibility – so let’s start with a refresher.
Cryptocurrency is a form of digital currency, that’s based on blockchain technology. As a peer-to-peer currency, it’s not governed by any central authority (such as Bank Negara Malaysia).
Despite this, crypto is said to be more secure and transparent as it’s stored and transmitted using cryptographic techniques.
Its market volatility and lack of regulation however, has come under much scrutiny and are two big reasons why most Malaysians haven’t welcomed crypto into their portfolios just yet.
You might be familiar with some of the more well-known cryptocurrencies – Bitcoin, Ethereum, Binance, Tether and yes, even Dogecoin.
Since this is a type of virtual currency, you have to first sell your tokens into Ringgit – a process which has to be done through exchange platforms.
The three exchange platforms which are regulated by the Securities Commission at the moment are Luno, SINEGY and Tokenize.
A History Of Cryptocurrency Prices In Malaysia
How Would Buying A Property With Cryptocurrency Work?
Given the very vague regulations and lack of clear policy, conducting property transactions with cryptocurrency is definitely not straightforward feat.
In 2018, however, a land deal was successfully made between two businessmen in Sabah! It's important to note here that the businessmen were already acquaintances before the transaction took place, though.
So, how would buying property with crypto look like – and what challenges would each party face?
Don't Take On A Commitment You Can't Fulfil!
“Generally speaking, if you're interested in buying a property using cryptocurrencies, you'd first need to sell your cryptocurrencies into MYR using one of the regulated exchanges in Malaysia – Luno, SINEGY, or Tokenize.
The market depth for BTC/MYR or ETH/MYR on these exchanges are generally much lower, compared to offshore exchanges like FTX or Binance, which trades against USDC (USD Coin) or USDT (Tether)," said Bobby Ong, co-founder and COO of CoinGecko, one of the world’s leading cryptocurrency data aggregators.
Market depth is the ability of the market to absorb substantially larger orders, without having too much of an impact on the market price.
Be careful before executing large trades though, because large market orders without sufficient depth will result in a large slippage.
While slippage is mostly unavoidable and something to be accounted for, extra care needs to be taken in the context of property, because of the sheer size of this type of trade!
Integrity Of The Exchange
Buying Malaysian properties in Ringgit with USD-pegged cryptocurrencies has its own set of risks as well. Here, Bobby raised the issue of using peer-to-peer traders:
“Although you can get a better price trading against USDC or USDT on offshore exchanges, you need to note that there is no regulated route to convert USDC or USDT into MYR. You'd need to rely on peer-to-peer traders on Remitano or Binance P2P. This is a risky approach as both these platforms have been added to the investor alert list by Securities Commission Malaysia.
Also because of the very nature of a peer-to-peer transaction, the counterparty may not be an honest trader and may not deliver the cash, resulting in further difficulties with settlement (and not much customer protection/compensation).”
Is Buying Property With Cryptocurrency Legal In Malaysia?
As we’ve seen from the Sabah land deal example above, it’s clear that property transactions using cryptocurrency is possible, to a certain extent.
“You can, of course, also deal with the property seller himself/herself. Both parties can just agree to settle the payment directly (fully or partially) in cryptocurrencies, without any MYR bank transfer,” explained Bobby.
This is precisely what was done by the two businessmen in the Sabah land deal, owing to the fact that they were both friends prior to the transaction. An element of trust is obviously necessary here!
Confusion Around Crypto As Legal Tender
It's also important to add here that you should always check Bank Negara Malaysia's regulations, to see if payment for goods and services in legal tender other than MYR is acceptable.
This same concern is echoed by Wong Wai Ken, country manager of StashAway Malaysia, a licensed robo-advisor and wealth management platform.
“To execute these transactions, there will be other operational challenges, as the traditional banking system has not yet made a stance on accepting non-fiat (read: money that isn't government-regulated) currency,” he said.
This means the regulations surrounding cryptocurrency are relatively hazy. While buying property with crypto may not be outrightly prohibited, there are simply no concrete regulations set in place as of yet.
No Escape From RPGT And LHDN
In 2018, the Inland Revenue Board of Malaysia (LHDN) declared that all property transactions in Malaysia made via cryptocurrency are still liable for Real Property Gains Tax (RPGT).
Another taxation concern plagues Malaysian traders: "Are crypto profits deemed as revenue or investment?" Many will be hoping for the latter, given that capital gains are not taxed in Malaysia.
“Traders who have made large gains in their crypto trading should pay their relevant taxes for trading profits,” stated Bobby.
According to LHDN, income derived through digital platforms is treated as business income, but only if there is a pattern of trade.
A Look At The Pros And Cons
Regulations aside, being able to conduct property transactions with cryptocurrency would bring about other benefits and drawbacks of its own. Here's a quick look at some:
More efficient transaction
Tricky to find insurance
No consumer protection
Lower associated costs
Need to find escrow parties willing to handle virtual currency
1) Possible benefits
More efficient transaction. Property transactions with crypto would significantly cut down on the time and red tape involved with traditional home buying processes.
Fewer intermediaries. Blockchain technology’s transparency could cut down on middlemen in the real estate ecosystem.
Lower associated costs. With fewer middlemen come fewer fees. This is supported by cryptocurrency’s peer-to-peer and decentralised nature.
2) Possible drawbacks
Tricky to find insurance, given the vague crypto regulations.
No consumer protection. Lack of a central authority and being an unregulated form of currency also means that consumers are on their own in regards to fraud.
Need to find escrow parties who are willing to handle virtual currency.
On The Crypto Scene As A Whole
Speaking on their outlook on the current cryptocurrency scene, Freddy Lim, CIO and co-founder of StashAway said, “There’s no denying that cryptocurrencies are becoming increasingly popular and structured as a security. As of now, cryptocurrencies such as Bitcoin are widely accepted, but primary use cases are still highly uncertain.
Cryptocurrencies are mostly utility tokens – not backed by anything. The value relies mainly on the network effect of the number of users using it that are active. This makes the currency itself inherently volatile and the volatility is further compounded by the fact that there are numerous cryptocurrencies competing for active usage."
He further added that cryptocurrencies are considered as 'high risk' assets, since the currency does not have a history of being a reliable store of value.
"You can think of the core principle of a 'high risk' asset as the chance of getting higher returns. This essentially correlates to the higher chance of you losing a larger amount of your investment, since the higher returns are not a promise nor a guarantee.
You should always diversify your assets, so that you don’t keep all your eggs in one basket. With the current hype on cryptocurrencies, make sure that you’re aware of the risk, do your research, and learn about the space before investing in it, to understand what you’re getting yourself into."
StashAway recommended not investing in cryptocurrencies using funds that are needed in the short-term, and to never touch your emergency funds!
"This is because cryptocurrencies are highly volatile securities. If you do choose to invest in cryptocurrencies, always rebalance, and use the dollar-cost averaging (DCA) method on your deposits.
It basically means that you divide the total sum of money you want to invest into equal amounts, which will be put into the market at regular intervals. This way, you get to avoid concentration risks that could potentially compromise the wellbeing of your portfolio,” emphasised Freddy.
Condos With Crypto? Still A Long Way To Go!
While buying property with cryptocurrency may be viable to a certain extent, it certainly poses a significant amount of risk and uncertainty when done in practice.
Needless to say, ambitious Malaysians who are keen to conduct such a transaction must do their due diligence, and look closely into such matters before signing anything. Good luck!