Author: Deandi Aletta van de Vyver
Over the last few years cryptocurrencies have been the topic of conversations between families, friends, or colleagues. While there continues to be a lot of uncertainty regarding the use of cryptocurrency, it has become increasingly popular globally and is accepted as an alternative to cash payment when buying property across America.
Is this the case for South Africa?
To date we have not learned of immovable property being bought this way in South Africa. It is also not likely that cryptocurrencies, as a medium of exchange for transactions regarding immovable property, will be adopted in South Africa in the near future. That being said, anything is possible!
Buying immovable property with cryptocurrencies in South Africa has a few challenges which attributes to the many reasons why cryptocurrency as a medium of exchange in immovable transaction may not be in SA’s near future.
Using blockchain technology to facilitate cryptocurrency transactions
A blockchain is a method of storing data. Each block contains 3 important information namely: the data of the transactions; the hash of this block and the hash of the previous block. This results in all the blocks being linked together creating a chain, namely Blockchain. The data of the transaction would be when for example, A sends B R 50 000. A hash is a unique combination that consist out of letters and numbers linked to the block to identify it.
This process is being investigated as a method of transacting in conveyancing matters. At the moment the conveyancing process, which consist of buying and selling property and effectively transferring ownership from to seller to the buyer in the deeds registries, cannot utilise some of the efficiencies of blockchain. Cryptocurrencies will first need to be regulated and accepted as a legal tender in South Africa in order for this position to change.
Protocols of compliance in conveyancing
The current law regulating immovable property sale agreements, requires that the agreement should specify the purchased price and that it would be secured either by cash, bank guarantees or a combination of both. The Legal Practice Council also requires conveyancing attorneys to comply with strict protocols that are monitored by them. These protocols ensures that the funds pass-through the transferring attorney’s trust accounts to properly reconcile funds that are due to the seller, purchaser, and agents. Since cryptocurrencies are currently unregulated in South Africa, conveyancing attorneys will be bound by the current professional standard and rules.
When you secure the purchase price with cryptocurrencies instead of physical money – the current professional standards and rules will require that the “funds” must be transferred from the buyer to the transferring attorney’s trust account. This is already a barrier that transferring attorneys will face, since cryptocurrencies cannot be stored in a trust account. The only way to store cryptocurrencies is by way of a digital wallet.
Value of cryptocurrencies
If hypothetically all parties involved in the conveyancing process agree to a cryptocurrency sale/purchase – one of the biggest challenges would be to determine the purchase price of the immovable property in cryptocurrency terms. The value of cryptocurrencies fluctuates wildly – primarily due to demand and not secured by the traditional community such as gold.
It will be extremely difficult to guarantee a seller that they are not being underpaid, should the value of the cryptocurrency unit suddenly depreciate. Similarly, it will be difficult to guarantee a purchaser that they will not be overpaying for the immovable property if there is a sudden increase in the value of cryptocurrency.
The latter will become even more complicated when you consider the inevitable passage of time between the conclusion of the offer to purchase and transfer of ownership – due to regulatory requirements, such as rates and levy clearances and transfer duty receipts from SARS.
Even if a cryptocurrency value was attached as the purchase price of the immovable property, another challenge would be to determine at what value one should calculate transfer duty that would be paid to SARS. Cryptocurrency value is highly volatile and may change during the timeframe of the conveyancing process. SARS requires payment of the full value of the transaction, however, what exactly would that be?THUS, while buying immovable property in South Africa with cryptocurrencies is possible, it is not without any risks and challenges. In order to secure payment, stay old school and use those “big 5” notes.