Ontario's real estate regulatory body, the Real Estate Council of Ontario (RECO), is raising serious concerns about whether brokerages should be allowed to facilitate transactions in cryptocurrencies such as bitcoin.
"RECO is currently reviewing the use of cryptocurrencies, such as bitcoin, in real estate transactions," says Daniel Roukema, senior adviser, external communications at RECO. "The decision to accept cryptocurrencies would be based solely on the law, our code of ethics and assurances that consumers will be safeguarded and no harm can come to people involved in buying and selling real estate in Ontario."
The issue, according to Mr. Roukema, is that cryptocurrency can't be held in trust the way regular bank funds are during real estate transactions. The Real Estate Council of British Columbia has already banned real estate professionals from processing purchases in cryptocurrencies.
"RECO does not regulate buyers and sellers, and if a transaction were to occur between two parties without the involvement of a brokerage, it would be outside of RECO's purview to determine the legality or feasibility of that transaction," Mr. Roukema said in a statement. "RECO cautions buyers and sellers to take steps to protect themselves in real estate transactions and to seek legal advice when considering the use of cryptocurrency in a real estate transaction."
At least one Toronto developer is offering to swap digital coins for property, in the form of a contract for a preconstruction condominium apartment.
Condos.ca, an online real estate brokerage, is the marketing partner on a deal strung together with Toronto's Pensio Real Estate Group, Nationwide Rentsure Canada and a Bermuda-based cryptocurrency company called Cryptonumus.io. Units in the Ellie Condo at 5220 Yonge Street, being developed by G Group Development Inc., are being offered from 70 to 116 bitcoins (a moving target given the volatility of bitcoin), or starting at about $367,000.
Seeking out bitcoin offers for a condo development is novel enough, but in an extraordinary first for Canada, Goran Alexander Vice President of Pre-Construction Sales for Condos.ca says the preconstruction condos are being sold for full price in bitcoin, up front. "The traditional way is 20 per cent within a year and then the remainder on closing," says Mr. Alexander, who acknowledges he's never seen a cash transaction for a unit's entire value outside of the Asian market. "The only reason you'd buy up front so front-loaded is because of the volatility. These guys don't want to get stuck with bitcoin that's sinking."
Indeed, since the highs of December when bitcoin commanded US$19,300 a token, its value has slipped by 47 per cent according to Coindesk.
An additional incentive to pull the trigger is the countdown on the Cryptonumus site, which tells potential buyers they only have a few days left to buy. The original promotion was only intended to last for two weeks. Cryptonumus and Pensio are also hosting bitcoin presales for projects in Kingston, Hamilton and Barrie.
The biggest potential risk in the "swap" mechanism Cryptonumus employs is that if, for whatever reason, the transaction falls through in the future – either because a buyer wants to pull out or the project gets cancelled – what you get back is your original number of bitcoin. If bitcoin crashes, you will have missed out on an opportunity to have cashed in now for literal cash, and if bitcoin soars you could have pledged bitcoin worth far in excess of the eventual closing cost.
While Mr. Alexander says his team has fielded multiple expressions of interest, a spokesperson for the Cryptonumus team said no one has actually gone ahead and swapped bitcoin for property yet.
"My phone has been repeatedly ringing with people wanting to know more and how they can unload their position in bitcoin," says Mr. Alexander, who sees the promotion as a way to hedge virtual currency with property. "It gives people an opportunity to exit and get into a true tangible asset that has a sense of security."
That said, a preconstruction condo is not a tangible asset; it doesn't exist yet.
The Ellie project is proposed for a parcel of land with a troubled history. A previous developer, Centrium, cancelled its plans for the site in 2014 before construction began.
Then buyers claimed the developer refused to return their deposits, which ranged from $40,000 to $700,000. In 2017, Toronto lawyer Meerai Cho pleaded guilty to one charge of criminal breach of trust and was sentenced to 3 1/2 years in custody, although 142 charges of fraud over $5,000 were dropped.
The offering also highlights the ways the Canadian financial system has yet to prepare for large-dollar transactions in cryptocurrency being funnelled through anti-money laundering rules or the real estate industry's "know-your-client" rules.
"Real estate developers, brokers and sales representatives must fulfill specific obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations to help combat money laundering and terrorist financing in Canada. These obligations include establishing a compliance program, client identification, record keeping, ongoing monitoring of business relationships, and reporting certain types of transactions to FINTRAC," says Jamela Austria, a spokesperson for FinTRAC.
The rules are clear that an agent who receives $10,000 or more in cash (in a single or multiple transaction in a 24-hour period) must send FinTRAC a report within 15 days. What's not clear is whether bitcoin, which has many of the difficult-to-trace elements of cash, counts as a suspicious transaction and must be immediately flagged to FinTRAC.
Some of the best-in-class data companies working with financial authorities in the United States say they are much further along identifying whether bitcoin comes from criminal actors (based on identifying clusters of bitcoin wallets connected to the so-called dark web) than they are in tracking money launderers.
Editor's Note: The original print and online versions of this story got Mr. Alexander's title wrong. This online version has been corrected.