How To Buy Real Estate With Cryptocurrency In Hungary?

Why Use Cryptocurrency to Buy Real Property?

Cryptocurrency is rapidly gaining traction in various sectors, including real estate. With the recent implementation of EU regulations (MiCA) and Hungary's Crypto Law, it's crucial to understand why buyers and sellers might choose cryptocurrency for real estate transactions.

Key Advantages:

• Speed and Efficiency: Cryptocurrency transactions can be completed within minutes, even across borders. This contrasts with traditional bank transfers which can take days, especially internationally.
• Lower Costs: Cryptocurrency transaction fees are generally lower than traditional bank transfer fees, particularly for large sums. These savings can be substantial for buyers.
• Privacy: While cryptocurrency transactions are publicly recorded on the blockchain, they don't necessarily reveal the identities of the parties involved.
• Flexibility for Investors: Many investors hold significant cryptocurrency assets. Using these directly for real estate purchases eliminates the need for conversion to traditional currency. This also benefits sellers who may not want to deal with cryptocurrency conversions.

What is Considered a Crypto-Asset?

In the evolving digital landscape, crypto-assets are emerging as a new form of value. But what exactly are they?

Simply put, a crypto-asset is a digital representation of value or rights that can be transferred and stored electronically using technologies like blockchain.

The MiCA regulation, a key piece of European legislation, further classifies crypto-assets into these distinct types:

• e-money tokens (Stablecoins): These are primarily used as a means of payment and have their value tied to a single traditional currency (e.g., 1 token = 1 dollar).
• asset-referenced tokens: These aim to maintain a stable value by linking to a mix of fiat currencies (like dollars or euros), commodities, other crypto-assets, or a combination of these.
• crypto-assets other than asset-referenced tokens or e-money tokens or 'General crypto-assets': These include any other crypto-assets that don’t fit into the above categories, like Bitcoin.

What does this mean for a Hungarian lawyer?

In simple terms: When dealing with legal cases under the Hungarian Civil Code, cryptocurrencies (like Bitcoin or Ethereum) will likely be treated as a valuable asset, similar to a stock or bond. However, they are not considered actual money.

The more complex picture: Since there are no specific court decisions yet about cryptocurrencies in Hungary, the legal situation is still somewhat unclear. This means lawyers will need to carefully navigate the existing laws and apply them to these new types of digital assets.

Paying for Real Estate with Cryptocurrency: What You Need to Know

In real estate transactions, the law requires the buyer to pay a "purchase price" to the seller. While this term isn't strictly defined in the Civil Code, it essentially means anything the seller is willing to accept in exchange for the property. This means there's no legal barrier to using cryptocurrency as a payment method.

While traditional HUF bank transfers remain the standard method for real estate transactions, buyers sometimes utilized alternative payment approaches even before crypto. These may include payments in Euros or US Dollars, and in some cases, even bartering arrangements.

Important Note: While cryptocurrency payments are legally permissible, it's crucial to ensure both buyer and seller clearly agree on the terms, including the specific type of cryptocurrency and its value at the time of the transaction.

Paying for Real Property with Bitcoin: Navigating Tax Challenges

While Bitcoin and other cryptocurrencies offer a new way to transact, they also introduce unique tax considerations, especially when it comes to significant purchases like real estate. Let's explore the key challenges and how to approach them:

1. The 'Forint-First' System

The Hungarian tax system operates primarily in forints. Even if you pay for real estate with Bitcoin, you'll need to translate that transaction into its forint equivalent for tax purposes.

2. Transfer Duty

When you buy real estate, you owe a 4% transfer duty based on the property's market value. This value, even if paid in Bitcoin, must be declared in forints on the NAV's B400 form.

3. Personal Income Tax (PIT)

Sellers of real estate must pay PIT on their gains. Similar to the transfer duty, even if the property is paid for in Bitcoin, the sale proceeds, costs, and any potential tax benefits (like the exchange replacement purchase duty reduction) all need to be calculated in forints.

Escrow and Cryptocurrencies in Real Estate Transactions

Escrow is a secure legal process where a neutral third party, typically an attorney, holds an asset (money, documents, or other valuables) until specific conditions are met. This ensures a safe and fair transaction for both buyer and seller.

In real estate, escrow is commonly used to hold funds or important documents until all obligations in the purchase agreement are fulfilled.

Escrow and Cryptocurrency Payments

With the rise of cryptocurrencies, the question arises: how can escrow accommodate transactions involving digital assets like Bitcoin?

Payment of the Purchase Price

In significant real estate transactions, it's often customary for the buyer to deposit a portion or even the entire purchase price into escrow. The attorney releases these funds to the seller only when specific conditions are met, such as completion of renovations or necessary approvals. This practice ensures that the seller fulfills their obligations before receiving full payment.

If equipped with a secure cryptocurrency platform (like a crypto wallet), an attorney can now accept cryptocurrencies into escrow. While regulated by the bar association, cryptocurrency escrows differ from traditional money escrows in that they aren't reported to the Hungarian Bar Association's escrow management system.

Ownership Registration Consent and Document Escrow

The "ownership registration consent" is crucial for the buyer to officially own the property. Typically, the seller provides this consent only after receiving full payment.

If full payment isn't made upfront, the attorney holds this consent in escrow and submits it to the land registry only upon confirming that the full purchase price has been transferred to the seller.

Addressing Cryptocurrency Escrow Challenges

For cryptocurrency escrows, attorneys can employ these strategies:

1. Seller's Transaction Confirmation: Similar to traditional money escrows, the attorney seeks confirmation from the seller that payment has been received. However, contingency plans are essential in case the seller becomes unavailable.
2. Verifying Wallet Addresses: The attorney can request both the buyer's and seller's Bitcoin wallet addresses. By checking the blockchain, the attorney can independently verify that the agreed-upon amount has been transferred from the buyer to the seller.

Cryptocurrency and Earnest Money in Hungarian Real Estate

What is considered "earnest money" in Hungary?

Under Hungarian law, only physical cash or a bank transfer constitutes earnest money. This is different from the full purchase price, which can be paid in other ways.

Are cryptocurrencies like Bitcoin or Ethereum considered money in Hungary?

No. Cryptocurrencies are not considered legal tender or electronic money under current Hungarian and EU regulations.

What happens if I pay part of the purchase price with cryptocurrency?

This payment is likely to be treated as an advance payment, not earnest money. This means you can usually get a refund if the real estate deal falls through.

Why is this distinction important?

Earnest money has specific legal implications under Hungarian law. It provides certain guarantees to both the buyer and the seller. Advance payments, while still valid, don't offer the same level of legal protection.

Cryptocurrency in Real Estate Deals: What if it Falls Through?

Real estate transactions, even those involving cryptocurrency, can sometimes fail. Reasons can vary, from someone unexpectedly exercising their right of first refusal to the buyer facing difficulties in securing the full purchase price. In certain situations, the seller might be entitled to retain the deposit. However, the down payment and any other portions of the purchase price should typically be returned to the buyer.

It's strongly recommended to proactively address potential transaction failures during the pre-contract negotiation phase. Here are two possibilities:

Refund in Traditional Currency: The parties can agree that, in the event of a failed transaction, the equivalent value of the cryptocurrency, at the time of the refund, will be returned in a standard currency like the forint or euro. While seemingly simple, this approach needs to consider the potential volatility of cryptocurrency exchange rates.

Return of the Cryptocurrency: The parties might opt to return the specific cryptocurrency used in the transaction. This could be particularly attractive if the buyer places a premium on retaining the cryptocurrency itself, rather than its monetary equivalent. In such cases, employing an escrow service can provide an added layer of security and trust in ensuring the cryptocurrency's safe return.

The use of cryptocurrencies in real estate transactions is on the rise, but it's important to recognize that this is still a complex legal area. Both buyers and sellers, along with their legal advisors, need to understand the distinct nature of cryptocurrencies and take appropriate precautions.

A key point to remember is that the value of cryptocurrencies can change rapidly. This means that the exchange rate between the cryptocurrency and the traditional currency (like dollars or euros) could shift significantly during the course of a real estate deal. It's strongly recommended to address this potential risk directly in the purchase agreement.

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