Mathieson

The traditional banking system has recently been awashed with money going into the heated UK property market, mainly in London. For overseas buyers, there is now an additional payment option – via cryptocurrency such as Bitcoin. This is deemed an innovative alternative especially to mainland Chinese home buyers who face hurdles in moving their money out of the country due to the government’s strict foreign exchange control regulations.

Cai-Capital, a property investment specialist assisting clients in real estate purchases in the UK with particular emphasis on central London, is the first UK property investment company accepting cryptocurrency – a digital or virtual currency that uses cryptography for security. The firm has recently completed such a cryptocurrency-paid transaction with a client from China.

The deal value is less than £1 million (US$1.69 million), says Richard Mathieson, chairman and managing director of Cai-Capital. The cryptocurrency was converted into sterling and then transferred to the client’s account to buy a home.

During Mathieson’s visit to Hong Kong, he was encouraged to find a positive attitude towards cryptocurrency and Cai-Capital may hook-up with major local agents in Hong Kong namely Centaline and Midland which together account for 60% of the market share in the SAR to introduce the new payment service to mainland customers.

Public’s acceptance

Amid globalization, cryptocurrency is being promoted as a convenient payment vehicle for cross-border transactions. It facilitates money transfer legally, beyond central banks’ FX control, comments Mathieson.

Transactions are 100% transparent, and the company does strict know-your-customer (KYC) to ensure that there is no money laundering and relevant regulatory compliance is properly met, says Keith Stukins, Cai-Capital’s director who specializes in exchange and currency markets.

Despite facing increasing regulatory monitoring, Bitcoin (the first and most popular crytocurrency) is still gaining momentum worldwide such that Paypal is looking to do something in conjunction with it. Investments via Bitcoin so far this year have surpassed that of the whole year 2013 by 20%, Stukins informs.

Amid the rosy outlook, Mathieson and Stukins admit that crytocurrency payment is still in its infancy, and the major risk rests on whether governments will block it worldwide. But that scenario is “not likely”, Stukins forecasts.

Another concern is about the safety of the cryptocurrency as a virtual form of payment. However, the fact that it’s digitally encrypted doesn’t make it more vulnerable than anything else, Mathieson says.

A real risk may arise from the fluctuation of cryptocurrency’s value. In the past year, the value of Bitcoin climbed from US$72 apiece in July 2013 to about US$1,200 in December 2013, and has now stabilized at around US$600 recently, CoinDesk.com data shows. The price fluctuation indicates the buying cost with real money could be vastly different across different time periods.

Cai-Capital offers a window of 72 hours in which to complete any cryptocurrency exchange, with each conversion limited to 50 Bitcoin. In the unlikely event that the value of Bitcoin collapsed mid-way through the exchange process, the remaining Bitcoin can either be refunded or the 72-hour window extended until the market recovers sufficiently, says Stukins. In extreme cases, if the market hasn’t come back during the window, clients may be advised to buy back the Bitcoin at a lower price to compensate for the valuation loss, Mathieson adds.

Normally, Cai-Capital charges 1.5% of the contract / purchase price plus VAT as fee for clients’ property acquisition services. For transactions by cryptocurrency, it charges an additional 1.5% fee.

London property investment

Known for its solid legal system, safe and robust financial environment and sound investment market, London has always been one of the hottest spots for international property investors, with recent large influx of Russian money into the city.

In a worldwide, low-interest environment, bank rate in UK has remained at 0.5% since March 2009, making the relatively low rental yields of circa 5% acceptable, Mathieson says.

“The London property market is arguably overpriced with 80% of the indigenous property ownership today unable to afford to buy the property they are currently living in,” he continues, “We are building approximately 100,000 new properties each year with demand for between 200,000 and 230,000. That level of shortfall can only drive prices up”.

Official statistics (HM Land Registry – April 2014) show that the home price in London has risen 17% in the past year. In 1995, in Westminster, the average property price was circa £160,000; in 2014, it stands at £932,000 or up 2% in the month and 18.5% year-on-year.

“The market is being propped up by outside investors,” Mathieson observes. In 2013, among the new home buyers in central London, 17% were from Hong Kong, 6% from mainland China, 15% from Middle East and 11% from Malaysia. UK local buyers only accounted for 19%, according to data from Jones Lang LaSalle.

This is a key reason why Mathieson started Hill-Mathieson & Partners 20 years ago, aiming to serve the international home buyers for opportunities in London. Cai-Capital provides a one-stop service from consultancy in home acquisition to letting management on behalf of clients afterward.

Cai-Capital’s reputation was built through word-of-mouth among clients. “Many of our clients have never seen the properties they bought,” Mathieson says.

As the entry level for London property is on the uptrend, Cai-Capital is now advising their clients to look for investment opportunities outside of the city. “For example, if you bought a one-bedroom apartment in Westminster for £600,000; with the same money, provincially, you can buy a 3-bedroom house at £200,000 each that will produce collectively the same rent return,” Mathieson illustrates. “It’s gaining momentum, especially in the areas with history and heritage, mass tourist attraction and university towns,” Stukins adds.