Metaverse Real Estate: The Where, Why & How Much of Investing in a Virtual World
Metaverse real estate is growing at a fast pace, both in interest and prices, and has been one of the top-grossing sectors in the NFT space in 2021 and in the past couple of months. While in March the upward trend was reversed, according to DappRadar, it still continues its impressive traction and continues its mainstream streak, notably with recent entrants such as financial giants JPMorgan and HSBC buying plots of virtual lands.
“The opportunity within the metaverse is massive and many people are recognizing that with the growth that has been seen over the past few years,” Brock Pierce, Bitcoin Foundation Chairman told GOBankingRates. “Citigroup just published a report and sees the metaverse opportunity in $13 trillion or more by the end of the decade. There are a couple of larger metaverses to follow, like Decentraland, Sandbox, and Somnium, and I would recommend that investors get up-to-speed on those communities as a good starting point.”
Why Should You Buy Land in the Metaverse?
Just like “real” real estate, virtual real estate is an investment. Metaverses have all seen tremendous interest from users, rising sale revenues from in-world assets, and land prices doubling from an average of $6,000 per parcel in mid-2021 to $12,000 per parcel by year-end, according to a Republic Realm report. And as DappRadar explained, virtual land NFTs are one of the most enticing aspects of the blockchain-based metaverse, as they allow owners to build experiences, incentivizing creativity and imagination while embracing decentralization. They also unlock a monetization aspect since these virtual parcels can be rented to third parties or simply serve as a rentable investment.
Andrew Steinwold, managing partner and founder of NFT-focused investment firm Sfermion, sees an additional purpose and likens virtual real estate to social media.
“You can view the piece of virtual land you own as your “social media profile” similar to your Facebook or Instagram profile. On those social media platforms you can really only post pictures and written content about yourself while on virtual world platforms your optionality is unlimited,” he said.
“You can create a gallery to show off your NFTs, you can create your own house just for creative purposes, you can create an e-commerce store and actually sell NFTs. If you know how to code you can actually create a mini-game on your piece of land, you can even create a source of passive income through setting up a billboard on your land or renting the land out to other users,” Steinwold continued.
He added that perhaps the most exciting aspect of virtual worlds is that they are essentially user-owned and governed social media networks.
“They are user-owned in the sense that you purchase your piece of land (profile) and if the city (platform) becomes more popular your land value could actually increase — it could also decrease! It’s not without risk — and they are user-governed in the sense that the community has sway over how the platform evolves,” he said.
Where Is the Best Place to Buy Land?
A new Citi report, Metaverse and Money, notes that moving from the physical world to the virtual world isn’t significantly different, as while we can purchase a big mansion in the middle of nowhere, we often choose to live in an expensive small apartment, in the center of the city.
“This is because the network effect is meaningful, as the apartment says something about us and the community around it. In the virtual world, platforms such as The Sandbox also have multiple pieces of real estate. However, owing to the network effects, we tend to perceive certain plots as more valuable than others, especially if they are in the vicinity of celebrities or in closer proximity to the center of the town,” the report notes. “Some people prefer to buy virtual land in megacities, although there are several other plots of land available in The Sandbox at cheaper rates. These decisions are driven by some of the same factors we take into consideration while purchasing land in the physical world.”
The Sandbox is a virtual world where players can build, own, and monetize their gaming experiences using SAND, the main utility token of the platform. Its metaverse is based on a map of 166,464 LANDS — blockchain-backed virtual tokens — which are physical spaces in the Metaverse owned by players to create and monetize Games. LANDS are used to publish your game and can be rented to game creators, according to its whitepaper. It also has a market value of $3.9 billion, according to the Motley Fool.
It is the largest virtual world in terms of transaction volumes, with 65,000 transactions in virtual land totaling $350 million in 2021, according to the Centre for Finance, Technology and Entrepreneurship (CFTE) in its metaverse report. Because of the choice to limit the number of lands and assets, prices are mainly determined by supply and demand in the secondary market and have grown considerably from an average of $100 per land in January 2021 to $15,000 in December 2021, with a clear acceleration in Q4 2021 — when the Sandbox Alpha was released, according to the CFTE.
In March, HSBC set a stake in the metaverse through the purchase of a plot of virtual land, becoming the first global financial services provider to enter The Sandbox, as GOBankingRates previously reported.
Decentraland is a virtual reality platform powered by the Ethereum blockchain and users can create, experience, and monetize content and applications, according to its whitepaper. The scarcity of land, on top of which applications can be built, creates hubs that capture user attention, which drives revenue to content creators. It has a market cap of $4.8 billion, according to the Motley Fool.
Land in Decentraland is permanently owned by the community, giving them full control over their creations and landowners control what content is published to their portion of land, which can range from static 3D scenes to interactive systems such as games. Land is a non-fungible, transferrable, scarce digital asset stored in an Ethereum smart contract. It can be acquired by spending an ERC20 token called MANA- which can also be used to make in-world purchases of digital goods and services.
In February, JPMorgan became the first bank to open a lounge in Decentraland, as GOBankingRates previously reported.
According to the Axie Infinity whitepaper, “Lunacia, the Axie homeland, is divided into tokenized plots of land which act as homes and bases of operation for their Axies. Plots can be upgraded over time using a variety of resources and crafting ingredients that can be found when playing the game.”
Lunacia consists of 90,601 plots of land, which are represented as NFTs and can be freely traded by players, according to the developer whitepaper. The Genesis property in question is particularly valuable because of its scarcity: there are only 220 Genesis plots within the game’s 90,601 plots.
Location, Location, Location
Wherever you chose to buy a plot of land, according to several experts, including Citi, what matters most is location. The most expensive plots tend to be at the center of the virtual town, and the ones owned by social influencers, celebrities, and brands also tend to command a premium over the rest. ” Much like in the real world, distance/proximity plays a crucial role in determining the value of a plot of land in the virtual world. After all, people prefer to be close to the center of all the action,” the Citi report notes.
Steinwold adds that each virtual world is also different and has its own styles, cultures and areas of focus.
“The Sandbox is focused on enabling a gaming-centric experience. Nifty Islands is basically a combination of building, social events and gaming. Each world has its own specific vibe just like how you go to Tokyo to experience that city and culture, Paris for that, New York City for that, etc. There is no one best place to buy, it really depends on what you personally want out of the experience,” he added.
How Much Should You Plan to Spend?
While the metaverse is quickly evolving, it is still in its nascent stages and as the Citi report notes, investing in digital real estate is still highly speculative. You can either execute it via the primary market or the secondary market. Prices in the primary market tend to be relatively cheaper, but it is also very difficult to execute the transaction, as these land parcels tend to be sold within a matter of seconds, the Citi report notes. If you are purchasing virtual land from the secondary market, most transactions tend to occur on marketplaces such as OpenSea.
Despite the slump in land prices in U.S. dollar terms over the past month, owning land in the metaverse still turned out to be a better investment than holding ETH for the year as a whole, according to Cryptonews, which cites MetaMetriks data. Indeed, as of the end of March, metaverse land performed 2.6 times better than ETH for the past year, despite the dip in land prices and growth in ETH prices seen last month, Meta Metriks said.
Sami Chlagou, co-founder and CEO of blockchain-based trading card game Cross the Ages, told GOBankingRates that there is currently a digital rush to invest in virtual real estate but that investing in this space can be seen as risky given that it’s still so up-and-coming.
“But for those interested in getting exposure to high-risk, high-reward opportunities, this aspect of the crypto landscape is one that should be taken seriously. Of course – as is the case with any investment – one shouldn’t invest more than what she or he is willing to lose,” Chlagou said.
Chlagou explained that metaverse-focused investments, digital real estate, will increasingly constitute a rising share of both individual and institutional portfolios. Indeed, we are already seeing this play out with early metaverse investments by large companies and financial institutions. It’s an exciting time for this aspect of the industry!”
As for Steinwold, he said that the main issue is that the price of land is too high.
“Many new users shouldn’t have to spend $500 to $1000 to dive into the full experience. Sure all of these virtual worlds allow users to enter for free but building something on your own piece of land is a hugely important part of a virtual world experience and if there is that high cost it’s dissuading new people from wanting to try it out,” he said.
He explained that some virtual world platforms are trying to solve this issue by allowing everyone to have their own piece of land when they sign up — Nifty Islands is the pioneer in this method — but these platforms are still in the early days.
“So I would try to spend as little as possible and scale up as you get more involved. Always err on the side of caution anytime you are spending money!” he added.
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