Here’s everything you need to know about metaverse real estate - the costs, the investments and the risks.
The metaverse is a virtual world in which people live, work, shop and interacts with others - all from the comfort of their own home in the physical world.
In the metaverse, people use avatars to represent themselves, communicate with others and virtually build a community.
The virtual worlds inside the metaverse are comprised of digital real estate segments called ‘parcels’ which can be bought and sold by users using the metaverse platform’s digital currency.
The main purpose of buying ‘land’ in the metaverse is to either develop it or lease it out to a third party.
A buyer can also use digitised land to play games and socialise, or to monetize the content of their property by charging access.
Some brands, companies and even celebrities use their virtual properties to advertise, host virtual events and provide a unique customer experience.
All in all, metaverse real estate has the potential for a lucrative opportunity.
The sudden popularity of metaverse in the real estate market is skyrocketing and various investors are willing to pay millions.
With the rise of the metaverse, the value of digital real estate is also expected to grow quickly.
There was a metaverse real estate boom in the last quarter of 2021 after Facebook changed its name to META and indicated a focused interest in the metaverse.
And there are reports that metaverse land sales reached a record-high $500 million in 2021 and that sales in 2022 could more than double to over $1 billion.
A report from BrandEssence Market Research found that the metaverse real estate market is expected to grow at a compound annual growth rate of 31% a year from 2022 to 2028.
According to CNBC reports, metaverse real estate sales have so far been concentrated on the “Big Four” — Sandbox, Decentraland, Cryptovoxels and Somnium.
There are a total of 268,645 parcels on the four platforms, all of varying sizes.
Republic Realm paid a record $4.3 million for land in the largest metaverse real estate platform, Sandbox.
The company is developing 100 islands, called Fantasy Islands, with their own villas and a related market of boats and jet skis.
Ninety of the islands sold on the first day for $15,000 each and some are now listed for resale for more than $100,000.
Sandbox dominates the market, with 62% of the available land on the four platforms and three-quarters of all land sales in 2022, according to a report from Republic Realm.
Sandbox’s 166,464 parcels each sold for the ether equivalent of $12,700 in December.
The parcels are 96 metres by 96 metres.
Decentraland has 90,600 parcels, which are 16 metres by 16 metres, and sold for the ether equivalent of $14,440 apiece.
But over a dozen platforms are now selling real estate in the metaverse, with new ones sprouting up almost weekly.
The largest metaverse transaction was made by Republic Realm in November last year.
The metaverse real estate investor and advisor paid $4.3 million for 792 parcels of land from gaming company Atari.
Republic Realm plans to co-develop some of the lands with Atari.
Around the same time, Toronto-based metaverse investment firm Tokens.com, via its subsidiary Metaverse Group, paid $2.4 million for 116 parcels of land.
The land comprises 6,090 square feet in Decentraland’s Fashion District, where it plans to host fashion events and build retail stores, where luxury brands can be sold and advertised.
The internet is a network of billions of computers, servers and other electronic devices which users use to communicate with each other, interact with websites and promote, buy and sell goods and services.
The metaverse however is a virtual world that mimics aspects of the physical world using augmented reality and virtual reality technology, social media and digital currency.
The popularity of metaverse real estate is skyrocketing, with investors now willing to pay millions for properties that don’t exist in the real world and a high growth forecast in the coming years.
The average real estate parcel in The Sandbox metaverse platform was worth the equivalent of $2,620 in mid-October, according to nonfungible.com.
A month later, after Facebook’s announcement, that price skyrocketed to $11,042.
Snoop Dog, Paris Hilton and PwC Hong Kong are just some of the big names which have already put their money into metaverse real estate.
While Snoop Dogg has 122 plots of land, 67 plots of premium land, and 3 estates.
Meanwhile, consulting giant PwC Hong Kong recently doled out US$10,000 on a virtual plot.
Paris Hilton created an island in the online virtual world, dubbed Paris World, where visitors can explore digital replicas of her Beverly Hills estate and its dog mansion in a luxury sports car or Sunray yacht.
Like other virtual hangouts, Paris World will collect small payments for purchasing virtual clothing or booking a ride on a jet ski.
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The metaverse is also being heavily endorsed by major brands and names such as Tommy Hilfiger, Nike and Reese Witherspoon.
And the name dropping doesn’t end there.
Gucci, Daler Mehndi, Warner Music Group, and more have already bought land in the metaverse.
Mcdonald's has already begun work on creating a metaverse restaurant that will deliver whatever you order in the virtual world to your real-world front door.
And Adidas, Samsung and Coca Cola have also been quick to get in at ground level to expand their brands into the new online worlds.
Risk 1: Volatility
While metaverse real estate clearly could provide huge rewards, the risks are equally as major.
Because, how do you assign value and risk to an asset whose scarcity is artificial and whose future is a blank slate?
And don’t forget this is an investment into a non-physical product that has an infinite value set only by those transacting in it.
Unlike physical real estate, digital real estate is not intrinsically valuable or backed by tangible assets which means if the trend fizzles out the demand for digital real estate could dry up entirely.
There is also a significant risk from the extreme volatility of cryptocurrency, on which the value of metaverse land is based.
Risk 2: The future is unclear
At the same time, many investors would and are drawn to metaverse real estate with promises of astronomical growth and exceptional demand.
But don’t forget that while there is immense growth that has not yet been realised, just because a crash isn’t imminent doesn’t mean it won’t come at some point.
This begs the question:
Will the metaverse real estate trend die as fast as it started?
After all, the metaverse is still under development, and there is no guarantee that it will ever become commercially successful on a large scale.
One or two of the leading worlds, or perhaps a couple of newcomers, could potentially rise to prominence in the future, leaving the others in the dust and significantly devaluing real estate in those lands – including yours if you choose the wrong one.
Risk 3: Scams
The third risk for metaverse real estate investment is the rise in illicit activity and scams.
Just last week, two 20-year olds were arrested in the US for an alleged $1 million NFT fraud.
The duo launched an NFT (non-fungible token) collection called Frosties, releasing 8,888 ice cream scoop cartoon characters that sold out within an hour on OpenSea.
They then promptly abandoned it, shut down its website and transferred all the funds to their own cryptocurrency wallets.
And unfortunately, these scams aren’t isolated events.
In fact, in February, the Chinese Banking and Insurance Regulatory Commission issued a warning of fraudulent activity in the metaverse, for everything from cons in which project developers make off with investors’ funds, to selling fake “land” in various metaverse projects.
Risk 4: The investment pool is limited
Currently, the investment pool is limited to those investors who can afford to take on significant risks.
There is no guarantee that a broader array of investors will come into the space and drive up demand for, and therefore the value of, the real estate.
Buying land on the metaverse is usually done with cryptocurrencies – Ethereum is a popular choice, as are SAND (the currency connected with gamified metaverse platform The Sandbox) and MANA (connected to the community-based Decentraland platform), Forbes reports.
Purchases of land on either of these platforms can be made directly from the platforms themselves.
As well as buying directly from platforms, a busy third-party resellers’ market also exists, just as with real-world real estate.
I wouldn’t suggest or recommend investment into metaverse real estate for all the risks listed above.
I’ve often heard Michael Yardney cleverly say “Don’t invest in anything you don’t understand!”
While the trend for the metaverse is clearly booming, and big-name celebrities, brands and companies are putting money down for pieces of land in the developing virtual world, this investment is not for the risk-averse and should not be undertaken without significant due diligence or without seeking advice.