Spending hundreds of thousands or millions of dollars on an imaginary land or home in a virtual world may seem ridiculous or unreasonable.
And yet, significant investments have flowed from companies and individuals to buy real estate in virtual plots of land and houses in the Metaverse — defined by the Merriam-Webster dictionary as a “highly immersive virtual world where people gather to socialize, play, and work”.
Metaverse real-estate transactions totaled $501 million in 2021 and $85 million in January 2022 alone.
It is predicted to be worth more than $1 billion by the end of the year.
The world of tomorrow
People envision Metaverse as the world of the future, one that connects them and allows them to communicate, work, learn, train, play, and entertain in vast and diverse virtual environments.
As major technology companies embrace the concept of Metaverse and attach the future of their businesses and projects to it, global investment in this virtual world is predicted to reach $72.8 billion in 2024, up from around $12 billion in 2020.
Meanwhile, revenues from the Metaverse are estimated to grow to $800 billion in 2024, according to Bloomberg Intelligence.
Investment in real estate
Recently, the focus has been on real-estate investing, notably when the prices of virtual real estate in the Metaverse skyrocketed to record levels.
According to Sebastien Borget, COO and cofounder of The Sandbox, the largest virtual world in terms of transaction volumes, prices of lands and properties in the Metaverse are mainly determined by supply and demand.
They have grown considerably from an average of $100 per plot in January 2021 to $15,000 in December 2021.
Most transactions are either long-term investments or speculation — with rapid buying and selling of land taking place.
Very few are made to effectively use the land to create virtual buildings, games, or other experiences.
Borget revealed to TRENDS that transactions between November 2021 and January 2022 show the following results:
- 8,000 lands traded per month
- The average transaction price of 3.5 Ethereum (ETH), equivalent to $13,000
- Single lands traded as high as 60 ETH ($200,000)
Most expensive properties
There are currently more than 12 platforms selling real estate in the Metaverse, with new ones debuting every week.
Real-estate sales are concentrated on the big four platforms, viz Sandbox, Decentraland, Cryptovoxel, and Somnium, with a total of 268,645 plots of land available.
However, prices vary from platform to platform, ranging from $12,700 to $14,440 per plot, with location determining the price, as is the case in the real world.
For example, the Sandbox map consists of 166,464 unique virtual plots of land belonging to a user.
These plots will host a wide range of experiences, and their limited number makes The Sandbox aking to a virtual Manhattan when it comes to real-estate valuation.
The number of lands will never increase, just as the island of Manhattan will never get any bigger. This limitation helps create value.
Another factor influencing price, according to Borget, is who your neighbors are, just as in physical real estate.
Players can “walk” from one experience on one plot right to another experience in an adjoining plot, so pieces of land adjacent to famous and influential neighbors have higher value.
Borget said that global investment in the Metaverse, including from investors from the Middle East, is increasing.
“We are exploring creating a new neighborhood on the map and bringing some of the region’s leading brands in culture, lifestyle, fashion, and entertainment,” he said.
Can the profits be real?
Lands and real estate in the Metaverse are purchased and sold using non-fungible tokens (NFTs) — digital certificates of ownership of the equally digital property.
Landowners can create buildings and gaming experiences on their plots, similar to the real world.
Once a participant owns lands, they are free to build — for example — gaming experiences and make them available to other gamers.
It is on them to create a free game or decide to charge players.
In addition, they can create billboards for advertising or shops to sell for companies.
Therefore, the first benefit of owning land in the Metaverse is having a space to create digital experiences.
Furthermore, the location is essential for landowners, since players will wander around and be attracted to more central or better-known places.
Similar to real life, landowners can also rent out their plots to others to design their own games, host events, and conduct other social activities.
“Owners in the Metaverse are free to sell their land in the open market if they choose to do so,” explained Borget, adding that they can convert the resulting amount to another cryptocurrency or fiat money.
He also said that all transactions in the Metaverse are recorded with complete transparency, so that ownership is proven and verified.
“Your ownership of a virtual land is protected as long as your user wallet is secure,” he said.
A massive bubble?
Lands and property in the Metaverse are simply a modern version of cryptocurrency that attracts investors to projects that may ultimately prove worthless.
Thus, it is essential to understand that real-estate investment in the Metaverse is still speculative: No one knows if this boom is a good investment that would last or a massive bubble that could explode at any time.
Borget believes that the world will undergo a transformation in the next 10 years.
“The economic opportunities and jobs created by the Metaverse will revolutionize how we work, socialize, play, and earn,” he said.