It’s no secret the real estate market is skyrocketing, but the Covid pandemic is creating another little-known land rush. Indeed, some investors are paying millions for plots of land — not in New York or Beverly Hills. In fact, the plots do not physically exist here on Earth.
Rather, the land is located online, in a set of virtual worlds that tech insiders have dubbed the metaverse. Prices for plots have soared as much as 500% in the last few months ever since Facebook announced it was going all-in on virtual reality, even changing its corporate name to Meta Platforms.
“The metaverse is the next iteration of social media,” said Andrew Kiguel, CEO of Toronto-based Tokens.com, which invests in metaverse real estate and non-fungible token-related digital assets. “You can go to a carnival, you can go to a music concert, you can go to a museum,” Kiguel said.
In these virtual worlds, real people interact as cartoon-like characters called avatars, similar to a real-time multiplayer video game. Today, people can access these worlds through a normal computer screen, but Meta and other companies have a long-term vision of building 360-degree immersive worlds, which people will access through virtual reality goggles like Meta’s Oculus.
A recent report by crypto asset manager Grayscale estimates the digital world may grow into a $1 trillion business in the near future. Kiguel’s company recently dropped nearly $2.5 million on a patch of land in Decentraland — one of several popular metaverse worlds. “Prices have gone up 400% to 500% in the last few months,” Kiguel said.
Another hot metaverse world is the Sandbox, where Janine Yorio’s virtual real estate development company, Republic Realm, spent a record $4.3 million on a parcel of virtual land.
Prices of blockchain-based virtual real estate on the metaverse increased by 879 percent between September 2019 and March 2022, according to a study. Blockchain data platform Chainalysis’ study uncovered big differences in the prices of land in various metaverse projects and found that investors have been doubling down on digital assets for the purpose of “flipping” to turn a quick profit.
“Blockchain-based virtual real estate (VRE) offers both present-day and prospective benefits to the people who own it. Currently, the ability to create exclusive virtual events and communities is one of the major use cases that is translating into the sale of virtual real estate,” said Ethan McMahon, Economist at Chainalysis.
The research also suggests that 10 out of 11 of the metaverse projects that were studied held their VRE NFTs for less than 25 percent of the time the NFT collection had been live and that six out of 11 held it for less than 15 percent, indicating that most VRE purchases are being made for the purpose of “flipping,” or holding assets for short periods of time with the intent to sell it quickly and make a profit.
“Because the metaverse is such a nascent space, most of these are hard to foresee. That said, we believe that a couple of drivers may be whether AR/VR [augmented or virtual reality] systems are more interoperable or proprietary, and the pace of adoption of new computing technology.”
Tech giants like Meta, Microsoft, Nvidia, Sony, and Epic Games recently formed the Metaverse Standards Forum (MSF) in an effort to create open standards for all things metaverse, including AR, VR, and 3D technology.
It remains to be seen whether these companies will build out their metaverse(s) in a way that is interoperable with current metaverse projects and blockchain technology, but it would follow logically that such integration would drive up the value and demand for blockchain-based real estate projects, Chainalysis said in a statement on Thursday.
“In the near future, we see this demand being driven further by use cases such as renting and leasing, free airdrops of future Virtual Real-Estate NFTs, and perhaps most importantly, integrations with virtual reality and augmented reality functionalities,” McMahon added.
“The more immersive and life-like the virtual experience, the more likely it is for NFT-based ownership to feel tangible to users. So, the faster VR technology grows, the better it is likely to be for metaverse land offerings.”
“The digital world, to some, is as important as the real world,” Miami-based real estate broker Oren Alexander tells. Just like property in the real world, Kiguel says the metaverse is about three things: location, location, location.
“There are areas when you first go into the metaverse where people congregate — those areas would certainly be a lot more valuable than the areas that don’t have any events going on,” Kiguel said. To be sure, those heavily trafficked areas are reeling in big spenders.
Buying virtual land is pretty simple — either directly from the platform or through a developer. Investors build on their land and make it interactive. “You can decorate it, you can change it, you can renovate,” Yorio says. “It’s code.” But Yorio cautions that investing in digital real estate is a risky business.