Real Estate in the Metaverse is Booming: is it Really Such a Crazy Idea?

We are fast approaching the age of the Metaverse - connected, sustainable virtual realities in which we will live our digital lives alongside our real lives. We will increasingly use these spaces for work, play, communication, and learning. Everything we can do in the real world will have a digital counterpart in the Metaverse, with whom we can interact without leaving home. This includes investing and making money, and as in the real world, one of the most popular ways to do this is to invest in virtual real estate.

I also have another article about real estate but in the real world - “Real Estate Tokenization Guide: How Does it Work?” I recommend you to read it. It is very interesting.

So does it make sense to buy real estate in the Metaverse, or will it soon be over?

What is Metaverse?

The Metaverse is the term for the next-generation Internet.

Currently, the Internet consists mainly of two-dimensional websites that look like digital newspapers. We are used to consuming information and buying physical goods online, but that is yesterday's day.

The metaworld is a 3D space in which people, through avatars, can interact with each other and with digital objects. Digital objects merge with physical objects in a single ecosystem.

The best-known examples of the Metaverse, albeit in limited forms, are the games Minecraft, Roblox, Fortnite, and virtual reality platforms Decentraland and Sandbox. In addition to Facebook, Microsoft, Epic Games (the developer of Fortnite), and many others say they intend to develop a metaverse. In the Metaverse, its ideologists claim, we will work, learn, communicate and attend events.

Emil Holtemann, Marketing Manager at RealEstate.Exchange, about Metaverse:

In my mind, many of us are already in the metaverse on a daily basis when we engage in group chats on Telegram, or coordinate with our colleagues on Slack.

What is changing is the intensity delivered by technology, capital, and artists. It might sound ridiculous to some, but I’m convinced, that in a few years I will have experienced my ‘first day at the office watching a presentation of the company and colleagues from my apartment in Copenhagen - because why limit myself to working in a 10 km radius when every exciting company in the world is just one click away?
I see the evolution of the metaverse as the cinema evolved: remember the 1900’s cinemas aired silent-movies, and first later they evolved with sound, pleasent chairs, 6.1 sound and 12k video (in that order!).

Commercial virtual real estate in the Metaverse

Big companies from the retail sector have long begun to move into the Metaverse. Last year, the Gucci brand began selling its accessories in the game Roblox, and Adidas released and sold out its "Into the Metaverse" clothing collection.

The clothes were sold digitally (in the form of non-fungible tokens, NFT), tokens that could be exchanged for physical objects in 2022.

The development of NFT technology, as a form of blockchain, makes it possible to sell digital assets and promotes the popularity of investing in them. There is a secondary market for NFTs (marketplace Opensea), where they can be bought and sold for cryptocurrencies.

Business interest in NFT increased after Coca-Cola successfully sold digitally branded items on Opensea. Retailers are expected to enter the Metaverse in the coming years actively.

As companies increasingly offer clothing, accessories, cars, and other items for avatars, hold fashion shows in the Metaverse, and offer digital art objects, the corresponding infrastructure is also developing. The Decentraland platform has a casino, Sotheby's virtual gallery, and business and retail space.

Small parcels of land in Decentraland, when the platform launched in 2017, cost $20. Today, it costs $100,000. In November 2021, Tokenscom bought a plot of land in Decentraland's fashion district for $2.4 million.

Real estate in the Metaverse is booming

Although virtual real estate sales and other digital assets have been going on for some time, the boom in demand for digital homes and land didn't start until 2021.

According to CNBC, the real estate sales volume on four major metaworld platforms (The Sandbox, Decentraland, Cryptovoxels, and Somnium) was $501 million last year. The graphics in existing metaworlds are far from ideal, and devices for immersion in the digital world are uncomfortable and expensive. But in January 2022, the virtual real estate boom continued, and the total virtual property transactions exceeded $85 million. By the end of 2022, the figure may grow to $1 billion.

This is due to several factors:

Rapid development of NFT and the hype around it
Emergence of a virtual market
Major players support virtual real estate projects, especially Facebook founder Mark Zuckerberg, who intends to create his meta-universe - Horizon Worlds.

Although news about the meta-universe often resembles the plots of the Black Mirror series, the interest in it from the tech giants does not look contrived. Facebook founder Mark Zuckerberg announced a $10 billion investment in a related project and the hiring of 10,000 employees in Europe.

At the same time, virtual real estate has many opponents who believe that all this is just another Ponzi. Their main argument is that - unlike the traditional real estate market, you can create an unlimited number of square meters on the Web, which will sooner or later lead to the collapse. But, as with NFT, blockchain technology allows you to make something non-fungible and scarce. That is, each virtual house or plot is unique and exists in a single copy. In addition, as in the real world, the number of truly exclusive locations is limited.

Yes, digital houses and plots cannot be touched, but investors don't need to. As in the case of cryptocurrency, the main thing that matters to them is that virtual properties grow in price, and there is demand for them. This makes it possible to count on future investment returns, especially with proper diversification.

$450,000 for a neighborhood with Snoop Dogg

The virtual real estate market is just emerging. It has a very high entry threshold (in popular metaverses - from $3-5k) and no clear rules and laws by which it develops. In the future, it will become more and more similar to the traditional real estate market, where the cost of the object depends on the location, the competitive environment (proximity to virtual attractions or plots of famous people), and so on.

For example, the mansion was purchased at the Sandbox worth $450,000. Such a high price is because the mansion is located next to the construction of the mansion of American rapper Snoop Dogg.

In addition, the owners can earn on the lease of sites for events or placement of advertising. On some platforms, such as Spotselfie, the property will be linked to real-world GPS coordinates - the buyer gets to own the radius around it. And if the platform starts selling advertising in that location, it will have to transfer a certain percentage to him.

I don't exclude that real estate agencies will appear on the virtual market, which will help buyers select objects and make deals with them. There are already specialists who advise companies on how to enter the metaverse.

Digital goods of the future in the Metaverse

However, not only representatives of Generation Z and Alpha are focused on companies entering the meta-universe. For example, a startup Imageneria is already working in the USA. It is the world's first platform for digital 3D-printed assets and 3D-printed NFT (jewelry, accessories, and decor in digital or physical form). So far, requests for the startup's lifestyle goods are more physical, and the customers are primarily young people aged 18-35, users of Roblox and other games. But the company is hopeful that this will change as the meta-universe and NFT market develops.

Digital products are positioned as a tool for environmentally responsible consumption. First, when it comes to 3D-printed assets that can be ordered in one part of the world and printed in the other.

In addition to game enthusiasts and sustainability fans, the meta-universe will also connect everyone who the pandemic has disconnected. Those used to meetings and inventories in Zoom are invited to go to another level and use something like Microsoft Mesh for Teams. Thanks to this product, avatars will be able to meet in the luxurious expanse of virtual reality.

Conclusion

In CIS, buying and selling real estate in metaworlds is not yet widespread. This is primarily due to the uncertain future of cryptocurrencies and metaworlds in general, as well as the cautious attitude of the official authorities towards them.

Nevertheless, I do not think cryptocurrencies and virtual real estate will be banned in CIS, although their regulation will definitely become stricter. Metaworlds are large-scale and growing too fast to be stopped by directive methods.

So far, it is impossible to assess the profitability of virtual real estate. This market is very volatile. There is always the possibility that the platform will collapse, and all real estate on it will depreciate. Another difficulty is that each will have its currency or its token. To buy real estate in the meta-universe on a specific platform, you first have to buy a specific token.

However, the demand and prices for items in meta universes are increasing dramatically. If the graphics, user experience, and availability of hardware continue to improve, this trend will grow.

All this gives reason to expect that plots and houses in cyberspace will be highly liquid. The metaworld and real estate in them may well repeat the path of Bitcoin. This is a new world, in my opinion, one that is unlikely ever to become accessible to a mass audience but which nevertheless has good prospects.

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