Is buying real estate in the metaverse a wise investment?

Real estate in the metaverse has exploded since 2021

Since 2021, we have witnessed a dramatic increase in real estate prices in the metaverse, or metaverse in French.

Virtual lands are considered a large profitable investment to a growing number of investors.

They are also more popular with brands that want to improve their vision of virtual worlds. PwC, chicken feet, Samsungor Sotheby’s auction house has already started investing in Decentraland and The Sandbox metaverses.

Digital marketing experts agree with that the future of marketing will be played out in metaverses, rather than social media. Thus, many brands want to open their doors to metaverses.

👉 Read also – Samsung landed in the metaverse by opening a store in Decentraland (MANA)

Samsung 837X, a tech giant metaverse store in Decentraland

Why such excitement for metaverse real estate?

Virtual real estate is not a new activity. Video game players have been buying and selling land in virtual spaces for a long time.

However, metaverses have recently benefited from significant technological advances, such as virtual reality (VR) and augmented reality (AR)allowing for a truly immersive experience and engaging the general public.

On the other hand, it is the non-fungible tokens (NFTs) that have driven the real estate boom in metaverses, by providing a guarantee of ownership of the blockchain.

The real estate market within metaverses has also seen a rapid acceleration since the announcement of the Meta metaverse, formerly Facebook, in October 2021, along with an investment plan some ten million dollars.

👉 Related – PwC Hong Kong bought space in The SandBox metaverse

How do you buy the land and what are the prices?

Metaverse land and buildings than NFTs, ie titles registered in the blockchain.

So it is necessary to have a wallet (“wallet”) and cryptocurrencies to get it.

Land sold can be found in metaverse marketplaces and on NFT sales platforms such as OpenSea.

To become a landowner in a metaverse, you need to budget at the time of writing this article. at least 3 Ether (ETH) for a 96m by 96m parcel of The Sandbox and 5000 MANA for 16m by 16m parcels in Decentraland.

For the best land area, prices can reach tens of thousands of euros, or even several million euros.

Thus we see 2021 sales reaching nearly $ 2.5 million on Decentraland or Axie Infinity. The current record remains bought by Realm of the Republican American real estate company, on the land of The Sandbox for an amount of 4.3 million eurosin December 2021.

Metaverse Sandbox

Real estate in the metaverse of The Sandbox has skyrocketed since late 2021

What is the point of investing in a metaverse scheme?

A commercial and rental investment

First, like a real-life real estate investment, the virtual land can be built. So one can imagine developing a commercial activity there like a shop, art gallery, attraction, and so on. generate income.

On the other hand, the space can be rented. Although there is still it is difficult to assess market rental prices, we can expect the growing demand for commercial spaces, but also for virtual private residences in metaverses. Also, Billboards can be placed and rented by advertisers.

In terms of return on investment, little data is available on this topicbut some signs allow us to hope for a satisfactory return.

So, according to a Bloomberg Intelligence report, a metaverse concert could generate up to ten times more turnover than a real concert hall. This was the case with Travis Scott’s concert at Fortnite, which had a turnover of $ 20 million.

Similarly, the presence in the metaverse allowed Adidas to sell $ 23.5 million worth of NFTs.

A speculative investment

Finally, some investors buy a title in a metaverse for speculative purposes, betting on the growth potential of the metaverse, and therefore a surge in scheme prices …

In effect, Experts on the subject expect tremendous growth in the metaverse industry. Estimates for 2024 from $ 800 billionaccording to Bloomberg Intelligence, at $ 8 trillionaccording to American bank Morgan Stanley.

If these numbers give hope of significant wins, it is recommended to carefully study the potential of the different metaverse, in order to bet on the right horse. In effect, Competition between metaveres has proven fierce. As with social networks, it is possible that some metaverse will lose speed, and that leaders are now quickly lost.

It is also necessary to compare the soil well. It is also necessary to study the rules of construction. For example, in Decentraland, the height allowed for a building is based on the ground surface.

What are the risks of investing in the metaverse?

If metaverse real estate offers significant upside potential, there are many risks associated with investing in virtual schemes or buildings.

Watching for price volatility

First of all, let’s keep in mind the volatility risk of cryptocurrencies. Prices of metaverse tokens (SAND for Sandbox, MANA for Decentraland, or SOM for Somnium Space) are subject to very strong variations, depending on current events.

How to choose a location?

It is very difficult to judge the interest of a space or district. Little information is available on current projects and the identity of the owners.

How can we analyze the future activity of a neighborhood and the number of visitors if we don’t know the intentions of its neighbors?

In general, it is possible to identify “districts” (or activity zones), with spaces dedicated to casinos, museums, or luxury shops. These areas are somewhat obscure.

There is also a risk of seeing heterogeneous spaces developed, with a combination of unequal activities (like for example a luxury store next to a slot machine attraction or a hip-hop concert hall…). The “retail mix” ensured by real shopping centers is not a guarantee of a decentralized metaverse.

Then, if it is estimated that a central area near a road would benefit from a lot of traffic (“footfall”), is this measure valid in virtual worldswhere avatars can be easily teleported, just by clicking a URL link?

Metaverse Real Estate

Land call prices on NFT platforms can be artificially short

The pseudonym of the owners also brings uncertainty about the purchase of land on NFT platforms.

Many lands are sold in the form of auctions, especially on the OpenSea platform.

It had a lot of surprises: some schemes were announced at a short call price, to be automatically outbid by bots.

An uncontrolled market

Another risk to consider is the lack of regulation.

For example, what happens if you buy a partitioned plot, with no access to a street, and the neighbor builds a large building that will restrict all visibility and access to your plot?

A lot of land can be developed

Finally, unlike traditional real estate, nothing can stop the creation of new metaverses and new spaces to be built in the same metaverse.

It may question the unique element of a land and therefore its price.

Conclusion: diversify your investments

Real estate in the metaverse makes it possible to realize beautiful capital gains and impressive returns on investment. This is also a good way to diversify your investment between cryptocurrencies and non-fungible assets.

Like managing a cryptocurrency portfolio, investing in the world of metaverse requires good information and good anticipation of risks.

It is also wise to diversify your investments in different terrains and in different metaverses. Note the strategy of investor Republic Realm, which owns land in 23 metaverses.

Faced with a surge in the prices of these virtual lands since the end of 2021, it is definitely a long time to get an interest in real estate in the metaverse, while taking time for a thorough analysis and measurement of its risks.

Also watch out for the famous FOMO “Fear Of Missing Out” or fear of missing something …

👉 Find our section dedicated to the world of unusable tokens

Source: Bloomberg Intelligence, Morgan Stanley


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About the Author: Blandine Narozniak

After 15 years of international business experience, particularly with the Financial Times and Bloomberg, I am a blockchain consultant specializing in non-fungible tokens and metaverses.
All articles by Blandine Narozniak.

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