Is investing in metaverse real estate a good idea? Eldorado or risky investment? What return on investment can you expect? How to choose the right parcel? What are the risks ? Overview of the different things you need to know about metavers before getting involved.
Real estate in the metaverse explodes since 2021
Since 2021, there has been a dramatic rise in real estate prices in the metaverse.
Virtual lands are considered as a highly profitable investment by more and more investors.
They are also more and more popular with brands that want to develop their visibility on virtual worlds. PwC, Adidas, Samsung, or the auction house Sotheby’s have already started to invest in the metaverses Decentraland and The Sandbox.
Digital marketing experts agree that the future of marketing will be played out in metaverses, rather than on social networks. Thus, more and more brands will want to open their doorstep in metaverses.
Why such a craze for metaverse real estate?
Virtual real estate is not a new business. Video game players have been buying and selling land in virtual spaces for a long time.
However, metaverses have recently benefited from important technological advances, such as virtual reality (VR) and augmented reality (AR), allowing for a truly immersive experience and interest by the general public.
On the other hand, it is the non-fungible tokens (NFTs) that have enabled the rise of real estate on metaverses, by providing a guarantee of ownership on the blockchain.
The metaverse real estate market has also seen a sharp acceleration since the announcement of the Meta, formerly Facebook, metaverse in October 2021, accompanied by an investment plan of tens of millions of dollars.
How do you buy land and what are the prices?
Land and buildings in metaverses are NFTs, i.e. property titles registered on the blockchain.
Therefore, you need a wallet and cryptocurrencies to be able to buy them.
Land for sale can be seen on the metaverse marketplaces and on NFTs selling platforms such as OpenSea.
To become a landowner on a meta-verse, at the time of writing this article, you need to budget at least 3 Ether (ETH) for a 96m2 plot on The Sandbox and 5,000 MANA for a 16m2 plot on Decentraland.
For the best-placed plots, prices can rise to tens of thousands of euros, or even several million euros.
In 2021, sales of up to 2.5 million dollars were recorded on Decentraland and Axie Infinity. The record to date remains the purchase by Republic Realm, an American real estate company, of a plot of land in The Sandbox for the sum of 4.3 million euros, in December 2021.
What’s the point of investing in a metaverse parcel?
A commercial and rental investment
First of all, as for a real estate investment in real life, a virtual land can be built on. One can therefore imagine developing a commercial activity such as a store, an art gallery, an attraction, and thus generate an income.
On the other hand, the plot can be rented. Although it is still difficult to evaluate the rental market prices, we can anticipate a growing demand for commercial spaces, but also for virtual private residences on metaverses. Similarly, advertising panels can be installed and rented to advertisers.
In terms of return on investment, few data are available on this subject, but some indicators allow us to expect very satisfactory returns.
For example, according to a Bloomberg Intelligence report, a concert on the metaverse can generate up to ten times more business than in a real concert hall. This was the case for Travis Scott’s Fortnite concert, with $20 million in sales.
Similarly, a presence on the metaverse allowed Adidas to sell $23.5 million worth of NFTs.
A speculative investment
Finally, some investors will buy a title to a metaverse for speculative purposes, betting on the potential development of metaverses, and therefore of a rise in the price of plots…
Indeed, experts on the subject anticipate an extraordinary growth of the metaverse industry. Estimates for 2024 range from $800 billion, according to Bloomberg Intelligence, to $8 trillion, according to the American bank Morgan Stanley.
If these figures give us hope for significant gains, it is important to study the potential of the various metaverses carefully, in order to bet on the right horse. Indeed, the competition between metaverses is already fierce. Like social networks, it is quite possible that some metaverses will lose speed and that today’s leaders will quickly become obsolete.
It is also necessary to compare the fields. It is also necessary to study the rules of construction carefully. For example, in Decentraland, the height allowed for a building depends on the surface of the land.
What are the risks of investing in metavers?
If the real estate of metaverses lets us hope for an important potential increase, there are many risks to invest in virtual plots or buildings.
Beware of price volatility
First, let’s remember the risk of volatility in cryptocurrencies. The prices of metaverse tokens (SAND for The Sandbox, MANA for Decentraland, or SOM for Somnium Space) are subject to very strong variations, depending on the news of the moment.
Choosing a location
It is quite difficult to judge the interest of a parcel or a neighborhood. Little information is available on current projects and on the identity of the owners.
How can one analyze the future activity of a neighborhood and the number of visitors when one does not know the intentions of his neighbors?
Generally speaking, it is possible to identify “districts” (or activity zones), with spaces dedicated to casinos, museums, or luxury boutiques. These zones are still rather vague.
There is also a risk of seeing the development of heterogeneous spaces, with a juxtaposition of mismatched activities (such as a luxury boutique next to a slot machine attraction or a hip-hop concert hall…). The “retail mix” provided by actual shopping centers is not guaranteed in a decentralized metaverse.
Then, if we can estimate that a central land near a road will benefit from a higher traffic (“footfall”), is this criterion valid in virtual worlds, in which avatars can teleport easily, by simply clicking on a URL link?
Call prices for land on NFT platforms can be artificially low
The pseudonymity of owners also brings uncertainty to the purchase of land on NFT platforms.
Many lots are for sale in the form of auctions, especially on the OpenSea platform.
These auctions are full of surprises: some land is advertised at low call prices, only to be automatically outbid by bots.
An unregulated market
Another risk to take into account is the lack of regulation.
For example, what happens if you buy a parcel of land with no access to a road, and your neighbor builds a large building that prevents any visibility and access to your parcel?
A quantity of land that can change
Finally, unlike traditional real estate, nothing prevents the creation of new metaverses and new spaces to be built in the same metaverse.
This could call into question the scarcity of a piece of land and therefore its price.
Conclusion: diversify your investments
Metaverse real estate can provide great capital gains and impressive returns on investment. It is also a good way to diversify your investments between crypto-currencies and non-fungible assets.
As with managing a crypto-currency portfolio, investing in the world of metaverses requires good information and risk anticipation.
It is also prudent to diversify one’s investments into different terrains and different metaverses. Note the strategy of the investor Republic Realm, which owns land in 23 metaverses.
Faced with a surge in the price of these virtual lands since the end of 2021, it is certainly high time to take an interest in metaverse real estate, while taking the time for a good analysis and measuring its risks.
