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Virtually Real Investment

16.08.23

As the Metaverse becomes ever more prevalent, not just in the tech sphere, but in our lives, L-J Andrew investigates what this means for the future of real estate investment in the digital world

January 1st, 1983, marked the beginning of a systemic change, that would affect how we live our lives forever. This seminal date is considered the official birthday of the internet. Although initially just a rudimentary standardised system for various computer networks to communicate, the internet opened the door for British scientist, Tim Berners-Lee, to create the World Wide Web in 1989. Invented to allow information sharing between scientists in universities and institutions across the globe, it was made public in 1991and the rest, as they say, is history, leaving modern life unworkable without it. Web innovation has continued ever since and in just under 40 years the online world is almost unrecognisable from its more humble beginnings.

The latest ‘great step in the digital future’ is the Metaverse. The term was first coined in the 1992 science fiction novel, Snow Crash, which depicts a dystopian future in which people escape into an alternative 3D, connected reality. Although initially a Sci-Fi trope, it’s now a very real aspect of modern life. At its core, the Metaverse is a virtual world, in which people can work, shop, learn and interact, essentially living our day to day lives, through a screen or headset, such as virtual reality (VR) headsets and augmented reality (AR) glasses.

‘Metaverse’ became a household word when Facebook rebranded its corporate identity to Meta in October 2021 and subsequently announced plans to invest $10 billion in the concept that year. In addition to Meta, tech giants including Google, Microsoft, Nvidia and Qualcomm are also investing billions of dollars in the concept and industry experts now predict the Metaverse economy could reach $5 trillion by 2030. A cornerstone of this economy, as it’s in the physical world, will be real estate.

As with NFTs, real estate in the Metaverse is bought with cryptocurrency and after the transaction is complete, you receive a unique piece of blockchain code, which serves as a deed of ownership.

The value of virtual real estate fluctuates depending on demand, but they’ve been on an upward trajectory. When Decentraland, one of the ‘big four’ of Metaverse real estate owners, held its first auction in 2017, a parcel of land, a 106 by 106 yard plot determined by the number of pixels, cost just $20. By 2021, they were selling for $6,000, and at the start of 2022, they rose in price to $15,000 and continued to go up in value throughout the year.

With increased interest in the platform, the potential price tag on a Metaverse property seems limitless. While most properties are priced between $6,000 and $100,000, anomalies will happen. One of the biggest sales, for instance, was the purchase of a property adjacent to Snoop Dog’s parcel in The Sandbox for $450,000.

Thousands of individuals and corporations have already spent millions of real dollars on virtual pieces of land and properties in digital worlds like Decentraland and The Sandbox. The Metaverse has seen several big-ticket entrants in the form of leading brands like Adidas, Samsung, JP Morgan and HSBC, among others, with many others expected to jump on the bandwagon.

In 2021, the real estate sales on the four major Metaverse platforms—The Sandbox, Decentraland, Cryptovoxels and Somnium—reached $501 million, according to a report by MetaMetric Solutions. Sales were predicted to reach nearly $1 billion in 2022, the report said; a prediction that was exceeded by the year’s close.

A record sale was set in 2021 when a 116-parcel plot of digital land in Decentraland sold for a $2.5 million worth of cryptocurrency. The buyer, Tokens.com, bought the estate in the heart of Decentraland’s Fashion Street district to facilitate the company’s expansion into the digital-fashion industry. At the same time, fashion brands like Balenciaga chose to debut their latest collection in a video game. Just a year later, this record was broken when virtual land developer Republic Realm bought land from video game company Atari in The Sandbox Metaverse for a record $4.3 million.

The hefty price tags for these pieces of land, however, may not paint the entire picture. Dave Carr, head of business development at Parcel, an NFT marketplace for virtual real estate users, says that only a few institutional investors are paying large amounts for the land, and to bear in mind that the situation is also affected by the current high price of cryptocurrencies. “It may look like a lot of money is being paid for these plots, but investors want to get in early as, in their minds, the land is relatively cheap compared to the potential it has,’’ he says. “It’s the investment companies that are betting big on this platform and playing the long game.”

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