How much will my metaverse real estate be worth ten years from now?
We’re starting to see metaverse real estate companies and developers coming out of the meta-woodwork, but everyone seems to have that lingering question in the back of their mind: Is this a good investment? And how much will it be worth ten years from now?
Before we get to those questions, let’s learn a little more about this buying opportunity.
Where is the Property?
Since there’s no single, unifying metaverse yet, there are multiple parallel virtual worlds, each with their own NFT parcels of land under development and ready for sale. The Sandbox and Decentraland are the primary two at this time. In these spaces and others, investment firms are buying up chunks of property and parceling it out for residential or commercial development. Transactions, of course, are made using the preferred cryptocurrency of that platform.
The real estate markets in these worlds function pretty much the same as in the physical world. Space can be owner-occupied or leased. Owners can improve their parcel with structures and features. We have zoning (and presumably neighborhood associations), along with retailer covenants and restrictions.
Metaverse real estate is currently a rich person’s game, but increasingly developers will democratize the movement and cater to average folks by offering micro-parcels because they need shoppers and concertgoers to hang out in this world.
Here’s where things get sticky though. As one metaverse expert points out, the issue of scarcity doesn’t exist when it comes to land on the metaverse. Virtual worlds can be unlimited in size, Louis B. Rosenberg explains, since the world can be expanded and have multiple layers – that means potentially multiple buildings on the same plot of land with different owners.
As any Econ 101 student knows, price is set by supply and demand, so how can a metaverse property price be established when supply is unlimited?
How is Meta Land Valued?
In spite of those shaky economics, metaverse parcel purchases totaled roughly $500 million in 2021, and some say that amount will double in 2022. I think it will triple at least, given that new platforms keep popping up and celebrities are helping fuel the craze.
Supply and demand aside, it’s commonly accepted that real estate value – including the land and structural improvements – is a function of location, size, and utility/usability.
The first two seem applicable in the metaverse, although old habits are hard to break when it comes to location. Living next to a celebrity or a high-rent shopping district will strictly be for bragging rights since getting to the shopping center from any location in the metaverse takes the same amount of time.
And while it’s tempting to say that utility won’t be an important pricing factor since we won’t actually be visiting it in person, our avatars will be plodding around in virtual homes and hosting virtual dinner parties. And our avatars will want to shop at only the trendiest virtual shopping areas and attend shows at breathtaking virtual venues.
Thus, property values in the metaverse will reflect all three of those pricing elements, plus one additional one. Just like in the physical world, and maybe even more so in the metaverse, re-salability will be critical. Property turnover will likely be faster and more frequent in the metaverse since deeds are recorded in the blockchain as NFTs and quite easy to transfer.
So, while we will see metaverse real estate agents, we probably won’t see title companies.
The BIG RISK
Market fluctuations in the metaverse are to be expected, just as with cryptocurrencies and nearly any other asset. But the biggest risk with metaverse real estate is that the specific platform you’ve invested in fails completely.
After all, I see us eventually zeroing on one capital-M Metaverse. Right now, though, there are many, and even if we settle on two or three, that still means more will go by the wayside than will survive. These platforms will go blank along with all the property and assets.
Even in the worst real estate cycles in the physical world, it’s hard to imagine a parcel of property that loses all of its value forever. The equivalent situation would be if a beachfront property sunk into the permanent ocean bed or if the Earth were destroyed along with all possible investors.
Who’s Going to Buy?
I can see four types of people who will buy a parcel of property in the metaverse, whether for residential or commercial development.
These are the true believers in the metaverse who are ready to build their personal space or their company because it’s where they want to be, and it’s where they believe most everyone else will be too. They live through their avatars and want them to be comfortable and successful.
These brand owners want to market and sell their NFTs and other virtual goods or services. They also see the opportunity to strategically place their ads on the sides of buildings and popup billboards.
Just like gaming is an addictive element of the metaverse, so too will be real estate investing. Buying, swapping, improving, bragging, one-upping … to these metaverse real estate enthusiasts, it’s a game of its own kind.
I divide this group into three subgroups. The first is the cynical devotees of the “greater fool theory,” which holds that an investor is willing to pay “X” for an item as long as they’re convinced they’ll be able to sell it for “X+1” to the next person. Second, speculators also include less nefarious long-term investors looking for an alternative bull market option. Finally, other speculators are “fix and flippers” who are skilled at purchasing properties, furbishing them inside and out, and then reselling them to advocates, marketers, and hobbyists who aren’t quite as adept in this space and want a move-in ready property.
I’m a futurist, not an investment coach. So please don’t take investment advice from me. Period.
Having said that, and again speaking as a futurist, we’re nearing a tipping point. I think there’s a very good chance the metaverse will be around for a long time and that over time, it will mimic nearly all the good and bad elements of our physical world.
That’s true for real estate in the metaverse too. There will be fluctuations and even bubbles. Ten years from now, any investor’s property might be worth 0 or else 100X what they bought it for. You might be the former, you might be the latter.
New metaverse platforms will emerge and many more will die away, along with all of their meta mansions, shopping centers, and convention centers. But the metaverse real estate market overall will consolidate and survive over time and property owners can too if they can avoid all those nasty pitfalls along the way.
It will indeed be a virtual wild west. SecondLife is a prime example of everything you talked about. It had it all, just with a few zeros removed from the economics. Major corporations opened large areas, but the reality that the number of Advocates never reached critical mass led to corporate spaces being abandoned. SecondLife still exists with a community of creators that support Advocates who have been playing there for years. Might SecondLife become a metaverse ‘island’ since it’s survived so many years?
I think interoperability between islands will come to pass. Advocates who inhabit current metaverses will likely not want to ‘move’ to another ‘island’ once they’ve established a community. As with SecondLife, the cost of keeping a failed metaverase operating is the cost of a hosting server. They would want to buy tickets to entertainment venues on other islands and return home to their economical island where they don’t have to pay huge sums of money to participate.
At the end of the day, the metaverse is just an elaborate interactive gaming play. Without millions of Advocates in the metaverse, paying their $30/month to landlords, there will only be a handful of wealthy avatars wandering through vast empty spaces.