Virtual real estate in the metaverse, future speculative bubble?

After NFTs, real estate in the metavers is as fascinating as it is mind-boggling. What are these virtual grounds used for and what does the market look like today?

The metaverse is seen as one of the next big turning points of Web3, especially to replace social networks, companies or celebrities are logically already looking for ways to invest in it and make money. In anticipation of the generalization of these platforms and the arrival of users and innovative features, investing in virtual real estate is already a trend. A runaway that quickly exploded prices.

What’s the point?

Just like in real life, buying land in the metaverse allows you to build a building there. Strictly speaking, these are not residences, but places to represent a brand or create experiences – monetized, of course – for visitors. For now, it is mainly up to the buyers to occupy the site and draw attention to his brand. Many are also those who invest in the hope of being able to rent the land or sell it at a higher price when there are more users. So pure speculation.

To acquire one of these lands, all you need to do is go to sites that sell NFTs, such as Opensea. Specialist brokers are also starting to develop such as Agence Voxel and Metaverse Property, even though there are very few listings on their site. It is necessary to own cryptocurrencies to make such an investment.

A market concentrated on four players

Today, virtual real estate is mainly sold in four metaverses: The Sandbox, Decentraland, Cryptovoxels, and Somnium Space. Together they total almost 270,000 plots and their turnover in 2021 reached 500 million dollars (455 million euros). The Sandbox stands out very clearly, as it represents more than 60% of the market and is the platform where the plots are most expensive: according to a study, their price was multiplied by 300 between December 2019 and January 2022.

This price increase is directly linked to an amount of land that is deliberately limited: there are 160,000 on The Sandbox and 90,000 on Decentraland. And, as with real-life real estate, prices vary depending on the area the land is in, as well as neighbors. For example, a land on The Sandbox costs an average of $11,000, but the one next to rapper Snoop Dogg’s virtual mansion is valued at over…$400,000.

Purchasing virtual real estate today remains the work of a small minority as all investments come from just 25,000 crypto wallets. Brands and celebrities would rather get interested in it early – even if it turns out to be a flop – rather than chasing after their competitors. Especially since the most optimistic studies predict strong growth: the metaverse market could grow from $47.7 billion in 2020 to $829 billion in 2028.

Risky investments

Where real and virtual real estate collide is that a long-term mortgage is possible in the real world because the property should still be there 20 years from now. In the still very recent metaverse, it is very difficult to predict what this phenomenon will become in the coming years. If a platform closes, the land is lost. This would explain why land on The Sandbox sells well, despite being more expensive: it’s seen as the metaverse least likely to disappear.

Another risk is that the web3 in general is deregulated, decentralized, meaning that there are few possible remedies in case of scams. Finally, the rarity of land is fabricated from scratch by the platforms. Nothing prevents them, technically, from adding as many as desired once the metaverses become popular one day. Of course this can have consequences for the pricing.

As for the risk of a speculative bubble, it worries even the platforms, as Somnium Space founder Artur Sychov explains: “While interest in virtual real estate has grown over the past six months, it is clear that most people do not fully understand the potential uses of this land. Real monetary value should only be attached to virtual goods that have real use for their owners, otherwise there is a huge risk of a speculative bubble that will hurt consumers and businesses. †

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