Real estate has long been a key asset for both families and investors. In the physical world, real estate provides us with shelter as well as places to do business and be entertained.
As our lives become more and more intertwined with the digital world, some investors have started to focus on real estate in virtual spaces such as the metaverse. Real estate sales in the metaverse have exploded in recent years and topped $500 million in 2021, according to metaverse data provider MetaMetric Solutions.
To be sure, the digital real estate market is tiny compared to the physical world. Zillow estimated the total value of the U.S. housing market to be more than $43 trillion in 2021 and there were nearly $270 billion in new home sales in June 2022 alone, according to the U.S. Department of Commerce.
But still, real estate in the metaverse has attracted some investors’ interest. Here’s what you should know about this nascent space.
Facts about virtual real estate
• Real estate sales on major metaverse platforms hit $501 million in 2021, according to MetaMetric Solutions.
• In January 2022, sales on those platforms were more than $85 million and MetaMetric projects sales could reach $1 billion in 2022.
• In November 2021, metaverse real estate developer Republic Realm said it paid $4.3 million for land in virtual world Sandbox.
• Also in 2021, an investor purchased a virtual plot next to rapper Snoop Dogg’s digital mansion in Sandbox for $450,000.
• Social media giant Facebook announced in October 2021 it would change its name to Meta, signaling its increasing focus on the metaverse and causing virtual real estate sales to spike.
• Virtual real estate sales on major platforms failed to reach $1 million in the first week of August 2022, after topping $60 million per week in mid-November 2021, according to WeMeta.
• The weekly average sale price for virtual land on Decentraland peaked at $37,239 in late November 2021, but fell to about $10,600 in August 2022.
• Sandbox’s weekly average sale price peaked at more than $35,000 in January 2022, but was just $3,990 in early August 2022.
Why invest in virtual real estate?
Individual investors and some companies have been attracted to virtual real estate investments because of the potential it holds over the long term. The metaverse is still in its early stages, and these investors hope that as it grows, their real estate purchases will prove to be lucrative.
Some investors believe that digital real estate will prove to be valuable in the same ways that physical properties are. They may provide rental income or could end up being scarce resources with a value that increases over time.
But exactly how the metaverse will evolve is still highly uncertain, and investing in virtual real estate should be considered speculative and risky. If you can’t afford to lose your entire investment, virtual real estate is likely not the best option for you. The best long-term investments tend to have more stable businesses and lower risk, relative to virtual real estate.
These are four of the top platforms for digital real estate sales:
Sandbox is an Ethereum-based metaverse, or virtual world, where users can design, share and sell assets digitally. The platform aims to disrupt the traditional gaming market by giving users ownership of what they create in the virtual world.
In November 2021, metaverse real estate developer Republic Realm said it paid $4.3 million for land in Sandbox. That same year, an investor purchased a virtual plot next to Snoop Dogg’s digital mansion in Sandbox for $450,000.
Decentraland is a virtual reality platform that allows users to purchase plots of land as non-fungible tokens (NFTs) through the MANA cryptocurrency, which uses the Ethereum blockchain.
Tokens.com, a Canadian investment firm, said it paid about $2.5 million for virtual land in Decentraland’s Fashion District in November 2021.
Voxels is another metaverse built on the Ethereum blockchain where users can purchase land to build on and navigate through the virtual world’s roads and buildings. The average weekly sale price for land in Voxels reached more than $14,000 in early 2022, but has since fallen to less than $700 in August 2022, according to WeMeta.
Somnium Space is a virtual reality world built on the Ethereum blockchain and allows its users to purchase digital land, build homes and even eat at restaurants. You can travel through the virtual world and visit places that were built by other Somnium Space users. The world can be accessed on mobile devices as well as through desktop PCs or a virtual reality headset.
How to invest in virtual real estate
Buying and selling virtual real estate is fairly straightforward once you’ve decided you’d like to make a purchase. You can research the different platforms from your computer and see which areas you’re interested in. You might be able to find sales history and other useful metrics on sites such as NonFungible.com or WeMeta.
Once you’re ready to make a purchase, you’ll need to set up a digital wallet to hold your assets such as a cryptocurrency or NFT. Be sure that your wallet is compatible with the metaverse platform where you’re making your purchase.
You’ll also need to hold enough cryptocurrency to make your purchase and may need to hold a specific coin depending on the platform, such as MANA for purchases on Decentraland. After those steps are completed, you’re ready to make your purchase and will receive an NFT representing your property once the sale goes through.
The boom and bust in virtual real estate
Virtual real estate is still a relatively new phenomenon, but it has experienced some periods of rapid growth in its early existence.
In the fall of 2021, Facebook announced it would change its corporate name to Meta, signaling its increasing focus on the metaverse. The move lent some credibility to the idea of the metaverse, helping spark a boom in virtual real estate. It didn’t hurt that many cryptocurrencies also reached all-time highs in November 2021.
But sales since then have fallen sharply. Virtual real estate sales on major platforms failed to reach $1 million in the first week of August 2022, after topping $60 million per week in mid-November 2021, according to WeMeta.
Average selling prices have also meaningfully declined. The weekly average sale price for virtual land on Decentraland peaked at $37,239 in early November 2021, but fell to about $10,600 in August 2022. Sandbox’s weekly average sale price peaked at more than $35,000 in January 2022, but was just $3,990 in early August.
Is virtual real estate profitable?
Whether or not investing in digital real estate is profitable remains to be seen. At this point, buying virtual land is an extremely speculative and risky investment. Your profitability will likely depend on the sentiment of other investors towards the metaverse and owning virtual land.
Investors who made purchases following the excitement of Facebook’s announcement now likely regret their decisions, as prices have tumbled more than 80 percent in some instances.
It is possible, however, that virtual real estate is a more viable investment option in the future. If the metaverse continues to develop and people spend more and more of their time and money in virtual worlds, owning digital land could prove to be a lucrative asset. But that day is not here yet.
Companies that are involved in the sale of products in the metaverse, or that may receive a cut of what others spend in the metaverse could be profitable investments, however. Finding a way to invest in metaverse activity may be more lucrative than an investment in the metaverse itself.
Pros and cons of investing in virtual real estate
|Early stages of metaverse leaves room for growth||Fortunes may be tied to volatile cryptocurrency prices for the time being|
|New way to participate in the virtual economy||Highly speculative and risky|
|Could be profitable renting opportunities if the metaverse develops further||Investment may follow a boom and bust cycle|
Investing in virtual real estate is in its early stages and may hold the potential for gains down the road. But the success of the metaverse is hardly a given and investments in digital assets should be viewed with skepticism. If you’re considering investing in digital land, you should be prepared to lose your entire investment.
New investors might consider investing in more traditional assets such as stocks or bonds. Index funds can be great choices for many investors, thanks to their low costs and diversification benefits. You can also invest in a tailored portfolio based on your answers to a handful of questions through a robo-advisor.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.