Real estate is hot. All you need to do is turn on the news to see that the price and sales of homes are skyrocketing. The Covid pandemic may have stirred the desire for your own space. The pandemic is creating another land rush. An unusual one. Investors are paying millions of dollars for land in a brave new world.
The land is in a virtual world known as the metaverse. In these lands online, real people interact with avatars, cartoon-like characters much like those in video games.
Real estate in virtual worlds — sometimes called the metaverse — is going for millions of dollars in some cases.
The most expensive spots are near where lots of users congregate — for instance, someone recently paid $450,000 to be Snoop Dogg’s neighbor in a virtual world called the Sandbox.
But even proponents are warning would-be investors that this is risky business.
Prices for plots have soared as much as 500% in the last few months ever since Facebook announced it was going all-in on virtual reality, even changing its corporate name to Meta Platforms.
“The metaverse is the next iteration of social media,” said Andrew Kiguel, CEO of Toronto-based Tokens.com, which invests in metaverse real estate and non-fungible token-related digital assets.
“You can go to a carnival, you can go to a music concert, you can go to a museum,” Kiguel said.
In these virtual worlds, real people interact as cartoon-like characters called avatars, similar to a real-time multiplayer video game. Today, people can access these worlds through a normal computer screen, but Meta and other companies have a long-term vision of building 360-degree immersive worlds, which people will access through virtual reality goggles like Meta’s Oculus.
MetaMetric Solutions projects a $1B market for land in the metaverse in 2022 and a rise at 31% CAGR from 2022 to 2028. A recent report by crypto asset manager Grayscale estimates the digital world may grow into a $1 trillion business in the near future.
Here, major artists, including Justin Bieber, Ariana Grande, DJ Marshmello, and Snoop Dogg are performing as their own avatars. Even Paris Hilton DJ’ed a New Year’s Eve party on her own virtual island.
Kiguel’s company recently dropped nearly $2.5 million on a patch of land in Decentraland — one of several popular metaverse worlds. “Prices have gone up 400% to 500% in the last few months,” Kiguel said.
Another hot metaverse world is the Sandbox, where Janine Yorio’s virtual real estate development company, Republic Realm, spent a record $4.3 million on a parcel of virtual land.
“The digital world, to some, is as important as the real world.”Oren Alexander REAL ESTATE BROKER
Yorio tells CNBC her company sold 100 virtual private islands last year for $15,000 each. “Today, they’re selling for about $300,000 each, which is coincidentally the same as the average home price in America,” she said.
“The digital world, to some, is as important as the real world,” Miami-based real estate broker Oren Alexander tells CNBC. “It’s not about what you and I believe in, but it’s about what the future does.”
Just like property in the real world, Kiguel says the metaverse is about three things: location, location, location.
“There are areas when you first go into the metaverse where people congregate — those areas would certainly be a lot more valuable than the areas that don’t have any events going on,” Kiguel said.
To be sure, those heavily trafficked areas are reeling in big spenders.
“Think about the board game Monopoly. We just bought Boardwalk and the surrounding area,” Kiguel said. “Areas, where people congregate, are far more valuable for advertisers and retailers to find ways to get in there to access that demographic.”
For example, Snoop Dogg is building a virtual mansion on a plot of land in Sandbox, and someone recently paid $450,000 to be his neighbor.[It’s] highly, highly risky.
“You should only invest capital that you’re prepared to lose.”Janine YorioREPUBLIC REALM CEO
“I think it absolutely matters who your neighbor is,” said Yorio. “That’s kind of true of almost anything, right? It’s like a club and you want to be around people that share similar interests.”
Buying virtual land is pretty simple — either directly from the platform or through a developer. Investors build on their land and make it interactive. “You can decorate it, you can change it, you can renovate,” Yorio says. “It’s code.”
But Yorio cautions that investing in digital real estate is a risky business.
″[It’s] highly, highly risky. You should only invest capital that you’re prepared to lose,” Yorio tells CNBC. “It’s highly speculative. It’s also blockchain-based. And as we all know, crypto is highly volatile. But it can also be massively rewarding.”
Mark Stapp, professor, and director for real estate theory and practice at Arizona State University agrees. “I would not put money into this that I didn’t care about losing. I certainly wouldn’t,” Stapp says. “If it continues the way it’s going, it is most likely going to be a bubble. You’re buying something that isn’t tied to reality.”