Real estate has always been an indication of wealth and success. During the urbanization of our most populous cities, high-rise apartment buildings, and exorbitant detached homes became the most sought-after property for investors.
Property, whether residential or commercial, has remained a key strategy for investors looking to grow their wealth, as home values in the United States have increased by more than 50.7% since 2016. Property management groups are seeing a change in the way people are now perceiving real estate, both in the metaverse and in real life.
So while the traditional thinking of real estate and property investment have not quite subsided, virtual reality and digital real estate in the metaverse are now challenging the real estate market for the future of potential property investment. The value of these digital plots of land has increased by more than 20,000% in 2021 according to the latest findings.
While 2020 and 2021 saw the uprising of the Metaverse, with Facebook, now known as Meta, and Microsoft throwing their hats in the ring, transactions of Non-Fungible Tokens and digital real estate have been soaring. Investors, big and small, and multinational brands are now all looking to own a piece of digital property.
With so much yet unknown about the Metaverse, and the future thereof, will we see it challenge the reality of property investment in the real world, and what are the potential dangers thereof?
Digital Real Estate: What it is and how it works
By now you should have some idea of what the metaverse is. A virtual 360-degree immersion platform, where ordinary people can create avatars (virtual personalities) to visit virtual shows, interact with other people on the meta platform, shop, transact and even purchase real estate.
While these meta platforms expand, and interest grows, developers sought to create a platform where ordinary people can transact with NFTs to purchase up virtual real estate.
Just like we have popular cities such as New York, Toronto, Paris, and London where the property market is booming - so does the metaverse. Decentraland and Sandbox are some of the most attractive places to live and interact on the metaverse, and investors are paying big money for it.
In a recent article by CNBC, Toronto-based company Tokens.com was one of the few companies that made headlines in recent months, putting down nearly $2.5 million for a portion of virtual land in Decentraland. Over in Sandbox. Republic Realm, one of the world's first virtual real estate development companies, spent the most for the 2021 year, dropping $4.3 million for a share of virtual land.
But it's not just million-dollar companies that are spending excessive amounts of cash on popular virtual real estate. In an article by Rolling Stones Magazine, an unidentified investor put down $450,000 for a piece of "land" next to Snoop Dog in December 2021.
Prices have increased by more than 500% in recent months, and smaller investors are only now seeing the potential of virtual real estate. It's becoming a progressive market for all sorts of crypto and NFT fanatics, as they flock to buy up available property.
Why is Digital Real Estate Attractive?
The most important thing we need to remember here is that this whole universe of digital worlds, cities, and economies are all decentralized - one of the most attractive and popular reasons investors are looking to spend millions on virtual property.
Just like cryptocurrencies are decentralized some a national banking and financial system, so is the metaverse. No central government or agency or company regulates how the metaverse works. It's all code.
The same for Non-Fungible Tokens, pieces of virtual art that are created by a specific developer and sold off to an investor. The more hands an NFT passes through, the more money the developer or creator makes of it.
There's also the fact that people can be fully immersed and interact with others, and their surroundings. It's not just a game, to some, as you can build and construct your house just the way you want it. No additional regulations and building plans are needed, and some suggest that materials are even cheaper, if not completely free in the metaverse.
Digital real estate allows everyone to own a piece of land, a home, or an apartment in a popular city or neighborhood of their choice. It makes it easier for people to feel, and almost understand how real estate investment works in the real world too.
There are no rules.
The metaverse has no rules or regulator that oversees construction or transactions. It's all based on code. Digital property can easily be purchased or resold, and when you start to build - there's no limit to what you can do. It's almost as if anything is possible within the realm of the metaverse.
While investors are paying real money to live in a virtual world, property investment opportunities in the real world have been slim in recent months.
Predictions from Zillow show that house prices will increase more than double in 2022, while the industry is struggling to keep up with high demand driven by the pandemic, and families looking to leave the city life behind.
With the expected double-digit increase, the short-term rental market was valued at more than $87 billion in 2019 and is expected to grow by 3.4% annually in the next five years.
The push for investors and multinational brands to purchase a digital lot in the metaverse is mainly caused by the low supply of property investment opportunities. As more and more millennials are seeking to purchase their first home, older generations are moving into retirement and willing to age in place, without the need to downsize.
It's not for sure that the metaverse and its intricate virtual real estate will replace the housing market here on earth. Even as some predict that digital property will reach a $1 trillion market value in the next few years.
Low supply, increasing interest rates, and soaring inflation have kept many first-time homebuyers at bay - while investors are shifting their focus towards commercial and retail property. More and more homeowners are reluctant to sell, and with only 2.4% of rental units available on average in the U.S., many have found themselves between a rock and a hard place.
Final Thoughts
The metaverse is yet to have reached its epitome, and we will only see more companies, and private investors take up space in this highly virtual world. Yet, as popularity increases, the metaverse is still just an augmented reality and simply doesn't resolve any issues regarding housing supply, or the soaring cost of new homes.
It's become a virtual property playground for the wealthy, and those who have money to lose. Property, whether physical or virtual remains a major investment in the 21st century, and the metaverse has changed our perspective of it. Property is just now more accessible to the majority of investors, but won't replace our homes here on earth.