Spending $350,000 on a virtual digital building in virtual and digital space may seem a crazy idea.
This much money could fully pay for a home in the real world.
The Metaverse has gone media crazy as of late. It’s not just the media, huge brands have already started to appear in the online worlds. Brands such as JP Morgan, Adidas and Atari have already invested in.
With the Metaverse looking to become a multibillion-dollar industry within the next few years, and with the projection that more and more people will spend time in the Metaverse, could these digital purchases today be like buying real estate in New York back at 1937 prices?
Digital real estate is worth it if the current Metaverse revenue expectations are met with demand. Prime areas in popular Metaverse platforms could be as lucrative for businesses, leasing, renting or even advertising on. Without a clear Metaverse winner, or knowing if demand will meet expectation, there are very high risks.
The Metaverse, and the digital real estate that can be bought in the Metaverse, feels a little like a gold rush.
The demand for plots of land is huge, as well as real estate and even digital home builders and interior designers have already launched start-ups to create dream digital homes and furnish them with luxury fittings and furniture.
Digital realtors are ready to show through carefully created avatars would-be-buyers around their potential new home or business premises.
In this article we will look into what digital real estate actually is, who owns the asset, how digital real estate can be used and ultimately if it’s worth it.
What is Digital Real Estate
Digital real estate to the online world is what real estate is to the, well, real world.
In an online ecosystem such as the Metaverse it stands to reason there would be places to live, places to stay, places to visit, places to socialise and entertainment venues such as cinemas and concert halls.
You may wonder, if this is all digital in an infinite amount of possible digital space, how could there be so much demand to for prices to be as high as they are.
Surely you can just find another space piece of digital space and buy a digital piece of real estate there.
The Metaverse ecosystems, such as Decentraland and Sandbox, are created using a limited amount of space and limited amount of real estate potential.
By limiting the supply, it has increased the scarcity, and with that the demand.
Once the Metaverse has been created, and overall size defined, it will not be extended. This would devalue the land and real estate already purchased in the online world.
The game Sim City is a good analogy. The purpose of Sim City was to create an online metropolis. An ecosystem or real estate, transportation, businesses, and trading.
Now imagine being able to be fully immersed into the Sim City game using VR glasses. Where thousands if not tens or hundreds of thousands of other real life people were using their avatars.
You would need somewhere to stay, money (which will be in the form of cryptocurrency), clothes to wear, the latest digital accessories to dress your Avatar in.
The possibilities are almost endless.
The real estate created in online games such as Sim City are replicated, but on a much bigger scale, in the Metaverse.
People’s presence in the Metaverse will be driven by status, just as it is in the real world.
The chase for likes, followers and status in online communities already exists in the social platforms, today, and did so before in online forums and chat rooms back in the early 2000s.
The Metaverse though will take this a giant leap forward
Who wouldn’t want to own digital real estate in prime areas surrounded by celebrities, influencers, and trendy night spots, and be part of that community?
The psychology of people’s desire for status can be traced back for hundreds and thousands of years.
It’s this desire that has caused many entrepreneurs to look to the future and see this happening in the forthcoming Metaverses, and it’s the reason digital real estate is priced the way it is.
Digital real estate will be a digital version of an online home or business premises.
They can be built ready designed, or once digital land is purchased, and the deeds to the digital asset are yours, you can have a digital home or business created for you.
The ownership of the digital land and the digital real estate is stored on the blockchain, and forever owned without dispute until it is later sold by the owner, or of course the Metaverse disappears but we will talk of the risks further in this article.
Companies are positioning themselves to create imaginative digital interior design for blue chip companies looking to buy in to and launch in the Metaverse.
As I mentioned at the start of this article, buying digital real estate today for a future return on investment could be like buying real estate in New York at 1937 prices and selling today.
I analysed how the price of real estate in New York has grown, and the potential worth of digital real estate if this trend followed into the digital world.
The results were enlightening.
In the 1930s the price of real estate in New York was $5 per square foot, compared to $1,080 per square foot today. A generous 2,500 square foot home in New York during the 1930s would have cost $12,500 compared to $2,700,000 today. A 2,160% increase.
If we apply this to digital real estate it would mean a $350,000 purchase today would be worth $75,600,000 in the future.
This is very unlikely of course as there are only a limited number of people who could pay $75m for a digital piece of real estate but you can see the logic. Also it tool 90 years for the value of New York real estate to increase in value as it has.
Considering the relative closeness of digital spend vs real spend for the same asset it is certainly plausible, from these calculations, that this digital real estate could reach nearly $3million.
Many blue-collar businesses are standing by looking on closely, but some like JP Morgan as mentioned earlier, have already bought real estate, and have opened up a digital presence.
How the Price for Digital Real Estate is Set
The value for digital real estate, just like in the real world, is driven by supply, demand, and desire.
The price is set by the owner of the digital property, and they are free to sell for whatever price they would like to.
Of course, the owner does not have to sell at all.
The overall worth of digital asset, such as NFTs, is usually governed by a demand and supply ecosystem. The prices of surrounding digital real estate, and the demand to buy, will often set a market value.
So, for example, if the price for real estate in a particular area of the Metaverse world was on sale for an average of $98,000, then a property with a price tag of $300,000, a 302% increase, is unlikely to sell.
On the other hand, if a similar property went on the digital real estate market for $35,000 it will sell very quickly!
This is currently how digital real estate and Metaverse land is currently priced.
Each day digital assets such as these are traded.
Profit of course is the driver here. Entrepreneurs and investors are gambling on the Metaverse becoming the next big online dramatic shift (known as Web3) where users look to immerse themselves within an online world, rather than navigating it through a laptop or cell phone.
With the recent explosion in cryptocurrency, NFTs, digital assets and the hyped Metaverse, the demand for digital real estate already exists and already many would be investors have been priced out of the market.
The Metaverse isn’t even ready yet.
Unlike the Sim City games of the 1990s, money was virtual. The Metaverse is different. Real money is spent on digital assets, real estate, entertainment, games etc…
Entrepreneurs and investors are betting big on luxury brands being big in the Metaverse like fast expensive cars, luxury watches, fashion from the largest brands in the industry.
At present the cost of a digital version of these items is running close to the actual real-life thing!
Why Digital Real Estate is so Expensive
Spending the same amount of money on a fictious invisible piece of real estate as a real home may sound absurd.
Like the story of the Emperor’s New Clothes!
How can someone justify the spending of over a quarter of a million dollars on digital real estate?
Today, huge sums of money are being spent on digital assets such as NFTs.
For example, Beeple sold a digital piece of art for $69m and cartoon punk characters within the Crypto Punk NFT Collection have sold for over $1million each.
Bored Ape Yacht Club’s cartoon apes can’t be bought for less than $100,000 as of today.
Spending this much money on a 500px-by-500px cartoon ape would have been laughed at just 6 years ago, whereas today it’s happening every single day.
People are buying these mainly as status symbols.
To be part of the Bored Ape Yacht Club means membership in to one of the most sought after online NFT collections there are.
Celebrities such as Justin Bieber, Eminem, Paris Hilton and Jimmy Fallon all have purchased Bored Ape Yacht Club NFTs.
Imagine the feeling of owning prime real estate in New York Time Square with expansive city views, next door to celebrities, media personality. This same feeling is being transferred into the digital world.
Most of our lives are online one way or another.
As the spend of digital assets is already surpassing 7 figures, it’s no surprise something as grand as digital real estate would head the same way.
Digital real estate is pure speculation of course.
It’s driven by a market trend, current spend of digital assets and in part by Facebook’s name change to Meta, showing its clear indication Mark Zuckerberg is all in on the future of the Metaverse.
But, at the end of the day, it is still speculation. Buying digital real state comes with high risk.
The Risks of Purchasing Digital Real Estate
The risks of buying digital real estate are very high.
No one really knows if the Metaverse will take off in the way it’s expected too.
Not all innovations and immersive online experiences have worked. Google Glass is an interesting case study.
Google are one of the biggest companies on the planet, and one of the most relied on businesses in the world. They launched Google Glass in 2014 amid growing anticipation.
The concept was simple. Standard wearable glasses but with virtual augmentation allowing you to see news, weather, directions, video calls all without affecting your line of sight.
It sounds futuristic and something everyone would want. What could go wrong?
Well, Google Glass flopped. They just were not cool. Sales were nowhere near as expected, and there were reports of attacks on people who wore them, almost like a geek label.
There are more people talking about the Metaverse than actually using it.
The Metaverse is there today, and can be explored through Decentraland and Sandbox, but really the uptake so far has been limited.
Is the Metaverse a short-lived hyped-up craze?
The avatars can look a little creepy and wandering around the metaverse feels empty.
But, even if the Metaverse does take off, there isn’t just one Metaverse. Many businesses are either thinking of or already creating their own Metaverse.
What happens if your digital real estate is bought in one Metaverse, but it’s another Metaverse that really takes off, leaving your digital asset rapidly declining in value.
Not only are there risks that the Metaverse may not take off at all, but also which Metaverse will become the most dominant, most used, and most valuable.
It would be like trying to choose which companies who launched on the internet during the late 1990s would eventually succeed.
AOL were first but Google launched, quickly took over and became the biggest company on the internet.
The risks of digital real estate are incredibly high, with no guarantee the asset could even be worth one dollar in two years.
Is Digital Real Estate Worth It – Conclusion
Right now, the risks are certainly outweighing the projected benefits.
Investors and entrepreneurs are though known for their high risks.
Without investing all on a high-risk venture, many would not have reached millionaire or billionaire status.
The $350,000 investment today in digital real estate could easily become an asset worth ten times that at $3.5million or more in just a couple of short years.
The again, a $350,000 investment today could be worth just $1 or less in the same timeframe.
Until there is a clear Metaverse winner in the industry, and until it’s clear everyday people will use the Metaverse, the risks are just too high.
That said, once a clear Metaverse winner is chosen the prices will naturally increase and the digital real estate bought for $350,000 would be on sale for $3,500,000.
It is understandable for those with an investment portfolio of $35million or more may decide to put 10% in to such a high-risk venture for a potential 10x profit, but for the average investor it really is not worth putting all your life savings into digital real estate.