Metaverse Real Estate Prices Rose 700% In 2021

OBSERVATIONS FROM THE FINTECH SNARK TANK

In December 2021, a fan of the musician Snoop Dogg paid $450,000 to purchase “land” in the metaverse next to Dogg’s virtual property. According to HipHopDX:

“Dogg has been developing his own interactive world in The Sandbox, an Ethereum-based platform for creating and monetizing online hangout spaces and gaming experiences. The aptly-titled Snoopverse is where he is currently building a Voxel Art version of his real-life mansion in Diamond Bar, California, where he’ll be throwing private virtual concerts, parties, art gallery exhibitions and more.”

The Snoopverse—which includes 22 plots of lands, 67 plots of premium land, and 3 estates—enables land owners to build on their plots and profit off other residents who visit.

While it’s a good bet that $450,000 won’t get you a home next door to Snoop in the real world, is it a reasonable amount to pay to be Dogg’s neighbor in the virtual world?

(Un)Real Estate Prices on The Sandbox and Decentraland

A new report from the Centre for Finance, Technology and Entrepreneurship (CFTE) looked at real estate prices in the metaverse. According to the report:

“The Sandbox is the largest virtual world in terms of transaction volumes, with 65,000 transactions in virtual land totaling $350 million in 2021. It is a virtual land composed of 166,464 parcels of 96x96m, representing a virtual world of 40km x 40km, where participants can play games and participate in virtual experiences.”

In comparison, Decentraland—the second largest virtual world—saw 21,000 real estate transactions worth $110 million last year.

For both virtual worlds, the average investment in land was about $5,300, but as the report notes, prices have grown considerably from an average of $100 per land in January 2021 to $15,000 in December 2021, with rapid growth in the fourth quarter when the Sandbox Alpha was released.

Between November 2021 and January 2022, 8,000 lands per month were sold at an average transaction price of 3.5 Ethereum (ETH), roughly $13,000. In January 2022, the daily average price of metaverse land transactions exceeded 5 ETH, more than $18,000.

What Can You Do With Virtual Land?

In the Sandbox metaverse, “land” is a token that represents a digital piece of the platform. Gamers who purchase land can populate it with games and assets, which are tokens created by players or brands that create or assemble user-generated content.

These assets are then traded as non-fungible tokens (NFTs) on various marketplaces and are primarily used to enhance one’s experience or as creative elements for the game designers.

Landowners can build various types of gaming experiences and make them available to other gamers, for free or for a price. According to the CFTE, virtual land owners can:

“Create billboards for advertising or design a museum to display NFTs. The first benefit of owning land is therefore to have a space to create digital experiences. Location is important, since players will wander around on the Sandbox and will be attracted to more central or well-known places.”

Similarly to the real life, landowners can also rent out their lands for others to design their own games, host events and other social activities.

Where Can You Buy Metaverse Real Estate?

Virtual land in The Sandbox can be acquired from the platform itself, or on secondary external marketplaces like OpenSea and Rarible.

The CFTE notes, however, that while primary sales happen frequently on the Sandbox platform, it’s becoming increasingly unviable for most people to purchase (un)real estate this way. According to the report, the secondary market is the main option for most buyers.

Paying for Real Estate in the Metaverse

In the real world, many people purchase real estate by getting a mortgage. This is becoming an option for the metaverse, as well.

BeInCrypto reported that TerraZero Technologies has just provided the first-ever metaverse mortgage to buy virtual real estate.

How does it work?

Would-be land owners who intend to finance the purchase of virtual real estate (represented as a non-fungible token) use their NFT as digital asset collateral.

TerraZero holds the land NFT as the registered owner until the loan is paid back, but grants the borrower ‘deployment rights.’ This enables the borrower to build on their land, organize events, run digital storefronts, or host their internal company office.

When the mortgage is paid off the virtual land (i.e., the NFT) is fully transferred to the borrower.

Dan Reitzig, CEO of TerraZero, told Bloomberg that it’s more like a small business loan than a consumer loan. TerraZero evaluates borrowers’ business plans for making money using the virtual land, and doesn’t base their loan decisions on speculations of rising land prices.

The Future of Real Estate in the Metaverse

According to the CFTE, buying virtual real estate is simpler than buying physical real estate, because one could buy (virtual) land worth hundreds of thousands of dollars in one click.

But they caution that doing so can be more complex because there is no trusted third party to guarantee the provenance of the land or whether it is legitimate. As the CFTE report points out:

“Scams and hacks are quite frequent in the NFT world, both from malwares on computers to artificially increasing or lowering prices with fake transactions.”

Will metaverse real estate prices continue to rise? The CFTE takes a grounded, conservative view and says that volume and prices are highly dependent on the developments and news linked to Sandbox. According to the report:

“In some ways, price behaviors on the Sandbox are not dissimilar from real estate in a large city such as London, with prices based on location, and property buyers wanting to be part of a vibrant ecosystem.”

For all the newness of the metaverse, it appears one lesson from the physical world still applies: Location matters.