Real Estate Industry Explores the New World of the Metaverse
The human race is speeding toward the age of the metaverse-connected virtual realities where we will live digital lives alongside our real lives. This explains why large, influential organizations like Microsoft are placing large bets on the metaverse.
Individual investors have been getting in on the act as well, with some willing to spend hundreds of thousands of dollars on real estate that exists entirely over the web.
In late 2021, a buyer shelled out US$450,000 to become Snoop Dogg’s neighbor—not in real life, but in the Snoopverse, the metaverse that Snoop built in The Sandbox platform, where he plans to host events and has built a virtual replica of his house.
The world’s first-ever "MetaReal" mansion serves as an example of a hybrid approach expected to become more common as the metaverse grows. ONE Sotheby’s International Realty in Florida and Voxel Architects have aligned with general contractor and NFT collector Gabe Sierra to build and sell Meta Residence, the first real-world mansion (being constructed in Miami) with a virtual counterpart—expected to list for auction in early 2023 with a yet-to-be-disclosed reserve price—coming to life inside of The Sandbox metaverse. The purchaser of the metaverse mansion will also acquire ownership rights to the 11,000-square-foot, seven-bedroom/nine-bathroom home in one of Miami’s most sought-after neighborhoods. (The virtual version will be a mirror image of the property.)
“Real estate is in the beginning stages of taking on a whole new shape and form, and the blockchain will play a major part in this,” says Frederika ‘Kiki’ Rutten, global real estate advisor, ONE Sotheby’s International Realty. “It may change and update the process of how we do real estate, digitalizing it and, therefore, could make it simpler, more secure, and transparent.”
With MetaReal, Rutten says, they’re combining the utilities of the crypto, NFT, metaverse, and blockchain sectors into their project. “Having a home in the metaverse is a powerful tool to show off your digital assets and connect with others from all around the globe,” she says.
She also suspects that “the use cases of NFTs will exponentially increase in the coming years—assets transacted and recorded on the blockchain, as a ‘digital contract.’ This method in real estate is a game changer.”
“Real estate is in the beginning stages of taking on a whole new shape and form, and the blockchain will play a major part in this. It may change and update the process of how we do real estate, digitalizing it and, therefore, could make it simpler, more secure, and transparent."
Frederika 'Kiki' Rutten Global real estate advisor, ONE Sotheby’s International Realty
How Real Estate Works in the Metaverse
Real estate sales across the four major metaverse platforms (The Sandbox, Decentraland, Voxels, and Somnium Space) totaled US$501 million in 2021, according to MetaMetric Solutions, a metaverse-analytics firm.
Buying land on the metaverse is usually done with cryptocurrencies. The price of metaverse real estate generally ranges from about US$500 per parcel to as much as US$10,000.
Total retail sales across the four major metaverse platforms in 2021
The Sandbox and Decentraland are currently metaverse favorites when it comes to owning online land and property, as they have well-established infrastructure and well-known landlords and tenants, which lends legitimacy.
Purchases of land on either of these platforms can be made directly from the platforms themselves. Sales and ownership of metaverse land are recorded via transfer of NFTs, so the buyer needs a wallet capable of storing these.
A busy third-party resellers’ market also exists, just as with real-world real estate. Platforms like opensea.io and nonfungible.com act as decentralized estate agents.
Real estate in the metaverse is already big business, with a spate of global businesses such as HSBC, PwC, JPMorgan Chase, and Samsung having snapped up plots of virtual land, which they intend to develop for a variety of purposes.
Many people are buying digital land simply as an investment, because they believe it will be a lot more valuable in the future, when the metaverse is more commonly accepted. Some are even buying-to-let, with rental markets emerging across various platforms.
But the virtual real estate market was more robust early in 2022, with significantly less traction in the middle of the year after the fall in tech values and the shift in market dynamics, according to James Scott, director, Real Estate Technology Initiative, and research scientist and lecturer, MIT Center for Real Estate. “There is no doubt that the metaverse and Web 3.0 will have a profound impact in the future,” Scott says. “Retail and advertising are likely to see the most exciting new opportunities in the near term, but ultimately the success of real estate in the metaverse will be driven by the individual experiences that developers can provide for the end users.”
Scott says we “shouldn’t let the policies, regulations, and processes of what we know in the real world be the basis of how we engage with real estate in the metaverse. We have been given a blank canvas.”
Some observers claim the metaverse will reach mass adoption once businesses start to incorporate it.
“Businesses are looking for new ways to amplify their culture and connect with staff, as remote work becomes the new norm,” says Gordon Hempton, co-founder, Spot, which provides metaverse-adjacent communications tools for businesses. “Virtual offices can replicate the in-office environment while retaining the benefits of remote work; namely the ability to recruit talent, the increased ability to hire diverse workers, and the flexibility employees desire.”
“The metaverse is this infinite number of virtual worlds, but we see The Sandbox as the virtual Manhattan, a place that’s boiling with culture, entertainment, and brands where anyone who wants to can come to work or play and meet new people,” says Sébastien Borget, co-founder and COO, The Sandbox. “The amount of land in The Sandbox is finite. However, it’s not about a finite or infinite amount of land, it’s more about building a space where people want to come to spend time. That’s where value comes from.”
Decentraland, by comparison, is the first fully decentralized virtual social platform that is built, governed, and owned by its users. Powered by the Ethereum blockchain, it’s an ecosystem with its own currency, marketplace, system of property, and decentralized autonomous organization.
"Blue-chip companies are investing in and purchasing digital real estate at an increasing rate, and new uses beyond speculation are being found,” says Agus Ferreira, CEO, Decentraland Foundation. “Digital storefronts, which are primarily geared toward online retail, virtual gaming, and the entertainment sector, give businesses a new way to attract customers while also enabling them to provide them with services that aren’t feasible in the real world."
A major consideration is the issue of scarcity. If all of the virtual plots of land on a platform are sold, but there’s still demand from buyers, there’s ultimately nothing to stop the developer creating as many more plots as they need. The big platforms currently have limits on the amount of land, enforcing "artificial scarcity," but there's no guarantee this will always be the case. Most industry observers agree that regulation and policy will need to be more clearly defined and implemented.
“ Blue-chip companies are investing in and purchasing digital real estate at an increasing rate, and new uses beyond speculation are being found."
Agus Ferreira CEO, Decentraland Foundation
In the long term, most agree, the viability of virtual real estate as an investment opportunity will depend on the future of the metaverse itself.
“In order for the metaverse to gain mass adoption we will need to see significant advances in the current user experience,” Scott says. “Brokerage, design, marketing, and the engagement process are all likely to see significant advances in capability and productivity with the progression in virtual and digital technology in the near term.”
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