Real estate prices are skyrocketing, only not in the real world, but in virtual ones, sometimes dubbed the "metaverse" after a grand project announced by what was formerly Facebook (now rebranded as Meta). Some platforms have seen price increases for patches of digital land as high as 400% to 500% amid the pandemic lockdowns and following Meta's announcement of its development plans.
"The digital world, to some, is as important as the real world. It’s not about what you and I believe in, but it’s about what the future does", a real estate broker, Oren Alexander, said in an interview with CNBC.
Just like in regular online games, metaverse projects selling digital land are accessible via PC programs. However, oftentimes these projects are developed not so much for games, but rather for socialisation or creativity – for example by building a house, a mansion, or any other structure on the digital land you just bought.
And naturally one can sell their land along with the structures for added value. Even though they exist only on the game's servers, the price for a lot can reach thousands of dollars, depending on what's built on it and on the land's proximity to social hubs and other centres of attraction.
New Market for Investors on the Horizon?
Trading digital land or creations is not new to the gaming world. Such transactions occurred before the pandemic on other platforms, ranging from the socially-oriented Roblox metaverse, to the more gameplay-oriented Minecraft. Furthermore, such trading has long been mundane in the Second Life online game, which has existed since 2003. But now that metaverses are attracting more and more people amid lockdowns and growth of popularity of the virtual world, the first investors have started to explore the new virtual real estate market.
Toronto-based Tokens.com recently spent $2.5 million on a stake of digital land in Decentraland – another popular online platform. Another virtual real estate company, Republic Realm, spent some $4.3 million buying virtual private islands, which the company later sold 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", Republic Realm's head Janine Yorio told CNBC.
Investors are apparently not the only ones willing to spend a fortune on digital plots of land – one Sandbox user paid $450,000 for a small territory adjacent to where Snoop Dogg is currently building his digital mansion.
"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. Areas where people congregate are far more valuable for advertisers and retailers to find ways to get in there to access that demographic", Tokens.com CEO, Andrew Kiguel told CNBC.
Snoop Dogg is not the only famous guest in the virtual world. Justin Bieber held two virtual concerts in November 2021 at the Wave online virtual reality platform, where he appeared via his digital avatar, whose movements copied those of the singer.
Before that, Ariana Grande held an entire tour in August 2021 hosted on the popular flatscreen shooter Fortnite – again appearing in the form of a virtual avatar.
At the same time, it's hard to predict whether the popularity of metaverses will last long and what the digital land investments will be worth in a couple of years. In a comment for CNBC, Arizona State University professor and director of real estate theory and practice, Mark Stapp, alleged that eventually the prices of such digital assets will drop significantly.
"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", Stapp said.
Yorio from Republic Realm also warns that digital real estate assets are "highly, highly risky". She cautioned people against investing something that they are not ready to lose in them. Yorio noted, however, that despite the risks, the potential reward could be massive.