The Metaverse Effect: Why Investors are Buying Virtual Real Estate?

metaverse real estate
metaverse real estate

So you have been hearing about the increasing demand and the huge rush for commercial real estate sales. However, you don’t see any noticeable changes in the market prices or the interest rates. Well, that is because all these real estate assets exist in the virtual world. 

You would be surprised to know that recently, real estate investors have made significant investments in virtual real estate. According to Bloomberg Intelligence, the estimated global revenue of the metaverse will approach $783.3 billion by 2024. 

Platforms like Sandbox and Decentraland have built a virtual world that lets users trade and monetize virtual assets like land parcels, virtual real estate NFTs, etc. The value of digital land plots is soaring, with digital parcels fetching hundreds of thousands and even millions of dollars.

This brings us to the real question and our topic of discussion. Why are people investing tons of money in virtual assets and why are real estate investors buying virtual real estate?

What is the virtual real estate metaverse? 

Similar to the real world, virtual real estate properties can be bought and sold or used as rental properties. The only difference is virtual properties are powered by crypto and metaverse. 

According to the Co-founder and COO of  Evai.io, Simon Reid, cryptocurrencies have grown beyond their origins as digital alternatives to fiat currency. They have now become their universe – a multi-trillion-dollar industry.

Virtual real estate also known as metaverse real estate refers to plots of land in the virtual world. These plots of land are commonly known as parcels. You might think of them as nothing more than images on your screen. But they are interactable programmed spaces where you can socialize, rent, attend meetings, buy and sell NFTs, and perform various other activities. 

Several metaverses are having their own digitally open world and economy. However, the only two metaverses that are currently dominating the market are Decentaland and Sandbox.

Virtual real estate demand: Why are investors spending millions on it?

Back in Feb 2011, Bitcoin was valued at $1 for the first time. 

At that time cryptocurrency was a relatively new topic.

However, over the years, people gradually became aware of cryptocurrency and bitcoin as they blew out of proportion. 

With BTC now soaring above $30,000, metaverse investors are certain that the future is digital. Seeing the exponentially high growth of bitcoins in a couple of years, people do not want to miss out on opportunities just like bitcoin. 

Therefore, when Facebook announced its name change to Meta, it sparked a huge curiosity among people leading to a spike in virtual land sales activity. According to Statista, the total real estate sales of metaverse platforms in November 2021 were around $187 million.

Source: Statista.com

On top of that, unlike the real world, it is a lot easier to invest in virtual real estate. You can set up virtual properties in a matter of minutes. Therefore, saving you major expenses like construction and maintenance costs.

Moreover, just like a website domain name, virtual land is a limited commodity. The limited number of parcels makes investing in virtual real estate even more desirable. 

How does virtual real estate appreciate?

You might be wondering how virtual real estate properties work similarly to real-world real estate. Well, just like real-world properties virtual properties and lands appreciate over time. 

Similar to the real world any kind of development on virtual land parcels increases its value. Moreover, factors like location and neighborhood play a crucial role in determining the price of virtual properties similar to the real world.

Celebrities like Snoop Dogg and various companies have joined in the trend of buying virtual land in the metaverse. Therefore, you can sell the land at a much higher price as fans will pay high figures to buy plots near their favorite stars.  

Moreover, the rapid exponential increase of cryptocurrency has also led to virtual real estate properties appreciating value at a much faster rate. 

Characteristics of Virtual Real Estate

Virtual real estate shares a lot of the same characteristics as traditional real estate. Some of the common features are:

  1. Location matters

Location in virtual real estate is an important factor that governs the price of virtual property. Virtual lands near high-profile areas tend to have higher prices and appreciation. 

  1. Limited availability

In every metaverse, there are only a limited number of land parcels available. With limited land availability, there is always an existing demand for virtual real estate. Limited availability of virtual land also increases the rate of growth of appreciation.

  1. Alternative to traditional real estate

Activities in virtual real estate can replace traditional real estate. Events and office meetings are quite common activities that have grown quite popular in the digital world. Moreover, the new generation with the support of tech-oriented companies are preferring remote activities. 

  1. Secured Ownership

Based on blockchain technology and backed by NFTs, virtual real estate assets are more secure than traditional real estate ownership.  It is a strong way to identify ownership since it is recorded on the blockchain and ownership is verified on an immutable public ledger. 

  1. Can be purchased whole or in fractions

As already established virtual real estate too require high investment capital. For example, the price of a 1×1 land parcel in Sandverse is around 4 ETH which is equivalent to approximately $10,000. 

Therefore investors are a bit skeptical to invest such a big amount in virtual properties due to the high risks involved. One way to solve this problem is by fractional ownership of an NFT. 

What is virtual real estate NFT?

As the world heads into a more advanced digital world, the method of purchasing and selling is going to change. The creation of NFTs or Non-Fungible Tokens has forever changed the description of ownership. NFTs are unique digital tokens stored on a blockchain ledger that serves as the ownership of a digital asset. These NFTs can be in both the real and virtual worlds.  

In real estate, NFTs can be categorized into two types of tokenization: 

  1. Entire property tokenization

NFTs can be used to replace traditional deeds that represent ownership of real-world properties. In real estate, to authenticate deeds and find encumbrances in public titles, buyers hire title insurers, escrow companies, and attorneys. NFTs can replace all these intermediaries since blockchain can perform these tasks more efficiently. 

Although the government doesn’t recognize transfers of real estate ownership with NFTs yet. The day isn’t far when the majority of real estate properties are going to be backed by NFT. In April 2022 the first NFT-backed real estate was sold in Florida, US.  

  1. Fractional ownership tokenization

Fractional ownership tokenization is similar to real estate crowdfunding. Since real estate investing requires hefty capital, real estate investors have turned to NFTs using fractional ownership to buy shares in the project.  

Lofty AI’s online marketplace allows investors to purchase tokens using money or crypto to buy stakes in rental property businesses. 

How do real estate NFTs work?

Purchased by cryptocurrency, real estate cryptocurrency work in a similar way to the other NFTs. After purchasing an NFT they get stored in your digital wallet, which can be sold later on for a profit. 

If you want to back up a property as an NFT, the first step to selling real estate as an NFT is to undertake the necessary legal preparations. You must stay within the laws and ensure that it meets regulations.

From there onward, you can mint a real estate NFT containing property descriptions and legal data. Thereafter selling it to potential buyers in the NFT marketplace. 

Fractional ownership tokens, on the other hand, behave like shares of real estate property held as investments. With profits being paid out to investors on a pro-rata basis.

Challenges in commercial real estate and NFTs

It isn’t surprising that commercial real estate NFT is being met with challenges upfront. It is well known to all that commercial real estate is not the industry to keep themselves updated with the latest technology. 

To invest in the metaverse and virtual properties, you must have a fundamental understanding of blockchain-based investments and NFTs. This could be a daunting task for most real estate investors. 

Moreover, property ownership can be easily transferred for virtual real estate backed by NFT. However, the government has yet to establish laws for transferring ownership of traditional real estate backed by NFTs.  

Invest in virtual real estate NFT with Lilypads

As of now, the market for virtual real estate is still at a developing stage. Investing in virtual real estate requires a fundamental understanding of metaverse and NFTs. But with virtual real estate transactions so far, there is no doubt about the future of virtual real estate investments. 

And the best way to invest is through real estate NFTs. Using NFTs, you can easily invest using tokenization and also transfer ownership of real estate investments or virtual properties. Lilypads provides you with the perfect platform to invest in NFT-backed properties and take the opportunity of the first mover’s advantage in the world of metaverse investing. 

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