The “metaverse” has gone from a little-known science fiction dream to the forefront of popular culture in the six months when Facebook, Inc. renamed to Meta Platforms, Inc. Digital real estate transactions in the metaverse are estimated to increase to $1 billion this year. Despite the increased attention, there is still a lack of agreement on what the term means and what the ramifications of this new technology will be for society and the economy. The advent of digital real estate in the metaverse presents the commercial real estate market with a once-in-a-lifetime opportunity.
What Is the Metaverse?
There are many different metaverses. Some are built “onchain” in typical video game environments, while others are built “offchain” in blockchain environments. The unifying thread is that they are all persistent, virtual settings where users can interact with one another in a three-dimensional world, attend dynamic, real-time events, and buy digital items in the same way that in-app purchases are done. In onchain metaverses, digital real estate can be acquired with cryptocurrency on any of the metaverse platforms; however, the key platforms, such as The Sandbox, Decentraland, Cryptovoxels, and Somnium, are currently saturated. As of today, The Sandbox and Decentraland account for around 95 percent of all virtual real estate sales in the metaverse.
Each metaverse platform is made up of codes that are subdivided into a finite number of plots, similar to how longitudes and latitudes are represented on a map. The purchaser’s information is recorded in a non-fungible token (“NFT”) that is programmed onto a public blockchain after a plot is sold. This code serves as a unique identifier and ensures that the chain of title is secure. In other words, the purchase of an NFT and the blockchain that goes with it works similarly to a deed and the chain of title that goes with it in a traditional real estate transaction.
Why Should the Commercial Real Estate Industry Take Notice?
Ownership in the metaverse is basically absolute, and owners can do whatever they want with their virtual real estate, including developing, leasing, selling, and otherwise using it. Owners of digital properties have the ability to establish office buildings, operate storefronts, lease property for events, and erect advertising billboards.
Financing for virtual real estate has begun as demand for and prices for land in the metaverse have increased. TerraZero Technologies offered one of the first “mortgage” loans for the purchase of metaverse virtual real estate in January 2022. [3] TerraZero initially assessed the borrower’s business plan for profiting from the virtual real estate before purchasing the land on behalf of the borrower and holding title to it until the loan was repaid and the NFT was transferred to the borrower.
Crypto-based investment firms have purchased the largest digital real estate transactions in the metaverse so far. Everyrealm (previously Republic Realm) paid $4.3 million for 792 plots of digital real estate in The Sandbox, with plans to develop some of the lands alongside Atari. Tokens.com has invested $2.4 million in Decentraland, which it intends to use for fashion events and shopping.
The traditional real estate market’s big players are likewise paying attention. J.P. Morgan Chase announced their entry into the metaverse this year by establishing a lounge in Decentraland, complete with a tiger and a photo of Jamie Dimon. The Sandbox, which is anticipated to be built into a stadium to hold virtual athletic events, was purchased by HSBC. Digital properties are being snapped up by our company, Arentfox Schiff, as well as other significant corporations including Adidas, Gap, Hulu, PricewaterhouseCoopers, Nike, and Verizon.
Advertising spending is anticipated to rise as consumers and businesses embrace the metaverse. In the future years, J.P. Morgan Chase and Grayscale, a prominent investment business, predict the Metaverse to generate $1 trillion in yearly revenue. Many of the world’s greatest corporations feel that once the metaverse and the blockchain technology that underpins it becomes better understood, this rise will be unavoidable, akin to the rapid growth experienced by today’s social media and search engine behemoths. As a result, many investors anticipate that the price of digital real estate will skyrocket in the near future, as the growing user base depletes the limited amount of digital property and digital landowners profit from advertising dollars.
Pros and cons of buying a metaverse property
A digital asset can be purchased by anyone, but they must first create an account on one of the metaverse sites. After that, the fiat money is turned into the platform’s digital currency, which can then be used to make payments. Furthermore, in the digital sphere, real estate can be purchased, rented, or even sold, with ownership being validated and saved as a non-fungible token (NFT).
To put it another way, purchasing property on these platforms is the same as purchasing property in any city. As demand for the area grows, the value of your newly purchased parcel of property may climb. After that, the property can be sold for bitcoins. You might also rent out space on your property to businesses looking to promote themselves, open a store, or sell digital collectibles to customers.
Unlike real estate investments in the physical world, however, digital land or property purchased in the metaverse will vanish if the site on which it was purchased closes down. As a result, predicting which metaverse platforms will succeed and which will fail is challenging. You may make a lot of money if your chosen platform becomes popular.
Additionally, anyone interested in buying metaverse real estate should keep in mind that this is a limited market with no legal structure to protect your investment. Because it’s such a new asset class, opportunities and challenges are still emerging. As a result, it’s a good idea to do some research before investing.
The demand for metaverse real estate, on the other hand, is projected to rise, if predictions are to be believed. Every day, more individuals and corporations are becoming interested in virtual real estate and investigating what is viable for them and their budgets. When they make purchases in this realm, they frequently inform others and spread the word about their cause, because the more the merrier in the metaverse.
Furthermore, when people invest in neighborhoods, they attract more people who share their interests and ambitions, increasing the area’s value and desirability. The metaverse, unlike the real world, has fewer concerns about crime and thievery, yet it is still possible for a neighborhood to degenerate due to apathy.
Furthermore, due to entry hurdles, many people are unable to purchase tangible real estate. This is where virtual real estate distinguishes itself by being accessible to investors of all financial means. So far, it has succeeded in defying the odds. Only time will tell how it will fare in the future.