Is it still worth getting started with digital concrete gold? What the construction boom in the Metaverse has to do with the Chinese real estate bubble and why the micro-location in virtual worlds also counts.
The Chinese real estate boom is coming to an end. The risks around real estate companies like Evergrande, which threaten to plunge an entire economy into the abyss, have become too great. To put an end to the wild speculation in real estate over the past few years, the Communist Party is now taking massive action.
Real estate prices have inflated there more than in Europe or the USA. So ghost towns were built in which hardly any people have lived up to now. Over 65 million apartments in China are empty – enough living space for the entire German population. Real estate was not built with the primary intention of creating living space, but rather to sell it on at a higher price by increasing its value. As common as the exaggerations in the Chinese real estate market may be, we may see very similar scenarios in the virtual real estate sector. We are talking about digital land and real estate in the Metaverse.
Decentraland, Axie Infinity and Sandbox
The prices for real estate NFTs or land in the largest metaverse Decentraland, Axie Infinity and The Sandbox do not need to hide from the real world. The “Fashion Street Estate” shopping street in Decentraland was acquired in November for the equivalent of 2.4 million US dollars. Still a bargain compared to Königsallee in Düsseldorf.
The Decentraland transaction was surpassed by the metaverse game Axie Infinity. A total of 2.48 million US dollars were paid for a piece of land there in early December. However, the record was set by the Metaverse game The Sandbox on December 8th. For example, the investment house for digital assets, Republic Realm, has raised 4.3 million US dollars for a sandbox property from the game developer Atari paid.
The example of US rapper Snoop Dogg shows how much the situation counts in Metaversen. A user in Sandbox paid the equivalent of 450,000 US dollars for a piece of land in order to become the virtual neighbor of the famous American rapper.
Who lives in the Metaverse?
In order for Decentraland and Co. not to do the same thing as China’s ghost towns, vibrant digital economies need to develop. Without the hustle and bustle, ergo that users leave a lot of time and money in the Metaverse, the virtual real estate speculation will not work. The run on the vacant lots is a speculation about the future, for fear of no longer entering the trendy areas.
This also explains why the sporting goods manufacturers Nike and Adidas also want to penetrate the virtual land, as Adidas became known in November. A day later it was fittingly made public that Adidas was also working with the crypto broker Coinbase want to cooperate. Most recently, he had mainly worked on his range of NFT services. So there are all signs pointing to NFT production, which, among other things, function as goods and goods in the metaverse. The created supply then only has to meet a correspondingly high demand – at least that is the theory.
Whether in the future, when the virtual shelves are full, the masses of visitors will also push their way through the clothing districts in the metaverse, is, however, in the stars. At least there is no corona lockdown risk like in our inner cities.
Does the macro and micro location also count?
As with “real” real estate and land, the macro and micro location also counts in the Metaverse. Just as you have to ask yourself whether you would rather buy real estate in Germany or rather in Spain, you have to ask yourself which metaverse to rely on. If, for example, Decentraland does not prevail in the long term, then the real estate and land there will also be worthless. The various levels then extend to the neighborhood or street, i.e. a micro-location in which one is located. As in the analog world, you have to pay more if you want to live in the top regions or next to stars like Snoop Dogg.
However, the aspect of the situation should not be as important as in the analog world. After all, large distances can easily be overcome via teleportation or a mouse click. In popular metaverses, the peripheral locations could therefore also be interesting. It is still unclear how cultivation measures will be dealt with if virtual land is simply added so that more land is available. Depending on the rules of the game in the blockchain protocol, the development of building areas should be easier.
With financing karate to the next Lehman Brothers
These and many other factors ultimately also play a role in pricing and value stability. However, a fundamental assessment of the virtual properties is not yet possible. How prices will develop is simply impossible to predict at this early stage. The final factors have yet to cultivate over the next few years.
To the same extent, however, the virtual real estate sector will also generate new financing and investment opportunities. It is to be expected that the digital real estate sector will also enable the loan of virtual land, for example to generate free capital for other investment projects. In addition to the loan, there will also be funds and structured financial products in the future. If you don’t want to buy land and build real estate yourself, you can, for example, become a co-owner through real estate funds.
A rental market can also arise. For example, if you want to open a virtual shop in a good location, you might also be able to rent it. In short: In view of the escalating financialization options, the prerequisites for a virtual real estate crisis à la Lehman Brothers are unquestionably in place.
Oild Economy knocks carefully on the Metaverse door
In the future, we should easily see hundreds of millions of euros for the best properties in the Metaverse. Just as you use Zoom, Google Hangout or Microsoft Teams for meetings today, you will meet in the Metaverse in the future. Each company will then also have a virtual business address in one or more metaverse. Including original NFT interior and exterior architecture.
This is exactly where Meta, formerly Facebook, is already presented. With its Metaverse Horizon, the company is taking cautious first steps towards virtual meeting rooms. But also Microsoft is working with mesh on Metaverse solutions. However, it doesn’t have much to do with virtual real estate and NFTs.
3, 2, …: When does it pop?
It could take a while before we work and live in the outlined Metaverse worlds. The expectations of the Metaverse and the virtual real estate sector are unrealistically high in the short to medium term. In the long term, the sector may skyrocket, but initially there is a risk that the virtual lands will turn out to be castles in the air. Just like in the Chinese ghost towns, the moment threatens to come with Metaverse lands when everyone realizes that there is no sustainable use or habitation.
The virtual real estate sector should currently still have enough momentum and dynamism that some record transactions will take place before the wave of disillusionment. Especially since there is no state regulation like in China that can stop the construction boom. As with all bubbles, the following applies: As soon as you tell your hairdresser, taxi driver or baker about the investment opportunities in the Metaverse, you should think about selling the virtual properties. As long as that is not the case, a little bit of hot air can drive up land and property prices in the Metaverse.
Disclaimer: The article only reflects the author’s personal opinion and does not constitute investment advice.