As a biz journalist, Trine has covered finance from NY, tech from Silicon Valley, and the blockchain space.
These are tough times for the real estate market. As more office workers telecommute and shopping centers shutter, the outlook for real estate is cloudy. While many investors have been left out of pocket by the COVID-19 upheaval in commercial activities, farsighted investors are looking beyond bricks-and-mortars to virtual lands for value.
Confinements and curfews are sending droves of people online for shopping, entertainment, and business. From art galleries and shopping to gaming and crypto exchanges, businesses are quickly setting up shop in virtual worlds where 3D and augmented reality immerse visitors in experiences in virtual spaces called lands.
For early investors, virtual land appreciation has been beyond reality, doubling their money in a few months. The average metaverse land sales jumped 60 percent in 2020 to $20.7 million USD, before soaring past $50 million USD this year. Land sales in metaverses are benefiting from three converging trends: NFT (non-fungible token) asset tokenization, rising cryptocurrency prices, and decentralized real estate financing.
Tokenization of Virtual Lands
Crypto analysts and pundits alike resoundingly agree on one trend in 2021: this year, demand for NFTs will explode. Real estate, financial securities, art, and many other assets are being backed by crypto tokens called non-fungible tokens (NFTs) based on the ERC-721 token standard. The tokenization of assets is popular with investors because it creates, enhances, and preserves asset value by recognizing traits such as originality and rarity through tokens with unique digital identifiers.
Sales of virtual real estate, far and away the largest market for NFTs, are booming. NFT marketplace OpenSea currently lists 48 virtual worlds selling NFT land and other virtual assets. Since 2017 when CryptoKitties started the NFT craze, the value of NFT-backed assets has increased 5.5-fold to $172 million. Close to one-third of those sales, or $51.9 million, represents land sales from metaverses (nonfungible.com). The hottest virtual real estate markets are lands in the leisure and entertainment world Decentraland, gaming metaverse The Sandbox, and casino world Vegas City.
These virtual worlds have not felt the commercial real estate slump. The value of virtual lands is steadily rising. In January, the average sale of virtual lands was $653.23, almost double the all-time average of $235.28 (nonfungible.com), reflecting rising demand and value.
The highest valued NFTs are real estate from virtual worlds and, in particular, virtual gaming world land sales are smashing records. BNP Paribas research arm L’Atelier forecasts a $100 billion market in virtual worlds and games.
- gaming platform Axie Infinity, a gaming universe in Decentraland, sold an estate of nine adjacent Genesis blocks valued at about $1.5 million (888.25 ETH per block) hit an all-time record for an NFT sale in February.
- shattering the previous record of the highest-selling NFT; the $800,000 sale of the Citadel of the Sun castle from the Polyient Game’s epic fantasy RPG game Mirandus in Janaury,
- The FORMULA 1 GRAND PRIX DE MONACO 2020 1A — a digital replica of Monte Carlo city streets — from the F1 Delta Time games sold for over $200,000 in December.
The Sandbox, a gaming metaverse, has just concluded a record-breaking public land sale (Wave 1), raising 7.45M in $SAND (~2M USD), following three sold out land auctions in 2020 in which $2 million in land plots were sold.
NFT Collectibles and Brand Names
Like Disney World, landowners can create powerful brands for their virtual lands with NFT collectibles. In The Sandbox, premium NFT collectibles based on popular entertainment world IPs are being sold alongside land, including the Smurfs and Care Bears. They are among more than 60 gaming and entertainment franchises in The Sandbox. Public Land Sale Wave 2, launching on February 25th, will feature collectibles from partners Pransky, Metapurse, and Yield Guild. Premium LANDs close to the Sandbox ESTATES of these popular brands are more highly valued.
NBA TopShot trading cards demonstrate the power of building brand value in tokenized assets. The NBA-licensed NFTs have shot to the top of NFT collectible sales, reaching $50 million in February, surpassing CryptoKitties and Decentraland. Owners of the NBA licensed collectibles, though, do not have the opportunity to build and market an experience around them, as they would in virtual gaming lands.
Limitless Cross-Game Play and Monetization Potential
As virtual land metaverses become interoperable, collectibles from in and outside of virtual lands will be tradeable across many gaming and entertainment platforms. Virtual lands built on interoperable blockchains provide a unique opportunity for gamers and game developers to take their games and tokenized assets and sell and trade them in other virtual worlds.
Polyient Games, for example, brings together the ecosystems of The Sandbox, Ubisoft, Axie Infinity, Battle Racers, and more.
Imagine Rayman and the Smurfs one day teaming up against the most formidable assassins in Assassin’s Creed. Anything is possible as open gaming worlds replace closed gaming systems.
The Great Virtual LAND Grab
Following the record-breaking sales in recent months, investors may want to grab their virtual land early. But before buying virtual lands, they should be aware of how they are valued. Virtual lands have high appreciation potential owing to token economies and limitless monetization opportunities. Key factors affecting valuation include:
Lands are scarce resources. Each metaverse has a limited supply of land. Decentraland has 90,000 parcels and The Sandbox 120,000. The native tokens used to buy parcels in virtual lands also have a limited supply.
Like real estate developers in the real world, LAND owners can build on their land, a process called terraforming in virtual worlds.
But virtual structures have no physical limits: your structures could conceivably soar past the height of the Shanghai Tower at 2.073 feet.
Retailers pay a lot of money for prime real estate. If you are selling custom iPhone cases next to the Nanjing East Apple Store in Shanghai, you could potentially capture the 25,000 customers passing a day. You will do a brisk business, but still, your market is physically limited by geography.
In virtual worlds, retailers also pay for premium real estate. Any indie game maker would prize a virtual land next to Atari in The Sandbox. Another prime location is near a teleportation portal, where the number of visitors is limitless. Customers only need the coordinates of your land to teleport there in milliseconds.
And, of course, if you do not like the world or buildings you develop, you can demolish them and build a new experience the next day.
Virtual lands sell on OpenSea, as well as through public land sale events. Upcoming and ongoing land and auction sales include The Sandbox Public LAND Sale Wave 2 (over 40 percent of the virtual gaming world’s 166,464 lands have been sold) and OVRLand.
Virtual Land Financing Options
NFTs represent assets and as such can be used as collateral for lending, including for loans on virtual real estate. Conceivably, you could use your collection of Smurf NFTs as collateral to buy an estate by the Atari land in The Sandbox. Virtual lands are auctioned, typically on the NFT market OpenSea. Once purchased, virtual real estate can be rented and leased out.
Currently, financing is available on virtual lands through Rocket — a DeFi lending platform. Rates are high, though, ranging from 12–40 percent, but could still offer an opportunity to buy u devalued land while it is cheap. In March 2020, a borrower took out a loan for 20,000 DAI (about $20,000 USD) on 421 parcels in Decentraland, valuing each parcel at about $47.50. The current average price of Decentraland property sales is $158.40. Crowdfunding is becoming a popular financing alternative.
As virtual lands are populated and increase in value, more financing options will become available for buying virtual real estate.
Disclaimer: Nothing in this article constitutes professional investment advice. The opinions here belong to the author alone. Please make sure to conduct your own thorough research before making any purchase.
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