Real estate in the metaverse is getting very real. Multimillion-dollar deals are being made by digital land development firms -- which in itself sounds like something that would have been simply fiction just a short time ago.
One of those companies, Republic Realm, recently paid $4.3 million for land in The Sandbox virtual world. That's just one example. There are also exchanges emerging, such as Decentraland, a 3-D universe where individual investors can go stake their own claim.
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The idea behind all this, of course, is that people will use this "real estate" as places to do what we do in the non-virtual world: live, shop, collaborate, and just be together. There are enough people willing to pay for that, and invest in its growth, that I'm going to quit putting quotation marks around "real estate," for starters.
Far more significant than my use of punctuation is this observation from Lorne Sugarman, the CEO of Metaverse Group, in a Dec. 11 article posted by Business Insider about that company's $2.43 million purchase in a promising neighborhood in Decentraland: "We think the Fashion District purchase is like buying on Fifth Avenue back in the 1800s ... or the creation of Rodeo Drive."
The coin of the realm for a lot of this activity is cryptocurrency in its various iterations. Again, that's virtual money that's quickly becoming every bit as real as the change in your pocket. And because this is the 21st century, the evolution of all this is screaming fast compared to the emergence of prime shopping areas in New York or Beverly Hills.
Motley Fool contributor Kristi Waterworth provides some good insight about buying real estate in the metaverse here: "3 Elements of a Good Metaverse Real Estate Investment." She also sees digital natives -- especially Gen Z -- readily putting money into the virtual realm that they might otherwise spend on physical real estate. And why not? If this new market, along with all things around non-fungible tokens, grows at the trajectory it's now hinting at, that could be a very viable way to build equity in property and wealth in general.
Everybody's gotta be somewhere
And that raises the question: Will enough of that happen to have an effect on demand for housing in the real world, at least to cool the surge in home prices that effect affordability for so many of us, especially those aforementioned Gen Zers?
My hunch is it will have more effect on investment channels than home mortgages. People who are comfortable with the virtual world in general may meet in the middle of a Venn diagram with those who invest in crypto. And the center of that diagram will grow as those who grew up in the dual worlds of virtual and physical reality come into their own financially.
But the money they spend there is more likely to replace investments in such things as crowdsourced real estate pools and even more traditional channels like real estate investment trusts (REITs) and publicly traded stocks regardless of industry.
There's no clear way to know how much money would be invested in virtual real estate that would have gone to physical real estate or any other investment otherwise. But my guess is that the effect will be marginal.
Unless you're an avatar yourself, you're going to need a real place to live. So right there, that precludes a lot of money and interest going into the monied ether.
Remember, the biggest name so far to commit to the idea of the metaverse is the company formerly known as Facebook. Meta Platforms has nearly 70,000 employees and they all gotta be somewhere, mostly working from home, probably.
