How to Invest in Real Estate in the Metaverse
Summary: Thanks to the Metaverse, virtual real estate is the market’s new frontier. You can be a virtual landlord and create revenue streams on many different Metaverse platforms, you can rent out space on your virtual property, you can invest in any economic activity known from the real world. Due to the World Economic Forum, 70% of all economic value created within the next decade will be derived from digitally enabled platforms. Not only is the Metaverse expected to become a USD 800 billion market by 2024, but it’s also expected to expand at a compound annual growth rate (CAGR) of 39.4% from 2022 to 2030.
The Metaverse is much more than Mark Zuckerberg, online gaming, and virtual shopping. It’s a completely new market economy driven by the next generation internet (Web 3.0). Everything will soon have a digital twin in the Metaverse.
But it doesn’t stop there: There is already a big market for virtual assets like real estate without any presence in today’s physical world.
That’s why the Metaverse is estimated to grow even bigger than today’s market economy, because it digitalises all our existing assets and brings new virtual assets on top at the equation.
This is not science fiction, it’s science fact.
Strong Exponential Growth Case
There is not only one but many Metaverse platforms to invest in.
Some Metaverse platforms are (or will soon be) provided by established tech giants such as Apple, Epic Games, Google, Nvidia, Meta, Microsoft and Tencent, others are provided by a cohort of new disruptive Web 3.0 players with a decentralised approach.
The Metaverse is expected to grow exponentially over time.
Due to the World Economic Forum, 70% of all economic value created within the next decade will be derived from digitally enabled platforms. A big driver will be the Metaverse.
Not only is the Metaverse expected to become a USD 800 billion market by 2024, but it’s also expected to expand at a compound annual growth rate (CAGR) of 39.4% from 2022 to 2030.
NFTs as Digital Contracts
In today’s world ownership to real estate is regulated by legal contracts and deeds. In the Metaverse these contracts are called NFTs.
NFTs in the Metaverse are smart digital contracts that can open and activate content. The coding opportunities for smart contract are unlimited. They can be self-executing, fully automated, and they can be coded to be upgradeable. Such NFTs can evolve and mutate over time, they are not static.
The Metaverse can interact with the real world via NFTs in countless unpredictable ways, because the Metaverse is all about the merge between physical and virtual worlds. NFTs allows users to own, control, and monetise their digital assets.
NFTs coded as smart digital contracts minimise paperwork. They provide increased transparency and an irrefutable history of ownership, they can secure high-speed transfers of real estate between the seller and the buyer, and they can facilitate a fractional ownership between multiple buyers, administer voting rights etc.
Tokenization and fractional ownership of real estate (like the St. Regis Aspen Resort) is the next big thing.
With fractional ownership, it’s possible to bring the sharing economy to real estate investing. It allows investors with limited budgets to enter prime real estate with a fractional ownership of smaller units, that makes it possible for them to diversify their portfolios. It’s not as expensive as investing in a Real Estate Investment Trust (REIT), it’s more transparent, and it’s more accessible.
With NFTs, real estate can be a liquid asset to be sold immediately like shares and bonds.
Extended Reality (XR) and Real Estate
The Metaverse is built on a wide range of technologies all leading to the ultimate virtual experience: Extended Reality (XR) and the Metaverse.
Virtual Reality (VR) is a computer-generated environment with scenes and objects that appear to be real. It makes the users feel they are immersed in their surroundings via realistic sounds and images engaging all five senses.
Augmented Reality (AR) is adding virtual stuff to the real world, so it’s not a new reality but a digital layer on top of our existing reality. AR is known from games like Pokémon Go, where the players control an avatar chasing digital creatures in “the real world”. It’s also known from Instagram and Snapchat filters, where you can add digital objects to any picture from the physical world.
Mixed Reality (MR) is a mix of VR and AR where reality and imagination co-exists and is intermingled. Here you can grab your real-world physical key and open a virtual door in your virtual real estate.
XR is an umbrella term referring to all VR, AR and MR interactions generated by computer technology and wearables.
Use Case 1: Traditional Real Estate
You can invest in digitalising your existing real estate portfolio.
In combination with digital twin data and artificial intelligence, a 360-degree XR tour can boost the user experience of any property with predictive analytics and virtual recommendations. Property managers can show the buyer around without being on location. Maybe the buyer wants to see a virtual presentation of potential design opportunities
Architects and interior designers can leverage XR to bring their designs to life, the advisers can do their due diligence virtually, and everything can be settled instantly with a NFT governing the real estate in both the real world and the “digital twin” in the Metaverse.
Use Case 2: Be a Virtual Landlord
As the border between the virtual and real world continues to break down, the same is happening with “traditional real estate” and “virtual real estate”.
Today you can invest in virtual real estate in the Metaverse without presence in today’s physical world. You can be a virtual landlord and create revenue streams on many different Metaverse platforms, you can rent out space on your virtual property, you can invest in any economic activity known from the real world. You can even get a mortgage to buy virtual land.
Companies like J.P. Morgan Chase, HSBC, and PwC have all invested in digital properties to be present in the Metaverse, and some countries like Barbados are opening Embassies.
When you invest in virtual real estate you are not only investing in digital images or pixels, but you are also investing in programmable spaces on a specific platform.
Two of the most prominent platforms are the following:
Decentraland is a platform divided into several commercial districts and parcels of land, each of which is represented by an NFT. Each land is exactly 16m x 16m (256 square meters) and can be found at a particular coordinate in the Metaverse. Land holders are free to develop their plot into whatever they choose but building in the right district can provide more targeted traffic to specific audiences.
The Sandbox is a platform targeting the gaming community. The platform focuses on facilitating a creative “play-to-earn” token model, which allows users to be both creators and gamers simultaneously. The platform has attracted support and investments from numerous big names in the gaming industry, including Atari, Helix and CryptoKitties. Someone even paid USD 450,000 to be Snoop Dogg’s metaverse neighbor in the Sandbox.
However, investing in new platforms comes with a big risk, especially when the assets are not tangible. With all these virtual projects, with all these different horses on different racetracks, who will be the winner?
At this stage it is impossible to say anything about potential future winners because there isn’t just one Metaverse platform to invest in and there are many different aspects to consider.
How to Invest?
To buy real estate in the Metaverse is like buying an NFT.
You will need a digital crypto wallet and you will need to link that wallet to the selling platform to buy land or other digital assets. After the transaction is complete, you receive a unique piece of blockchain code, which serves as a deed of ownership showing your exact coordinates in the Metaverse.
Like in any real estate investment look for property in areas that have potential for development. Once someone buys a plot of land, nobody else can use that space unless they are prepared to rent or buy it off them. It’s basic supply and demand economics, that’s why some virtual addresses are priced higher than others.
You can also invest in projects in the Metaverse that leverage already acquired real estate, and you can invest in any of the established tech players, that have a defined Metaverse strategy.
Caveat Emptor: Buyer Be Aware!
Investing in Metaverse properties is highly speculative. In the physical world, real estate is valuable because land is a scarce resource. However, that scarcity doesn’t necessarily apply to the Metaverse.
Even though virtual worlds do not by-pass existing laws and regulations, the Metaverse (r)evolution is still in its Wild West phase. My best advice is to invest with your brain and use an experienced legal advisor.
In short: If the virtual property and business model is not transparent, stay away.
Both the US Securities and Exchange Commission (SEC) and the Swiss Financial Market Supervisory Authority (FINMA) follow these markets very tight. Due to the SEC, fraudsters often try to use the lure of new and emerging technologies to convince potential victims to invest their money in scams. These frauds include “pump-and-dump” and market manipulation schemes involving companies, that claim to provide exposure to these new technologies.
Good luck with your investments in the Metaverse — and please do not hesitate to contact me, if you have any questions or comments to the above.