With metaverse occupying a prominent place in both business discussions and investors’ minds, Alok Joshi of Lepasa explains how these platforms will change the very face of the real estate industry in near future.
Buying virtual real estate on Metaverse — here’s all you need to know
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Metaverse is among the most hotly debated topics in the business world today. The platforms of virtually connected universes will fuel the next wave of the digital revolution and among the categories which stand to benefit the most is the segment of virtual real estate. The category has already garnered millions of dollars of investment from reputed corporate houses.
According to the consultancy firm MetaMetrics Solutions, the total market capitalisation of virtual real estate surpassed a milestone of $500 million last year. The top ten leading Metaverse platforms have already sold virtual real estate worth $1.9 billion and these platforms are expected to further rake up to $5.4 billion in revenue by 2026. With these enticing numbers by its side, no wonder everyone from big companies to venture capitalists to angel investors is making a beeline for virtual real estate on all leading Metaverse platforms.
The real estate ecosystem in the Metaverse functions along similar lines to the physical reality. Both ecosystems have similar stakeholders such as land owners, developers, buyers, and sellers although a strikingly different characteristic of virtual real estate is the absence of regulators governing the virtual real estate.
While this omission helps the category grow at an exceptionally good CAGR of 61.74 percent between 2021-26, it makes things a little bit tricky for investors. Add to this the emerging nature of the Metaverse platforms and you come across the segment which mandates investors to carefully consider all options before putting their money on buying land on virtual platforms.
Against the backdrop of all these benefits and challenges, here are four critical points that you must keep in mind before investing in virtual real estate in order to ensure maximum profit potential:
Diversification is Key
Look at the portfolio of successful investors and invariably, you'll find their investments are widely diversified across segments such as gold, equities and real estate.
In fact, the very basic rule of investment of not putting all your eggs into one basket is equally applicable here. Therefore, it stands to reason that you should choose virtual real estate as one of the categories of your investment rather than considering it as the only segment of betting your money on.
Strive to make a constellation of investment portfolios by investing portions of your money in stocks and physical land while also keeping virtual real estate as one of the spokes in the investment wheel. This approach will help you to make up for a loss in case one asset class tanks as you have other segments to fall back upon.
Volatility and Turbulence
If you prefer peace of mind above all then staying away from virtual real estate is perhaps the best thing for you. Take, for instance, a constant change in prices of land parcels on the leading Decentraland platform.
In 2017, the price for a land parcel was $20 which then rose to $6000 in 2021 and reached $15,000 in 2022. However, the average price of virtual lands on six platforms based on Ethereum technology has plummeted from $17000 in January 2022 to $2500 in August 2022.
Clearly, the segment is not for the faint-hearted. There are many investors who are satisfied with incremental gains on their investment and for those, virtual real estate is not an ideal destination. Rather it makes sense for those who revel in high risks and enjoy investment scenarios characterized by high volatility and turbulence.
Moreover, issues associated with cybersecurity and malware further elevate the level of risk which is clearly not the case with physical real estate. According to the investigation carried out by Check Point Research,
Metaverse platforms of likely to become the primary target for ransomware attacks in H2 2022. Hence, you must assess what is the level of risk you’re comfortable with before making an investment in virtual real estate.
Absence of Regulations
Physical real estate is regulated by the statutory authorities and there are legal provisions to protect investors against frauds and other malpractices. For example, investors can file a complaint with the police or approach the judiciary in case they are defrauded although no such recourse is available in the case of the virtual real estate system.
No doubt, you can file the case with a cybersecurity cell although there are very slim chances of getting your money back. This is because tracking cryptocurrencies is virtually impossible and once you’ve made transactions on Metaverse platforms, it’s impossible to reverse them or trace the money to whom it’s paid.
There is no regulator either which can further aggravate the fear among the conservative investors. That said, with the world of the internet becoming safer by the day, we expect that these concerns will slowly and steadily subside, thereby opening new opportunities not only for virtual real estate but also for the entire gambit of new-age technologies.
The sale and purchase of virtual real estate are not as simple as the trading of physical properties. For making a deal in the virtual domain, one has to first register with the Metaverse by signing up with the platform. This leads to the creation of the account which is then followed by setting up a digital wallet.
The digital wallet will be used for making transactions and to that end, it has to be topped up with the required amount. Once you top up your wallet, you become eligible for buying and selling virtual property on Metaverse platforms. These things might sound simple although to complete all these steps successfully, you require a decent level of technical skills.
In case investors are not technically well-versed then transacting on virtual platforms can become extremely difficult and challenging for them. Of course, one can take the help of an expert or third party but still, the lack of technical skills can prove a stumbling block for investors who want to invest in virtual real estate.
— Alok Joshi is Co-Founder of Lepasa. The views expressed in this article are his own.