Should you bet on metaverse real estate just yet?

According to NOW.ai, a predictive analysis firm, over $100 million have already been pumped into the sale of metaverse real estate in 2022. However, this digital asset has one fundamental problem - it cannot be equated with physical land as it does not derive its value in the same way.

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Experts told Business Insider in January 2022 that metaverse plots act as crypto assets. They are investments whose future value relies on speculation and are therefore risky. They also believe that investing in the metaverse at this stage could be unjustifiable. The only thing driving metaverse land sales is the widespread popularity of non-fungible tokens (NFTs) and the metaverse.

"I’m sure that there are people who will make a lot of money in the short term,” said Louis Rosenberg, CEO of Unanimous AI, to Business Insider. "But long-term, it doesn’t make any sense," he continued.

Despite the massive fan following, one must realise that virtual land serves a very limited purpose and may therefore remain a small market. To put it in perspective, let’s compare the sales of real-world real estate with virtual land.

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Data from NonFungible.com and the National Association of Realtors indicates that while 131,711 metaverse sales (including avatars) were recorded in 2021, a whopping 6.12 million physical housing units were sold in the same period. Nonetheless, virtual land parcels are still priced over $1 million. These prices are driven by speculative interest and have been further hyped as brands continue to foray in.

"Current metaverse real estate boom is a speculation market,” said Castronova, author of Life is a Game to TRT World, and that booms “like this have been happening every four-five years since the early 2000s."

Any investment is associated with a certain level of risk. However, in traditional money markets, the risk is known and can be anticipated. This is very much unlike the crypto market that is not related to the price movement of securities just yet. Moreover, physical real estate still offers some options, should one need to liquidate the asset. But in case the metaverse platform fails, there is no way an investor is getting back that same parcel of virtual land.

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The only positive here is that platform members will have some voting rights before the closure can happen. However, if the problems are financial in nature, the metaverse platform could be shut down anytime for lack of funds.

While metaverses themselves do not have much of an impact on the environment, the cryptocurrencies they use for in-platform transactions do. Bitcoin, for example, has been at the receiving end of a lot of criticism due to its modus operandi. It consumes 91 tera-watt hours of electric power which is enough to run the entire country of Finland with its 5.5 million-strong population!

Blockchains are still trying to make the entire process greener and less harmful, and the job isn’t completed yet.

Moreover, experts believe physical real estate derives its true worth from location and scarcity. While the former can be programmed in the metaverse, the latter is not possible. They have been encouraging potential investors to read up and be consciously aware that virtual real estate prices may not appreciate as quickly as they may want them to.

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"Those who buy land merely for the aim of capital appreciation, I believe, are taking a greater risk than those who develop appealing activities and experiences on it," said Janine Yorio, the CEO of Republic Realm (virtual real estate developer) to Business Insider.