Virtual property investment – is buying a digital address in the Metaverse folly or farsighted?

If you are a buy to let landlord who has already or considering selling up and getting out of the market you could have any one of a handful of good reasons for doing so. Perhaps changes to the tax rules affecting buy-to-let landlords mean it’s no longer worth the trouble for you to be a hands-on amateur property manager. Or you just no longer have the energy to deal with all of the little problems that need to be solved and admin to be done as a private property investor.

What if someone suggested you take the cash realised from the sale of property investments and reinvest in virtual properties in the metaverse? Your first reaction might well be to suggest they see a psychiatrist. But virtual property investment is now genuinely a thing. And investors are paying anything between tens and hundreds of dollars to millions for virtual real estate, from plots of land to prime commercial property, in a digital land grab reminiscent of prospectors heading out into the vast expanses of the old American West.

The booming Metaverse property market

The Metaverse is a concept many of us may have come across for the first time in October when Facebook co-founder and chief executive Mark Zuckerberg announced a change in the social media company’s name. Facebook, said Zuckerberg, would henceforth be known as Meta.

The reason given by Zuckerberg for the name change was that, as a company, Facebook sees its long term future as one of the founders of the metaverse – an interconnected network of virtual worlds we’ll all start to spend considerable amounts of time in socialising, and perhaps even working.

“It is time for us to adopt a new company brand to encompass everything that we do. From now on, we’re going to be metaverse first, not Facebook first.”

Zuckerberg is convinced that within a decade or two, the internet will have evolved in a new and far more immersive direction. We’ll no longer interact with the digital world but be, if not physically certainly mentally, in it.

We’ll access these virtual metaverse worlds through AR and VR headsets and be represented physically by digital avatars. We’ll be so immersed in our parallel lives in the metaverse, we’ll spend money on items of clothing, accessories and other consumer goods for our avatars.

The metaverse, believe Zuckerberg and other early champions of the technology, will become a second, virtual economy. Companies operating in the metaverse will need to invest in, or rent, virtual premises to work out of or sell from offices to shops. Our avatars will need houses to live in.

And God forbid being forced to hole up on the wrong side of the digital tracks on the rough side of town! Or have to build a business selling to the riff-raff there because property prices in more desirable locations have spiralled to inaccessible levels because you missed the boat!

It sounds hard to imagine but companies and individuals are already investing serious sums of money snapping up what they see as prime real estate in the first virtual worlds of the nascent metaverse. The

Where to invest in property in the Metaverse?

The Times newspaper recently reported on the $2.5 million (£1.9 million) investment made by the American company Tokens.com, whose business it describes as investing

“in revenue-generating crypto assets linked to DeFi, NFTs, Metaverse real estate, and staking.”

Tokens.com also owns half of Metaverse Group, described as

“a leading vertically integrated real estate company focused on the metaverse economy.”

Which means we already have virtual property investment firms. But even well-established brands from the real world are getting in on the act and investing in digital real estate assets. Coca-Cola has created a giant digital can that can be entered and explored in the metaverse. Sotheby’s has launched a metaverse project to sell digital art in the form of NFTs.

Tokens.com made its virtual property investment, which it says it plans to rent out to luxury brands, in the metaverse world Decentraland. Decentraland is one of the most well-established and popular virtual worlds today and its city Genesis has been described by the New York Times as the “metaverse’s answer to Silicon Valley”.

Genesis, which is divided into 90,000 land parcels of roughly 50ft square each has districts for shopping, fashion, arts, gambling and even work conferences. Its real estate is relatively mature in the metaverse context with records of digital property transactions dating back to 2017.

Early virtual property investors in Genesis have done well. Plots in Decentraland’s capital which were sold for $20 each back in 2017 when they first went on the market would now set you back around $20,000. Their value leapt after Zuckerberg’s October comments about the metaverse, calling it “the next frontier”.

If $20,000 sounds a little rich for a virtual property investment that ultimately consists of lines of computer code in a virtual world that may or may not be considered prime digital real estate a decade or two from now, are there cheaper options? As luck would have it, there are. Several new metaverse worlds that will compete with Dencentraland for virtual footfall have sprung up in recent months including:

• The Sandbox
• CryptoVoxels
• Somniumspace
• Roblox
• Axie Infinity
• Upland

In early December, investment portal The Motley Fool put together some figures from data provided by nonfungible.com on average selling prices, turnover and transaction volumes of virtual real estate in some of these new virtual worlds:

The newer the metaverse world the cheaper it typically is to get on its virtual real estate ladder. But the riskier as it will be harder to tell if it will become a desirable neighbourhood commanding prime virtual property prices in years to come. Or a digital ghost town nobody visits.

Should you invest in virtual property in the metaverse?

The first thing to say here is that the metaverse is still an extremely new concept even if huge tech companies like Facebook are enthusiastically throwing their weight behind it. Nobody knows if it will genuine take off and in what form. Today’s metaverse worlds could have early mover’s advantage and grow into the virtual metropolises of tomorrow. Or they could be abandoned as the technology underpinning the future metaverse moves in a different direction or more attractive new rivals spring up.

And, of course, there’s always the possibility that it turns out we won’t actually prove all that keen on spending large chunks of our lives sitting in a corner wearing a VR headset and working, socialising and consuming in digital worlds. Maybe less of us will be willing to spend £50 on a snazzy new digital shirt for our avatar than Zuckerberg and Silicon Valley’s other metaverse fans think.

At $20,000 and up, acquiring a plot of land in Genesis would clearly be a hugely speculative investment at this stage. But you might be tempted to snap up a new-to-market plot of land in a freshly launched metaverse world promising to attract the aspiring digital middle class, for $50.

You’ll probably never see that $50, or £50 again. On the other hand, in 20 years you might own a chunk of the digital equivalent of Mayfair or Park Lane.