An Introduction to Digital Real Estate in the Metaverse

There’s a huge real estate boom taking place, not in the PNW or SoCal or even the Sun Belt, but in a universe wholly new: the metaverse. Imagine a virtual 3D world where you can socialize with friends, attend concerts in virtual reality, go shopping, or even order dinner -- all from the comfort of your home. 

The metaverse itself is made up of multiple digital platforms, each with its own currency and culture. You can think of the metaverse as a solar system and the platforms within it as different planets. Some of the most popular platforms for virtual real estate investors include Decentraland, The Sandbox, CryptoVoxels, and Somnium Space.

The metaverse is a place where geographical barriers are broken down and anything is possible. That’s what commercial players like JP Morgan, McDonald’s, Walmart, Death Row Records, MoviePass, and even Manchester City Football Club, as well as thousands of people and small businesses across the globe, are banking on.

It doesn’t take any special hardware to access the metaverse, but digital real estate investing does mean exchanging your cash for the cryptocurrency of the platform where you’re interested in purchasing virtual real estate. Decentraland’s coin is called MANA (COIN: MANA), while The Sandbox generally operates on SAND (COIN: SAND). Virtual land in both can sometimes be purchased using Ethereum (COIN: ETH), but you’ll have fewer options.

This is just the beginning of a wealth of information about the metaverse and how it operates. Let’s get into the details so investors can make the best decisions possible with their dollars.

What is digital real estate?

Metaverse real estate is just starting to show up on the radar of many real estate investors, so it’s understandable that you may be asking what it actually is. The metaverse is made up of different platforms that allow people to interact with others and build their digital dreams. Those dreams can be anything, from miniature games in haunted cemeteries to advertising billboards or commercial districts and metaverse HQs for businesses already established in the real world.

There are currently only four platforms in operation that offer significant opportunities for purchasing virtual real estate: Decentraland, The Sandbox, CryptoVoxels, and Somnium Space (Decentraland and The Sandbox are currently soaking up most of the spotlight and the commercial interest).

Land in each metaverse platform is limited to a set number of lots. The number varies, depending on the platform. In that way, land in the metaverse is a limited commodity, which is why investors are currently interested in getting their foot in the door before the best spots are taken. 

Virtual real estate in these platforms is secured with very real deeds in the form of non-fungible tokens (NFTs). When you buy a piece of digital real estate, your purchase is recorded on the blockchain and the NFT is transferred to your digital wallet, the same place you store your cryptocurrency. This is similar to how real estate in the real world is held: there’s a title for each individual parcel of land, it’s recorded in a registry, and you get a copy to prove your ownership.

You can buy virtual real estate either in the marketplace of the platform where it exists or on a third-party NFT marketplace like OpenSea.

Will virtual real estate be a good investment going forward?

It’s important to note that while metaverse real estate is exciting and new, and a lot of people are very into it right now, it’s still a speculative investment. Think of it like buying land in a newly formed town when America was pushing westward. Some of those towns ultimately made it, but many of them are buried under the literal sand of the desert and the figurative sands of time. 

There’s no great way to predict if your platform will make it or not, but proto-metaverse platforms like Second Life have been in operation since 2003. The proto-platforms that have survived have very engaged and committed communities, so if you plan to buy land in the metaverse, it could be a good idea to help make the community more engaging, even if that’s just by building something interesting or holding community events that double as promotional tools.

Virtual real estate transactions in the metaverse

As of the writing of this article, the top individual real estate sales have all taken place in Decentraland. Although there have been a few newsworthy purchases to the tune of millions of dollars, many of these were packages of lands, not individual lands or estates.

Digital land is exactly what it sounds like it should be: a big empty space. The size of a digital land parcel varies by platform, but measures the equivalent of 52 feet by 52 feet in Decentraland and approximately 315 feet by 315 feet in The Sandbox.

Estates, on the other hand, are properties that contain virtual land plus something extra. That extra thing could be a structure, such as a building, billboard, or additional parcels of land. They’ve been semi-permanently joined into a single unit with a single NFT deed and a new description. They're considered single properties.

The table below shows the top individual transactions disclosed through NonFungible.com, currently the largest data repository for virtual real estate sales. Prices are listed in both MANA and their US dollar equivalent. Because the relative value of cryptocurrencies to US dollars changes constantly, it’s important to note that these dollar figures were based on the value at the time of sale.

Most Expensive Individual Virtual Real Estate Purchases

Data source: NonFungible.com.

It’s important to note that while it may seem that some listed transactions were at a loss, notably EST #985, which sold on 11/28/2021 for $1.085 million, or 210,000 MANA, then sold again on 12/10/2021 for $897,500 or 250,000 MANA, it can still be considered a gain because of the significant increase in MANA coin holdings.

Cryptocurrencies, much like foreign currencies, don’t have a set dollar equivalent. Instead, the exchange rate floats, based on the value of the cryptocurrency on the wider market. In other words, just because you buy MANA at $2.20 a coin doesn’t mean it won’t be worth $2.59 a coin 24 hours later. This dollar equivalent is always in flux, so sometimes the equation will be reversed, as well.

It's also worth noting that MANA and SAND can be exchanged for other cryptocurrencies at any time.

However, even if the MANA drops in equivalent value after the transaction, a virtual real estate investor or crypto investor could choose to hold the MANA gain indefinitely. The value could go up or the investors could spend the extra MANA on additional virtual properties to continue growing their holdings despite what appears to be a loss in the cash equivalent.

The value of MANA and SAND, the main tokens of the metaverse

MANA and SAND are currently the most important cryptocurrencies in the metaverse, as they are the units of currency that are generally used to purchase land in Decentraland and The Sandbox.

The chart below shows the variability in the coin’s US dollar equivalent over time as well as their pricing relative to one another. It’s important to keep this in mind when dealing in what is essentially foreign currency and foreign real estate: although it may be easy to shorthand in dollars and cents, the reality is that the investment is made in MANA or SAND.

Being cryptocurrencies, they’re highly volatile. But just because a property may sell for a smaller dollar equivalent than its purchase price doesn't mean the investor will take a loss. Many people investing in this space are interested in growing their crypto holdings or their virtual real estate holdings, rather than their immediate cash equivalents. These investors are likely banking on the value of these cryptos growing over time.

However, if an investor is looking at virtual real estate from a dollars-and-cents perspective, this is not a stable investment type. A lot of factors can influence the value of cryptocurrencies. For example, a big event like Facebook’s announcement that it would be changing its name to Meta Platforms and investing heavily in the space seriously moved markets. That was on October 28, 2021, and the impact is clearly visible in the charts below.

There’s a much more in-depth discussion of this phenomenon here.

This chart shows the daily closing price of both MANA and SAND at 0:00 UTC. Because crypto markets literally never close, it’s important to choose a setpoint every day for reference, but keep in mind that the price of a cryptocurrency can change as often as every minute.

The next chart compares the market capitalization of both types of cryptocurrencies. They track very closely to one another most of the time because interest in both platforms is significant and consistent.

Where are people buying metaverse real estate?

When you’re considering virtual real estate investing in the metaverse, the most important decision you can make may be which platform to purchase in. If you’ve got the capital to spread your investment across multiple platforms, that’s always the safest bet, but most investors aren’t ready to go in that deep.

So where are people buying real estate in the metaverse?

Metaverse platform market share

Just like in real-world real estate, market share in virtual real estate is an important factor. The more active and desired a platform, the better odds of that community maintaining momentum for the long term.

The chart below shows the market share of virtual real estate in the entire metaverse in US dollar equivalents for each of the four major metaverse platforms. These charts, like the charts above, start just before Facebook changed its name to Meta and set the metaverse on fire.

The chart below shows the number of daily transactions per platform for the same platforms listed above. Knowing how active a platform is can help gauge interest in buying virtual real estate.

The large increase in transactions for The Sandbox that appear below corresponds to the announcement of the platform’s Alpha Launch on November 29, 2021. This was a special event that essentially kicked off The Sandbox’s operation. Decentraland has been trading in virtual real estate since 2017.

The following chart represents real estate sales volume in U.S. dollars per platform. It’s generally fairly similar to the number of daily sales per platform, but that doesn’t have to be the case.

For example, if one platform had very premium real estate that went for significantly more per plot than another, this chart could show more sales activity than the chart above, which is only focused on the total number of sales. You can clearly see that there are some points in time where Decentraland had very high dollar sales compared to The Sandbox, even though it had a smaller number of total transactions. as seen above.

Which metaverse platforms are the best to invest in?

Comparing two metaverse real estate platforms can be insightful, but it's also good to look at how an individual platform compares to the metaverse as a whole.

The chart below shows the average daily sales price per platform versus the average for the metaverse as a whole. The Sandbox tends to stay close to the general average of the metaverse, while Decentraland, CryptoVoxels, and Somnium Space have had some very large U.S.-dollar-equivalent sales.

But, again, sales volumes and sales prices are both important in determining where to find a good real estate investment. The chart below shows the average number of daily sales per platform versus the metaverse as a whole.

The following four charts show average daily real estate sales prices versus the average for the four metaverse platforms that offer discrete virtual real estate land sales.

First, The Sandbox. Currently, it tends to trend higher than the average daily real estate sales price, but hovers close to the average trend as a whole. This is likely because of the sheer number and volume of transactions helping to skew the average toward The Sandbox.

Next up, Decentraland. We already know it has all the most expensive virtual real estate purchases on its platform, so it’s not a huge surprise that it has many instances of daily sales prices that are far over the average for metaverse real estate on the same date.

CryptoVoxels represents a very small slice of the metaverse real estate market, but it’s important to note that it’s trending toward average when it comes to daily sales prices. Because there’s not anywhere near as much past sales data here as there is for The Sandbox and Decentraland, a buyer can reasonably assume that an average or slightly below average price based on overall metaverse real estate prices will get them a reasonable value.

Somnium Space is a bit of a rogue when it comes to daily average pricing. Some days have no transactions and some days show massive transactions, which makes it kind of a wildcard. Buyers in this platform should be aware of other sales near their property as well as have a longer-term vision beyond simple speculation, as this platform continues to grow and generate more useful data.

Metaverse real estate is still a speculative investment

Even though there is ample data available for investors if they know where to look, it's still a difficult time to buy virtual land in the metaverse. Many businesses and large corporations are investing their dollars into these platforms as a way to reach customers who are already active or will be coming to these spaces soon. For them, it’s equal parts investment and advertisement, so exact pricing is less of a deal-breaker.

By analyzing data like that above, you’ll not only be aware of what a solid price point looks like in a well-established metaverse platform, but understand the behavior of potential future buyers in those that are still getting off the ground. Just remember that digital real estate is still a speculative investment and nothing is guaranteed (but being well-informed certainly helps your chances).