The Halifax House Price Index, the longest running monthly indicator of housing prices in the UK recently reported that the average price of a house in the UK has risen to a new record high of £276,759, up £24,500 from this point last year and up £37,500 on pre-pandemic prices.[1]
While rising UK property prices may present a grim outlook for first time property buyers, there is an emerging "alternative" that is rapidly growing in popularity. With that in mind, what if I told you that you could buy not only a house but a private villa or even a private island for as little as £104,000 – a price less than half of the reported £276,759 UK average. Even better, you could find yourself living next to a celebrity such as Snoop Dogg or Paris Hilton. There's just one thing you should know before purchasing – this property exists solely in the metaverse.
What is the metaverse
The metaverse is a virtual reality universe whereby users – using augmented reality and virtual reality technology – are able to experience things as they would in the real world; users can play video games, interact with other users, go to night clubs, attend concerts, go shopping for clothes, cars and art and even buy property.
The metaverse property boom
In December 2021, a fan of Snoop Dog purchased a plot of land in the metaverse next to Snoop Dog's own property for $450,000 so that he could be the musician's virtual neighbour. This is one of the more well-known property transactions in the metaverse but it is certainly not the only one. According to the Centre for Finance, Technology and Entrepreneurship (CFTE), there were over 65,000 property transactions in the Sandbox in 2021 totalling approximately $350million; the Sandbox is currently the largest virtual platform in the metaverse. In Decentraland, the second largest virtual platform, there were just over 21,000 property transactions in 2021 worth roughly $110million in total.[2] According to Forbes, real estate prices in the metaverse have skyrocketed by 700% over the last year due to the increasingly high volume of transactions.[3]
How to purchase property in the metaverse
To purchase property in the metaverse, users must sign up to a metaverse platform, such as the Sandbox or Decentraland, for example. Using digital currency, potential purchasers can then buy property as a non-fungible token (NFT) which serves as a digital receipt of the purchase. The NFT is then recorded on a digital ledger known as blockchain.
What can property owners do in the metaverse
According to CFTE, the primary benefit of owning property in the metaverse is having space to create digital experiences. Depending on the platform, owners can use their land for socialising, work, gaming, amongst a number of other experiences. By way of example, metaverse company Republic Realm recently sold a virtual superyacht fit for "parties and beach retreats" in the Sandbox for $650,000.[4] Similar to physical real estate, virtual landowners can also rent out their property to renters who may want to use the property to create their own virtual experiences, host events and/or parties and other activities.
Another emerging trend in the metaverse is the concept of customisable storefronts and shopping experiences. Republic Realm recently built Metajuku in Decentraland; Metajuku is a virtual shopping district where users are able to purchase digital wearables, such as clothes and shoes. Sports company Adidas recently bought property in the Sandbox, citing their "excitement around the possibilities the [metaverse] holds."[5]
It is worth noting that location of property in the metaverse – like in real life – is extremely important; the more popular the area, the higher purchase prices and rental prices will be.
Is the metaverse the future?
Support for the metaverse has seen a significant increase in recent months. Actress Reece Witherspoon recently tweeted that "every person will have a parallel digital identity" in the near future, while celebrity Paris Hilton showed her support for the metaverse by DJ'ing a New Years' Eve party on her virtual private island called Paris World. Further, in October 2021, Facebook CEO Mark Zuckerberg announced that the company was changing its name to Meta and that it would be putting substantial resources into constructing virtual reality products and developing the metaverse; Zuckerberg envisages Meta being an advanced, more immersive iteration of our current internet.
In terms of real estate, CFTE is of the opinion that buying virtual property presents a much simpler alternative to investing in physical property due to the minimal steps it takes to purchase property in the metaverse when compared to physical property.[6] Proponents of the metaverse are already pointing to the millions of dollars being poured into the metaverse as a sign that it not only presents a viable investment opportunity but that it represents the future of property purchasing and investing.
The above is not to say that buying property in the metaverse does not carry significant risk. CTFE warns that a major problem to purchasing land in a decentralised world such as the metaverse is that "there is no trusted third party such as a solicitor who could guarantee the provenance of the land or whether it is legitimate […] [s]cams/hacks are quite frequent in the NFT world."[7]
Further, a recent Financial Times article on property in the metaverse raised the question as to whether virtual property investors have simply benefitted from a wave of recent hype surrounding the metaverse rather than actually investing in products that offer solid long-term value.[8] The article also considers whether the metaverse can provide a viable and long-lasting alternative to pre-existing and established "distractions" such as Netflix, YouTube and TikTok, amongst others.[9]
Finally, there are concerns over the long-term sustainability of the metaverse that the existence of metaverse platforms are entirely dependent on the platform creator's desire to keep the platform running. Virtual platforms such as the Sandbox are already extremely expensive to operate and costs may one day become so expensive and therefore prohibitive that the only viable business decision would be to simply shut the platform down, in which case property within that platform would become valueless.[10]
Conclusion
The metaverse offers real estate investors – and investors in general – an exciting new investment frontier. Optimism surrounding the metaverse continues to grow, along with opportunities for virtual property investment (and prices!). But for every optimist and supporter of the metaverse, there are those who question the lack of regulation and long-term risk tied to metaverse purchases.
At less than half of the value of the average UK house however, purchasing property in the metaverse may simply present too good an opportunity for homeowners and investors alike to pass up – the only catch is that you can't actually live in it.
For more information on property in the metaverse, please contact Jonah Cohen at Howard Kennedy LLP.
[1] https://www.propertynotify.co.uk/news/halifax-house-price-index-new-record-high-for-uk-house-prices/
[2] https://courses.cfte.education/metaverse-real-estate-market-sandbox-heatmap/
[3] https://www.forbes.com/sites/ronshevlin/2022/02/04/digital-land-grab-metaverse-real-estate-prices-rose-700-in-2021/?sh=b9233f47cdc7
[4] https://www.ft.com/content/f5d5bed3-8cf2-40c6-8f85-6b824a223ffe
[5] ibid.
[6] https://courses.cfte.education/metaverse-real-estate-market-sandbox-heatmap/
[7] ibid.
[8] https://www.ft.com/content/f5d5bed3-8cf2-40c6-8f85-6b824a223ffe
[9] ibid.
[10] ibid.
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