Contributed by CNBCTV18.com Aug 21, 2022, 04:52 PM IST (Published)
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With Metaverse occupying a dominant position in business discussions and investors’ minds, Alok Joshi of Lepasa explains how these platforms will change the face of the real estate industry in the near future.
Buying Virtual Real Estate on the Metaverse—Here’s Everything You Need to Know
The metaverse is one of the most hotly debated topics in the business world today. Virtually connected universes platforms will drive the next wave of the digital revolution and the categories that will benefit the most are the virtual real estate segment. The category has already garnered millions of dollars in investments from reputed corporate houses.
According to consultancy firm Metametrics Solutions, the total market capitalization of virtual real estate crossed the $500 million milestone last year. The top ten major Metaverse platforms have already sold virtual real estate worth $1.9 billion and these platforms are expected to grow to $5.4 billion in revenue by 2026. With these fascinating numbers, it’s no surprise to everyone from large companies to venture capitalists. Angel investors are building a line for virtual real estate on all the major Metaverse platforms.
The real estate ecosystem in the metaverse functions similarly to physical reality. Both ecosystems have similar stakeholders such as land owners, developers, buyers and sellers, although a distinguishing feature of virtual real estate is the absence of regulators governing virtual real estate.
While this lapse helps the category grow at an exceptionally good CAGR of 61.74 per cent between 2021-26, it makes things a bit difficult for investors. Add to this the evolving nature of the Metaverse platform and you come across a segment that forces investors to carefully consider all options before buying land on the virtual platform.
Against the backdrop of all these benefits and challenges, there are four important points you should keep in mind before investing in virtual real estate to ensure maximum profit potential:
Diversification is the key
Look at the portfolios of successful investors and of course, you will find that their investments are widely diversified in sectors such as gold, equities and real estate.
In fact, the basic investment rule of never putting all your eggs in one basket applies equally here as well. Therefore, it stands to reason that you should choose virtual real estate as one of your investment categories, and not treat it as the only segment of betting on your money.
Try to build a constellation of investment portfolios by investing part of your money in stocks and physical land while keeping virtual real estate as a spokesperson in the investment cycle. This approach will help you offset losses in case one asset class tanks because you have other segments to fall back on.
instability and unrest
If you like peace of mind above all then staying away from virtual real estate is probably the best thing for you. Take, for example, the frequent change in land parcel prices on the leading Decentraland platform.
In 2017, the cost of a land parcel was $20, which increased to $6000 in 2021 and $15,000 in 2022. However, the average price of virtual land across six platforms based on Ethereum technology has fallen from $17,000 in January 2022 to $2500 in August. 2022.
Obviously, this section is not for the weak hearted. There are many investors who are satisfied with the increasing return on their investment and for them virtual real estate is not an ideal destination. Instead it makes sense for those who take pleasure in high risk and investment scenarios characterized by high volatility and turbulence.
Furthermore, issues related to cyber security and malware further increase the level of risk which is clearly not the case with physical real estate. According to an investigation conducted by Check Point Research,
The Metaverse platform likely to become a primary target for ransomware attacks in H2 2022. Therefore, you should assess what level of risk you are comfortable with before investing in virtual real estate.
absence of regulations
Physical real estate is regulated by statutory authorities and has legal provisions to protect investors from fraud and other malpractices. For example, investors can file a police complaint or approach the judiciary in case of fraud, although no such recourse is available in the case of virtual real estate systems.
No doubt, you can file a case with the cyber security cell, though your chances of getting your money back are very less. This is because cryptocurrencies are almost impossible to track and once you have transacted on the Metaverse platform, it is impossible to reverse them or trace the money that it paid for.
There is also no regulator which can further add to the fear among conservative investors. That said, with the Internet world becoming safer day by day, we expect these concerns to subside slowly and steadily, leading not only to virtual real estate but to the entire field of new age technologies. New opportunities will open for you.
technical knowledge
Selling and buying virtual real estate is not as simple as trading physical assets. To deal in virtual domains, one must first register with Metaverse by signing up with the platform. This leads to the creation of the account after which a digital wallet is set up.
The digital wallet will be used to carry out the transaction and it needs to be topped up with the required amount. Once you top up your wallet, you are eligible to buy and sell virtual properties on the Metaverse platform. These things may seem simple, however in order to successfully complete all these steps, you need to have a good level of technical skill.
If investors are not technically well-versed, transacting on virtual platforms can be extremely difficult and challenging for them. Of course, one can take the help of experts or third parties but still, lack of technical skills can prove to be a major hurdle for investors who want to invest in virtual real estate.
Alok Joshi is the co-founder of Lepasa. The views expressed in this article are his own.
