Buying property in a virtual world is really a thing. Photo / Bloomberg
OPINION:
At one point in history, the idea of giving your employees the weekend off was crazy talk. In basketball, the slam dunk used to be illegal and the three point line was initially considered a gimmick. Not being able to smoke in a bar, plane or office was considered overly restrictive. And making money by playing video games or selling your influence on social media was impossible to conceive.
All those things have, over time, become "normal". Normal is subjective, of course, but you can probably add something else to that list: digital real estate.
Tangible assets make rational sense. They have a solidity and permanence to them that gives us comfort and for centuries humans have shown their willingness to spend lots of money to claim their own chunk of land and have a roof over their head. That impulse tends to become stronger during times of uncertainty, as we saw during the pandemic.
But we also find value in many other more intangible things and the blockchain ledger system and the rise of the non-fungible token (NFT) has allowed us to claim ownership in the digital world.
It doesn't cost much to buy a print of a famous painting, but the original has much more value. Online, while there may be digital copies everywhere, NFTs allow an original to be purchased. Sotheby's Auction House has dived into the world of NFTs and sold over $100 million worth in 2021 and, with the help of my tech-savvy wife, who helped to navigate some of the complexity, I also dived in because I wanted to learn how the process worked.
When you combine the ability to claim ownership with talk of the Metaverse - a reasonably amorphous concept usually centred around the idea of an immersive virtual world that Mark Zuckerberg and other tech titans are betting big on - it means there is now more opportunity to claim your chunk of these digital worlds, too.
In many cases, the process of purchasing real estate is already reasonably virtual. We regularly create online listings that feature beautifully produced videos and walk-throughs of developments that are purchased off the plans. Building something in the Metaverse before it is built in real life could enhance that. It means we could meet buyers there, walk them through, encourage them to see the detail and feeling of it. If you've seen the emotional impact that virtual reality can have in the show Your Home Made Perfect, you start to understand what might be possible here.
As a listing tool, I can see high-end homes being created in the Metaverse and sold with the physical house at the same time. In Miami, Sotheby's has already explored this idea.
This kind of project is also influencing architecture firms and designers in the real world. As CNN recently wrote: "Voxel Architects, headquartered in Portugal, has designed and built over 100 metaverse projects, said the CEO, including galleries for auction house Sotheby's, fashion week venues and an NFT manufacturing plant for American artist Tom Sachs. Next up: an official Elvis Presley experience in The Sandbox and Decentraland."
Linked to this idea is cryptocurrency as a form of payment. Crypto has become increasingly normal (there's that word again) and in a recent survey, 20 per cent of people in the United States and 18 per cent in the United Kingdom owned some form of cryptocurrency. The rates are similar in New Zealand. We've certainly been offered Bitcoin and cryptocurrency for properties and we've certainly sold properties to wealthy crypto traders who have benefitted from the steep rise in value of their assets (while clinging on during the recent steep declines).
Overseas, physical property has been paid for in crypto but that has yet to happen in New Zealand. As long as all of the stringent anti-money laundering requirements are met and the vendor is happy to be paid in a more volatile asset than cash, then we would be open to that possibility.
So will we eventually start selling digital real estate that isn't linked to a physical property?
Ownership is, in part, about signalling. Buying art, expensive cars and nice wine shows others we can afford it. As more of our lives are lived online, that's where we're signalling. Imagine meeting your friends for a tour of your house in The Row, an exclusive members-only development created by Everyrealm, and showing them the NFTs that are hanging on the wall.
Many believe there are already plenty of examples of the Metaverse in action. Video games connect humans in a digital world and, in many cases, players are willing to spend real money to get ahead. In-game spending has now overtaken the amount of money spent on buying video games and is expected to reach $74 billion by 2025. Concerts have also been held inside video games like Fortnite.
The same thing is starting to happen with digital real estate. I remember seeing the Million Dollar Homepage back in the mid-2000s, where an enterprising student sold one million pixels on a webpage for $1 each and Second Life took that to another level by charging people to create new islands - and charging brands to create experiences - within the game. This era of digital real estate is still often referred to as "the wild west" and "land prices in the four major metaverse platforms, The Sandbox, Decentraland, Cryptovoxels and Somnium Space, have fallen 50 to 80 per cent this year", but as you can see in pretty much every major city or resort town around the world, property value is driven by popularity, quality, proximity and scarcity. And it's not much different when it comes to buying and selling land in digital worlds.
As Professor Scott Galloway wrote: "Virtual real estate sales exceeded $500m in 2021. Analysts project that number will double in 2022. A plot of land on Sandbox was recently purchased for $450,000, as it meant … being meta-neighbours with Snoop Dogg. There's also commercial real estate: Luxury designer Philipp Plein purchased a property on Decentraland for $1.4m; it will soon become Plein Plaza. And dedicated real estate development: Metaverse real estate firm [Everyrealm] recently made the largest virtual land purchase in history — $4.3m."
The popularity of these virtual worlds has a tendency to wane if there isn't much to do there (as it eventually did in Second Life). And you obviously can't sleep or eat in your virtual property. But, then again, as computing power grows, as the experience improves and people spend more time (and possibly start working) in these virtual worlds, passing up a chunk of digital real estate might be the modern equivalent of being offered a chance to buy a few acres in Queenstown in 1980 for a few thousand dollars.
You might still be thinking that all of this is completely ridiculous. That's what people said about the internet in the early days because it was hard to connect and there was very little use for it. The same sentiment is apparent with professional video gaming, but the players train hard to be the best at often difficult tasks, they compete with others who do the same thing and they attract sponsors and very large and enthusiastic audiences, both in person and online. That sounds like a sport to me and the industry is expected to be worth close to $3b in 2025.
Some owners of traditional sports teams have seen the potential and bought esports teams or even the leagues they play in. After a period of incredulity, there has been an eventual realisation that there's another format here; a whole new market waiting to be explored/exploited.
The photo of Mark Zuckerberg walking through a room of begoggled attendees is used by many to illustrate a dystopian existence where we don't actually need to interact with the real world (Iceland's recent tourism campaign skewered this idea brilliantly). I don't believe that will be our future and there is no replacing the joys of the real world, but, just like the rise of hybrid work between the home and office, I do think we will dip in and out of our chosen worlds, whether that's a stint in a full-blown immersive video game or listening to a podcast on your Airpods.
As an investment class, digital real estate and NFTs are a largely speculative but very frothy market. It's basically a gamble at this stage, so if you are interested, only put it in what you can afford to lose. But it pays to remember what was unimaginable in the past has a tendency to become normal in the future. As the old adage about truth goes: "First, it is ridiculed, second, it is violently opposed, third, it is accepted as being self-evident."
• Mark Harris is the managing director of NZ Sotheby's International Realty.
Prices and interest rates have fallen, offering a window to buy homes now.