Paying real money for metaverse real estate - hype or chance?
By Hong Kong Economic Times
Many of us played “Monopoly” during our childhood, relishing the thrill of amassing property. Yet, once the game ends, we must set aside the virtual real estate and return to reality. However, as Internet technology evolves into the 3.0 era, metaverse real estate provides a genuine “Monopoly” experience. Metaverse platforms like The Sandbox and Decentraland, built on blockchain technology, allow us to purchase virtual land and real estate with real money, offering a taste of becoming a virtual landlord.
The metaverse is a virtual world that runs parallel to the physical one; users have the capability to create virtual real estate, including digital land parcels, items, and other customisable assets
In Monopoly, constructing houses or hotels on a property boosts its value and yields higher rent. This principle is also applicable in the realm of virtual real estate
Virtual real estate falls under the broader category of virtual assets, a term yet to be officially defined. In general terms, a virtual asset represents value in a digital or virtual format, typically indicating ownership or entitlement.
In the field of investment, virtual assets have surged in popularity in recent years. Among the most popular are cryptocurrencies, which are digital or virtual currencies secured with cryptography. It is widely acknowledged that Bitcoin may be the most recognised cryptocurrency.
Much like cryptocurrency, non-fungible tokens (NFTs) are also a development stemming from blockchain technology. From the definition by Gartner’s definition, NFT is a unique, programmable blockchain-based digital item that publicly proves ownership of digital assets, such as digital art or music, or physical assets that are tokenised, such as houses, cars or documents.1
NFTs can represent a wide range of tangible and intangible items. Though they are often associated with art and collectibles, a growing trend involves NFT virtual real estate which we will delve into further below.
Explore the potential of metaverse real estate
Before delving into the value of virtual real estate, it is essential to first grasp the concept of the metaverse, which is closely linked to it.
Although “metaverse” might seem like a futuristic concept, it surprisingly dates back over three decades. The term originated from the 1992 science fiction novel, Snow Crash2 by the author Neal Stephenson. The novel envisions a successor to the internet, utilising virtual reality. In this proposed online world, individuals engage and explore using digital avatars.
Just as people need a place to live in the real world, digital avatars require the same on the metaverse platform. With the expanding concept of the metaverse, the market for virtual real estate is also growing.
These digital assets represent ownership of virtual land or properties within online communities or digital worlds. Similar to physical real estate, they can be bought, sold, and traded. With an increasing number of people investing in the virtual world, the value of these assets has significantly risen. They also have a tangible presence in the metaverse, enabling owners to build and develop their land as they would in the physical world. Some virtual properties even host businesses, events, or advertisements, generating revenue for their owners.
Two major virtual real estate platforms
If you aspire to own virtual real estate, you can purchase properties on metaverse platforms such as The Sandbox and Decentraland. These platforms enable users to build houses, open shops, and conduct real estate transactions, similar to the real world—but with a virtual avatar online.
Interestingly, The Sandbox, a popular and active metaverse platform, has its origins in Hong Kong. It is a subsidiary of the Hong Kong game publisher Animoca Brands. The Sandbox started approximately a decade ago as a simple mobile game. Today, it has partnered with celebrities, global entertainment brands, and finance industry giants as it continues to evolve into a truly persistent virtual world.
Just as in the real world, the amount of available land in The Sandbox is limited. The Sandbox boasts a total of 166,464 LANDs. Over 115,850 LANDs, representing 70% of total supply, have been minted by a community of more than 23,500 LAND owners, making The Sandbox one of the most decentralised communities based on asset ownership.3
The Sandbox Metaverse is made up of LANDS, that are parts of the world, owned by players to create and monetise experiences, the map dating back to 2021 (Source: The Sandbox)
Animoca Brands, the Hong Kong-based company behind The Sandbox, recently secured $359 million in its latest funding round from investors, including billionaire George Soros.4
Decentraland was created by Argentinians Ari Meilich and Esteban Ordano. It is a virtual reality platform powered by the Ethereum blockchain. Users can create, experience, and monetise content and applications. Land in Decentraland is permanently owned by the community, providing them with full control over their creations.5 Unlike its competitors, Decentraland members also actively participate in the platform’s Decentralised Autonomous Organisation (DAO), giving the community the power to engage in the project’s governance.
Decentraland is a virtual reality platform powered by the Ethereum blockchain; users can create, experience, and monetise content and applications (Source: Decentraland)
Hong Kong brands acquired land in the virtual world
We all recall how the Covid-19 pandemic accelerated the digital transformation of the economy. Global brands scrambled to introduce technology solutions, aiming to enhance customer experiences and establish innovative online sales and marketing channels. Since then, many companies have since embraced the metaverse, a new ecosystem for interactive marketing that offers fresh experiences and business opportunities.
As the metaverse expands, some brands are beginning to organise new‑style metaverse promotion activities. For example, in January 2022, the mobile giant Samsung bought a plot of land in Decentraland and enlisted a game designer to create a virtual flagship store mirroring one of its physical flagship stores in the US. Subsequently, it hosted a virtual conference, where new products were launched, and reporters, fans and gamers from around the world were invited to participate in real‑time.6
Nike also established its digital store environment, built on metaverse real estate since November 2021. Named “Nikeland”, it is Nike’s purpose-built metaverse space that utilises the Roblox platform, allowing fans to meet, socialise, take part in promotions, and engage in various brand experiences. Users can interact with games, explore new products, purchased NFTs, and more.7
This trend has spread from the US across the globe to the East, with Hong Kong real estate giants New World Development and Sun Hung Kai taking early steps into metaverse exploration by acquiring land in the virtual world, mirroring their activities in the real world.
Real estate tycoon purchased virtual land in metaverse
The trend of buying and selling virtual land with cryptocurrencies has caught the attention of New World Development Chief Executive Adrian Cheng. In December 2021, he acquired one of the largest plots of virtual property in The Sandbox with the attention of creating a digital hub for startups, as part of a broader project known as Mega City.8
Sun Hung Kai & Co., a leader in alternative investing headquartered in Hong Kong, has entered The Sandbox by participating in its recent US$93 million Series B fundraising round. Sun Hung Kai & Co.’s XL Estate aims to bring an immersive experience to The Sandbox, connecting finance, sports, art and culture from around the world, enhanced by Sun Hung Kai & Co.’s global investment reach. A financial hub will showcase Sun Hung Kai & Co.’s portfolio companies and their services, with a particular focus on those related to technology, media, and telecom (TMT), crypto, and blockchain ecosystems. Additionally, a virtual museum will exhibit Sun Hung Kai & Co.’s art collections, featuring an exclusive NFT of their iconic Scallywag racing yacht.8
Metaverse real estate has also captured the attention of global financial brands. In March 2022, the Hongkong and Shanghai Banking Corporation (HSBC) made history by becoming the first global bank to acquire a plot of LAND in The Sandbox. To celebrate the highly anticipated return of the Hong Kong Sevens in 2022, HSBC established a virtual stadium in The Sandbox as part of its inaugural community initiative. The public had the opportunity to immerse themselves in rugby through six exciting quests placed around the stadium. These quests included action-packed challenges, engaging mini-games, and educational quizzes about the sport.9
HSBC became the first global bank to acquire a plot of LAND in The Sandbox (Source: The Sandbox)
In July 2023, McDonald Hong Kong teamed up with The Sandbox to create the first Web3 experience platform. This collaboration resulted in the development of “McNuggets Land,” a unique metaverse gaming experience celebrating the 40th anniversary of McNuggets. Users can interact with McDonald's Chicken McNuggets, now transformed into game characters, and take selfies to share on social media. They can explore the 40-year history of Chicken McNuggets in the virtual art gallery, serve Chicken McNuggets to customers in a virtual experience, and engage in various themed mini-games that challenge their skills.10
How much is metaverse real estate worth?
With the endorsement of various brands, the commercial value of metaverse real estate is gradually emerging. As the metaverse continues to evolve, this value is likely to increase. Even in the early stages of development, we are witnessing extraordinary sales of NFT lands, with some parcels selling for millions of dollars. When Decentraland held its first LAND auction in 2017, a single parcel of metaverse real estate only cost $20. In 2022, that price had increased to around $15,000 per LAND token.11
Plots of virtual land can be traded just like physical real estate. Owners can choose to hold onto their parcel, rent it out, or spruce it up as they wish. However, the value of a piece of metaverse real estate depends on various factors, with location being the key as always. For instance, one buyer recently paid $450,000 to become American rapper Snoop Dogg's virtual neighbor, while another piece of land exchanged hands for about $2.5 million on metaverse platform Decentraland.4
Just as traditional real estate values fluctuate, the emerging virtual real estate market is no exception. The metaverse, one of the pillars of the blockchain industry, has lost traction in the past few months as the crypto winter continues. Most of the flagship metaverse platforms have witnessed double-digit declines in both their user number and token value.
A probable reason for the reduced activity in The Sandbox and Decentraland is the significant decrease in the value of their native tokens. In September 2023, Decentraland’s MANA token was trading at $0.28, which is 95% below its all-time high12. Simultaneously, The Sandbox's SAND token was at an all-time low of $0.28, 80% below its record high13. Consequently, the majority of individuals who purchased NFTs in these ecosystems or received rewards have experienced a significant decrease in their value.
From an investment perspective, while the current downturn in the virtual real estate market is concerning, it doesn’t necessarily spell doom for the metaverse. The bursting of the bubble, allowing the industry to briefly calm down and integrate, may not be a bad thing in the long run. On the contrary, it could present a buying opportunity for savvy investors who believe in the long-term potential of the metaverse.
Beyond investment value, engineers reading this article could gain a deeper understanding of the rapidly evolving real estate industry and identify potential areas for further learning and exploration.
How is it connected with engineering?
From an engineering perspective, with the ongoing evolution and increasing adoption of the metaverse, it is likely to exert a lasting influence on innovation in the construction and real estate industries for years to come.
We can expect to see a greater emphasis on utilising immersive technologies and digital twins to enhance the design, planning, and management of construction projects and real estate assets. These technologies will enable companies to work more efficiently and effectively, saving time, resources, and money. They will also empower companies to better understand and analyse their assets, facilitating the optimisation of performance and reduce risk.
The metaverse could significantly impact construction projects by serving as a testing ground for real-world tasks. This includes using Virtual Reality (VR) / Augmented Reality (AR) for testing traffic flow, area acoustics, and driverless car scenarios. The use of VR/AR to immerse team members and clients in 3D spaces can reduce the need for in-person meetings and business travel. It can also expedite approvals and shorten the time from design to construction.
Nowadays, architects can visualise their work in a 3D environment using VR/AR technology. This involves creating models, interacting with the physical environment, and presenting their creations to customers more efficiently. The metaverse offers numerous possibilities for real-world applications.
An article by McKinsey & Company suggested that companies could utilise existing digital twin technology to construct the engine for tomorrow's enterprise metaverse. In the future, every asset, process, or individual associated with an enterprise will be virtually replicated and interconnected. Consequently, nearly all aspects of work could be conducted entirely digitally or, at a minimum, before any physical action.14
The metaverse, powered by VR/AR technology, offers numerous possibilities for real-world applications
What can engineer learn from the trend of metaverse real estate?
The emergence of metaverse real estate offers a wealth of learning potential from an engineer's standpoint. It highlights the growing need for developing and managing virtual spaces, placing a spotlight on the role of 3D modelling. The design and creation of virtual properties require details and realistic 3D models to appeal to users and investors. As virtual properties attract more investors and visitors, engineers are tasked with creating immersive and engaging VR experiences, calling for technical knowledge of VR technologies and an understanding of user behavior and preferences in VR settings.
Designing and creating virtual real estate requires detailed and lifelike 3D models to engage both users and investors
The trend also sheds light on the potential for new forms of user interaction within these virtual spaces. Software engineers must be inventive in designing user interfaces and interaction mechanisms that are user-friendly and engaging, yet practical and efficient to deploy in a digital setting. This requires a blend of technical, creative, and user experience skills.
However, the rise of metaverse real estate also brings the potential security and privacy challenges in virtual spaces to the fore. With the increasing value and use of virtual properties, securing them becomes paramount. Software engineers must, therefore, adopt solid and secure coding practices and stay updated on the latest threats and vulnerabilities in digital and blockchain technologies.
Finally, the trend highlights the evolving nature of digital spaces and the demand for a diverse set of engineering skills to navigate this new frontier. Proficiency in just one aspect will not suffice; engineers must stay on their toes, continually learning and adapting to the fast-paced changes in the field.
As we transition into the metaverse future, it's crucial for engineers to remain on the cutting edge of these advancements and seize the opportunities that the metaverse offers.
Conclusion
In the distant future, metaverse real estate could become a crucial part of the construction and real estate industries, fostering innovation and influencing how these sectors function. This emerging field provides numerous learning and growth opportunities for engineers, allowing them to influence and navigate the future of digital spaces.
References
- Gartner Glossary (2024). Non-Fungible Token (NFT). Available at: https://www.gartner.com/en/information-technology/glossary/nonfungible-token-nft [Accessed 24 January 2024]
- Huddleston, T (2021). This 29-year-old book predicted the ‘metaverse’ — and some of Facebook’s plans are eerily similar. Available at: https://www.cnbc.com/2021/11/03/how-the-1992-sci-fi-novel-snowcrash-predicted-facebooks-metaverse.html [Accessed 20 February 2024]
- The Sandbox (2023). What is Metaverse Land? A Guide to Virtual Real Estate. Available at: https://www.sandbox.game/en/blog/what-is-metaverse-land-a-guideto-virtual-real-estate/3363/ [Accessed 20 February 2024]
- Yiu, P (2022). Demand for virtual land heats up in property-mad Hong Kong. Available at: https://asia.nikkei.com/Business/Markets/Property/Demand-for-virtualland-heats-up-in-property-mad-Hong-Kong [Accessed 20 February 2024]
- Decentraland (2021). Decentraland White paper. Available at: https://decentraland.org/whitepaper.pdf [Accessed 20 February 2024]
- Samsung Newsroom (2022). Create the world you want in Samsung 837X. Here’s how. Available at: https://news.samsung.com/us/samsung-837x-metaverse-customizationyoumake-create-world-you-want [Accessed 20 February 2024]
- Marr, B (2022). The Amazing Ways Nike Is Using The Metaverse, Web3 And NFTs. Available at: https://www.forbes.com/sites/bernardmarr/2022/06/01/the-amazingways-nike-is-using-the-metaverse-web3-and-nfts/?sh=310785156e94 [Accessed 20 February 2024]
- Animoca Brands (2022). The Sandbox Announces Multiple Hong Kong Partnerships to Create Mega City in the Metaverse. Available at: https://www.animocabrands.com/the-sandbox-announces-multiplehong-kong-partnerships-to-create-mega-city-in-the-metaverse [Accessed 20 February 2024]
- HSBC (2022). HSBC Presents Immersive Rugby Quests in The Sandbox to Celebrate Return of Cathay Pacific/HSBC Hong Kong Sevens. Available at: https://www.about.hsbc.com.hk/-/media/hong-kong/en/news-andmedia/220928-hsbc-sandbox-en.pdf [Accessed 20 February 2024]
- Animoca Brands (2023). McDonald’s Hong Kong launches McNuggets® Land experience in The Sandbox. Available at: https://www.animocabrands.com/mcdonalds-hong-kong-launchesmcnuggets-land-experience-in-the-sandbox [Accessed 20 February 2024]
- Wright, T (2023). What is Metaverse Real Estate: Building Digital Property. Available at: https://www.xrtoday.com/virtual-reality/what-is-metaverse-real-estatebuilding-digital-property [Accessed 20 February 2024]
- CoinMarketCap (2024). Price of MANA. Available at: https://coinmarketcap.com/currencies/decentraland [Accessed 20 February 2024]
- CoinMarketCap (2024). Price of SAND. Available at: https://coinmarketcap.com/currencies/the-sandbox [Accessed 20 February 2024]
- Mckinsey Digital (2022). Digital twins: The foundation of the enterprise metaverse. Available at: https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/digital-twins-the-foundation-of-the-enterprise-metaverse [Accessed 20 February 2024]