In 2021, the largest metaverse platform transacted in Canada was CAD 450 million in virtual land, with the most significant transaction closing more than C$5.5 million.
We live in a modern age where virtual and physical real estate is gradually treated the same. This has led to the constant debate about whether virtual or physical real estate is the best investment – mainly since real estate transactions in Canada have limited buying options in recent years.
With that being said, we’ll provide insight into metaverse real estate and the key legal considerations in Canada and decide if it is a sound investment.
What is metaverse real estate, AKA virtual real estate?
Virtual real estate is a term used to describe the purchase of land and property in a virtual environment — it generally refers to a highly immersive and interconnected virtual world spanning multiple and potentially competing virtual platforms.
The metaverse also uses a collection of technologies such as virtual reality technology, augmented reality technology, non-fungible tokens (NFTs) and digital commerce, working together to make the user experience more streamlined and immersive.
As the sector grows, investment increases as businesses try to stake a claim in emerging worlds – reaching $13 billion in investment in the metaverse.
What are the benefits of investing in metaverse real estate?
Virtual real estate can cost hundreds to thousands of dollars, making it more affordable than physical property.
Unlike traditional property transactions that take weeks or even months, virtual real estate transactions are often completed within minutes or hours.
Since virtual real estate is not subject to state or federal tax laws, the owner is not required to pay capital gains taxes when selling their property.
No regulations or restrictions
Because there are no regulations on land ownership in the metaverse, investors are free to buy as much land as they want without worrying about zoning laws or permits.
What are the drawbacks of investing in metaverse real estate?
Metaverse data is limited
The history of virtual real estate is just a few years old, and there are no publicly available records of the prices paid for it. Prices in the metaverse are only available for a few weeks or months, which makes it hard to conduct fundamental research and analyze this asset class.
Unlike physical real estate, which has records going way back centuries ago, virtual real estate still needs time to prove itself worthy of being considered an investment.
No central authority to record your ownership
Despite being registered in the blockchain, no central governing bodies keep a track record of your ownership of that land. All property records can merely be stored in virtual wallets. That alone could be an issue if you forget your wallet passwords.
Lack of liquidity
Most crypto companies have not yet gained enough users to gain liquidity, meaning there aren’t enough users to buy and sell properties on their platforms. The fewer users, the less likely you are to find someone who wants to buy or rent your land. This could pose a financial bottleneck, especially when you need to cash out quickly.
What are the numbers like in the metaverse real estate transactions?
A metaverse platform can share many characteristics with the real world, such as physical constraints like gravity, scarcity of land and lack of assets. Between November 2021 and January 2022, there were roughly 8000 land transactions per month in a particular metaverse platform, with the average transaction amounting to C$16,500 and the highest transaction for a single virtual land plot closing at C$253,000.
Interest and investment in virtual land have been rising as the metaverse continues to mature, from individual purchasers and large institutions.
Is virtual land the better investment?
Virtual land and physical real estate are great investment options, so it ultimately comes down to what you want from your investment, your financial goals, and what kind of investor you are.
Physical real estate offers storage of value in your investment. It allows you to rent out extra rooms or sell them for a more significant sum of money later.
On the other hand, virtual real estate costs less per m² to own or purchase than that physical real estate. You can make a significant sum from your investment without paying commissions or fees associated with the sale of a property.
Ultimately, we strongly think physical real estate is still the best way most people go when making long-term investments. Though it requires significant resources and effort to set up in the short term, it eventually provides you with stable cash flow and capital growth in your investment with a mitigated volatility risk.
Seeking a metaverse home in Canada – from Ontario to Alberta? Have a chat with our esteemed team, and we may be able to make your dreams come true.