People Are Buying Digital Homes: What Does This Mean for Real Estate?

A virtual 3D version of a house just sold for over $500,000. It’s been dubbed “Mars House” and is a nonfungible token (NFT), which is a unique digital asset built on blockchain technology.

The artist, Krista Kim, was originally asking for 30 Ethereum tokens for Mars House but wound up selling it for 288 Ethereum tokens, the equivalent of $515,459 at the time.

This is just one example of how virtual real estate is picking up steam. What does this mean for the real estate industry overall?

To start, what is an NFT?

A nonfungible token, or NFT, is a digital collectible or piece of online art. Something fungible can be easily traded for something else of the exact same value. For example, a $20 bill is fungible because you can exchange it for another bill that’s worth the same amount.

Hence the name nonfungible token, since a nonfungible item is one of a kind and can’t be replaced, like the Mars House. Another way to think about it is that while you can get a printed version of the Mona Lisa, there is only one original. Blockchain technology allows this to be done with digital assets.

So what does this mean for real estate?

In its most traditional sense, real estate has a value based on the cash flow it generates. Because there is a finite supply of land in a particular city, state, country, and the world, there’s an element of scarcity driven by a finite supply of land.

How can this translate to virtual real estate?

Metaverses

Initially a place for gamers to build virtual worlds, “metaverses” have become something pretty cool. One of the more popular metaverses is called Decentraland.

Gamers can buy and build whatever they want on their plots of land in Decentraland. This has attracted investors as well. For example, crowdfunding platform Republic is launching a fund dedicated to investing in metaverses such as Decentraland. It’s called Republic Realm.

Virtual commerce

Within these virtual worlds, people are interacting with one another, buying, trading, and selling. In fact, you can order a real pizza in Decentraland to come to your real-world door.

When you think about it from this lens, it starts to make more sense from a real estate perspective. Consider being a landlord of a virtual mall where, for example, Foot Locker (NYSE: FL) is a virtual tenant and patrons can order shoes delivered to their real homes.

Meanwhile, Decentraland has a finite amount of “land” available for sale and development. This creates scarcity within Decentraland, and as long users keep interacting in that world, there should be value associated with the land.

That being said, what if Decentraland falls out of favor or new and better virtual worlds gain adoption? There’s a seemingly unlimited number of “neighborhoods” that could be built. At the same time though, land investors will be spending money to improve the experience to encourage more interaction and “stickiness.”

A virtual vacation home?

Can we call the Mars House a virtual vacation home? Its design is reportedly meant to promote meditative well-being, one of the artist’s creative focuses since the start of the pandemic. With mental health becoming more of a focal point, I could buy the idea of wealthy people owning a “virtual escape” to display their virtual art. Might be a stretch, but this could head in a lot of different directions.

Kim, the artist, told CNN: