why did the real estate bubble burst?

Real estate in the metaverse has not withstood the speculation and the crisis of the cryptocurrency market. Result: sales of residences, offices and virtual land are in free fall.

Back to reality in the metaverse. After the insolent growth in prices and transactions between September 2019 and March 2022, the real estate speculative bubble around these persistent virtual worlds has exploded, report this Thursday, Les Echos.

It’s simple: the selling prices of residences, offices and other plots in the various metaverses have literally collapsed. In fact, on Decentraland and The Sandbox, the two main real estate transaction platforms in the metaverse, the average sale price of land has decreased by 84% and 90% of its value respectively in 2022.

In question, the spectacular decline in the value of cryptocurrencies and NFTs that began at the end of 2021 and which continues this year. Cryptocurrencies are used to settle the purchase and sale of real estate in the metaverse. However, the crisis in the cryptocurrency market has strongly affected the economy of virtual universes by causing a significant decline in the price of land, offices and other residences.

Speculation and excessive valuations

Mana, Decentraland’s cryptocurrency, has lost two-thirds of its value this year. Its counterpart, The Sandbox, lost three quarters of it. Another factor: short-term speculation which pushes many owners to hasten to resell their acquisitions (5 to 6 months on The Sandbox and Aether City) to obtain significant profits.

This technique, which worked for a long time because the real estate supply in the metaverse was low and the demand strong, de facto led to higher prices. Investors have grown tired of these abusive valuations.

A still uncertain market

The model ran out of steam and sales began to drop. The number of real estate transactions fell by 97% on Decentraland and The Sandbox in 2022, detail the analyzes of the WeMeta market place. 2000 sales were listed last June. Far from the peak observed at the end of November 2021 during which 16,000 property sales were recorded every day in the metaverse.

If the prices for buying virtual possessions are now attractive, the current crisis dynamics could continue despite the most optimistic studies that announce significant growth in the metaverse market. The latter could increase from 47.7 billion dollars in 2020 to 829 billion dollars in 2028.

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