Thursday, September 29

Why investors might pick a virtual land over Banana Island

One of the most overstated clichés we all have probably heard is “land appreciates.”

If we had a dollar for every time we heard that cliché, Forbes list would be overcrowded.

Whether from sales pitches by real estate agents or when we are conflicted with investment choices that include real estate and asset ownership – the cliché of land appreciation is echoed.

Interestingly, the advent of digital assets has changed the dynamics of the property market and has now presented us with a more complicated dilemma; virtual land in the Metaverse or real land in the Universe?

One weekend, I found myself on Twitter Spaces (a feature on Twitter that allows users to discuss different topics in a forum form) talking about Non-fungible tokens (NFTs) and cryptocurrencies.

The speakers on the channel spoke about the rise of NFTs and how content creators in Africa can leverage digital assets like NFTs and virtual reality. After all the chit-chat, I was curious about the prospects of NFTs and the Metaverse (a concept you have probably heard of, but still cannot understand).

I asked the speakers, “A $2 million virtual land or a $2 million property in Banana Island?”

The majority went for the $2 million virtual land citing its futuristic valuation that can surpass the original $2 million value. The only speaker that chose its equivalent in Banana Island was interested in “substance” because the present holds more for him than the future.

Herein begins the dozens of questions in understanding the rationale for their selections – can we say the virtual land and real island debate pits future versus present? Or exponential valuation against arithmetic valuation?

What exactly is a virtual land and a Metaverse?

Facebook founder, Mark Zuckerberg defines the Metaverse most simply as a virtual world where people can socialize, work, and play. He believes it is the future of the internet. Some say it’s a range of online 3D virtual environments. Others say, the Metaverse is a massive opportunity for blockchain technology, and it will finally cause cryptocurrencies to start being used widely for transactions.

A parcel of real estate on Decentraland recently sold for $2.4 million, another property went for $4.3 million in The Sandbox metaverse last week. A lot of capital is being thrown into this virtual world.

Bill Gates said in a few years’ time, meetings will be held in the Metaverse. Are we edging towards a cool hybrid form of virtual meetings that makes Zoom look archaic? If meetings begin to hold there, will it finally obliterate the idea of virtual land as a game-arena only?

What do they mean by the “future of the internet?” Those who were sceptical of the internet in the ’70s are being mocked now. Those in the primitive era, who thought shouting was the only way to communicate with someone far away, would marvel at the invention of the telephone. We are trying not to be in that WhatsApp group, but we need to ask more questions. Are we going to have a free world, free of government control, free of Central Banks, free of the rule of law – is this what decentralization finally means?

Perhaps we should stop asking questions and just join the bandwagon. If it’s a bubble, fine, we all crash together. If it’s a figment of our imagination, it was fun while it lasted and if it becomes the “future of the internet,” then we are glad we made it.

When wading into unfamiliar matters, it is important to keep an open mind. Not understanding something doesn’t make it wrong, however surreal it sounds. Having an economics background did not help my acceptance of digital assets because of their so-called “lack of fundamentals.” But since I cannot explain the “telescience” in a phone call making it possible for two people on different continents to talk, I have opened my mind to not understanding everything and enjoying everything – but with caution, I must add.

Does this now change our thinking about seeing a $2 million virtual land as a better investment property than a Banana Island house? Perhaps we can borrow one of the hidden golden rules in the property market. Land Appreciates. Houses are Depreciable.

Investing in property is all about buying a property that will appreciate in value over time and deliver capital growth and good returns. If the Metaverse can deliver on this, then so be it. Can we look at other factors? Virtual land is untaxable because… “decentralization,” whereas, Banana Island owners will pay some sort of property tax.

For most of us that missed the first bus on Cryptocurrency, do we want to make the same mistakes with the Metaverse and NFTs?

Investors who are bullish on the upside of the Metaverse are massively investing in companies building this Metaverse – Meta (Facebook), Microsoft, Nvidia, Unity, Roblox. And also, in Cryptocurrencies building the Metaverse – Axie Infinity, Decentraland (Mana), The Sandbox, Theta.

Metaverse evangelists say we would be able to buy and sell clothes, cars, and cannabis in this virtual world as well as socialize. But let’s ignore this illusion, don’t we do this in the real world? What is the metaverse in underdeveloped countries struggling for electricity – reality.

That’s why a $2 million property in Banana Island is a no-brainer for some. Years of work and effort should yield a “substantial” reward. Banana Island is a billionaire’s paradise with real life, wealthy and affluential neighbours plus access to the best resources and facilities. That’s the ceiling for the richest people in Nigeria, but then again – the ceiling is there to be broken, so we keep our options open to the Metaverse. It would be interesting to see the world 10 years away from now. Perhaps COVID would have mutated to its 475th variant and we would have no choice but to live in a Metaverse, or better still, Elon Musk’s colony on Mars. Till then, we go with the flow.

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