Why Land is worth Nothing in SL...
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Tiger Clinton
Registered User
Join date: 25 Apr 2006
Posts: 42
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04-30-2006 07:35
I think there's a common misconception that Land in SL is valuable and thus if someone is holding a lot land, that means he/she is successful and reputable. But that's simply not true.
There is a fundamental difference between land in RL and land in SL. And I think it warrents a discussion.
If you buy land in the US, you exchanged usd for something that has permanent value, as long as the US government stays in place. There's very low maintainance cost associated with owning land so that the owner can hold on to the land for a long period without any economic hardship.
If you buy land in SL, you are in fact renting a server from LL. The cost of land is the initial setup cost and the monthly fee is the cost of rental. You are not buying an asset! The cost of maintaining your land per annum is greater than the Land! That's why there are so many abandoned land in SL.
So I cringe when I see people saying things like "if the bank I deposit money into holds a lot of land, then they must be financially sound." WRONG! The more Land someone holds without actually generating revenue the more likely they will close down. The more Land you purchase, the more monthly cost you incurr.
What do you think?
---Tiger.
Actually, let me quantify, Land is worth something in SL if you find some productive use for it. And Find it fast. Other wise it's only a liability.
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Yiffy Squeegee
^vV^Squeeeeeee^Vv^
Join date: 28 Dec 2005
Posts: 34
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04-30-2006 09:12
From: Tiger Clinton What do you think? Yes. Land costs L$. Land does not equal reputability. Land in RL is not the same as land in SL. Land in RL has a small tax compared to SL land taxes. Taxes on SL land costs the maximum amount when ones gets 0L$ return from the land. What are we meant to discuss? Oh yeah that having a lot of land makes a resident/business/bank reputable. Who the hell believes that?!? Besides a SBK (sandbox kid).
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Pratyeka Muromachi
Meditating Avatar
Join date: 14 Apr 2005
Posts: 642
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04-30-2006 09:35
Tiger; you stated an obvious reality, yet people will pay more for waterfront land than other types of land, why? Since any land has no value...
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Svar Beckersted
Registered User
Join date: 14 Apr 2006
Posts: 783
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04-30-2006 11:05
Tiger,
You are in Sl for for business, I'm just in for fun and to spend money I have discovered that I spend less money playing in SL than I do in RL. My concern now is how viable is LL? If they go bankrupt in 3 or 4 years everything I have in SL could evaporate. The only land I'm interested in is my own island and I have a reservation for one. You are right about the cost for owning is less than for maintaining but that doesn't bother me. I'm more concerned about whether SL will be here in 5 years.
Svar
P.S. When my RL daughter gets here from LV later today I will have her IM you and you two can discuss business. She is going to do the research I need to assess the real viability of LL.
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Jopsy Pendragon
Perpetual Outsider
Join date: 15 Jan 2004
Posts: 1,906
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04-30-2006 11:35
Hrmm... I think there's a leap in your logic there...
If one holds lots of land and rents it all out, and manages to make more on rent than they pay in tier... then their land does have value.
But... it takes money to start something like that, and I would certainly agree that 'having money' isn't going to automatically make anyone 'reputable'.
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Ordinal Malaprop
really very ordinary
Join date: 9 Sep 2005
Posts: 4,607
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04-30-2006 11:49
Tiger, I don't mean to be, well, mean, but I hope you weren't expecting everyone to say "oh wow I never thought of that". Land "ownership" in SL is the ongoing renewal of a licence to do certain things and control certain aspects of a piece of virtual space. "Owning" the land means you have the licence and that you can also renew it perpetually without challenge, unless you breach certain conditions i.e. get permanently banned, or you screw up and offer it for sale when you didn't mean to and somebody buys it. The perpetual renewal and the difference between the conditions is really what differentiates it from renting in SL (where you can be thrown out because the sim owner doesn't like your build, because he or she runs out of money to support the sim, whatever).
The idea that land by itself is not an asset and in fact is a drain is pretty well known, and it affects the SL property market substantially, particularly for small sellers - if someone is selling land and someone else wants to buy but can wait, after a month or two the seller faces the choice of abandoning the land, selling it cheap or paying more, total, in tier than they would get from the sale.
The licence, though, to use land for as long as you keep paying, is an asset, say for established locations which people have landmarks to, or busy places near attractive plots.
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Fade Languish
I just build stuff...
Join date: 20 Oct 2005
Posts: 1,760
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04-30-2006 12:16
From: Ordinal Malaprop Land "ownership" in SL is the ongoing renewal of a licence to do certain things and control certain aspects of a piece of virtual space. This is how I've always viewed it.
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Earl Radio
Registered User
Join date: 30 Apr 2006
Posts: 1
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04-30-2006 15:20
From: Tiger Clinton There's very low maintainance cost associated with owning land so that the owner can hold on to the land for a long period without any economic hardship. Actually, there is a very real cost to holding land in RL - property taxes are not insignificant, and generally there is a mortgage payment unless you bought the land outright (which, from an investors' point of view, is usually a foolish thing to do since it's not leveraged). From: Tiger Clinton Actually, let me quantify, Land is worth something in SL if you find some productive use for it. And Find it fast. Other wise it's only a liability. Correct. As in real life.
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Eloise Pasteur
Curious Individual
Join date: 14 Jul 2004
Posts: 1,952
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05-01-2006 06:26
There is a very common fallacy that things have an intrinsic value - actually value is set by society and circumstance.
If diamonds weren't *also* pretty do you think they'd be as valuable as they are? The answer, if you look into buying a load of industrial diamonds, is no, there's a 'shiny' value attached to jewelry diamonds.
Gold - I'll give you a pound of gold in a thought experiment, then starve you for a week. I'll offer you a pound of your favourite food at the end of that time, and if you refuse starve you for another week and so on... Sometime that food will be worth more to you than your pound of gold if I trap you efficiently enough that you can't use the gold to bash me and try and escape.
Virtual land has no value to most of society, but within the subculture that is SL virtual land has a value - people pay RL currency to convert into lindens or directly in auction for it so they're setting a value to it.
There's also a fallacy that owning more things makes you a better person. People seem to want to measure their worth as a person by the (societal) value of their net worth in US$ or local currency.
Although I'm not a buddhist I'd say that, in my opinion, the best person I've ever met is the Dalai Lhama - net worth in US$ roughly 0. One of my cousins is something in the city and married to someone in the city. Their bottom line worth is well over £1million, as people - and again in my opinion, they're some of the most despicable people I've ever met.
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Paulismyname Bunin
Registered User
Join date: 29 Nov 2005
Posts: 243
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05-01-2006 07:25
From: Eloise Pasteur
Gold - I'll give you a pound of gold in a thought experiment, then starve you for a week. I'll offer you a pound of your favourite food at the end of that time, and if you refuse starve you for another week and so on... Sometime that food will be worth more to you than your pound of gold if I trap you efficiently enough that you can't use the gold to bash me and try and escape.
Eloise, if you tried to do that with me I would enter into a part swop arrangement with another person to break in and get me out for a percentage of my gold..... By the way trapping me......what would that entail? Pardon me for having an english (UK) sense of humour but I must tell you there are some people who could under certain circumstances pay you quite well to be "trapped" for a period of time...........-  Maybe you under estimate your business sense
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Gabe Lippmann
"Phone's ringing, Dude."
Join date: 14 Jun 2004
Posts: 4,219
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05-01-2006 07:46
RL property speculation is a tricky business and people can and do get screwed by overvaluing property, changing market dynamics, interest rate fluctuation, etc.
The cost of my virtual property is a pittance compared to the exorbitant RL property taxes I pay. Property taxes are so high that many long time residents of city neighborhoods can no longer afford to hold property they own outright because they can't pay the property taxes. People with average US incomes can't afford to simply hold RL property and suck up taxes and maintenance costs for no reason.
As ordinal pointed out, you aren't paying only for the virtual space, but the license to use a certain number of prims and to have a dedicated stall to run a business from or to hold events that you, as "owner", have control over.
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Eloise Pasteur
Curious Individual
Join date: 14 Jul 2004
Posts: 1,952
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05-01-2006 07:47
I have a good sense of business - and since it's my thought experiment you don't know about the pound of gold BEFORE the imprisonment. I'm also a brit, so the humour works just fine - and yes I know, although I tend to the sub side myself, so not sure I'd be a good prison warden except in a thought experiment 
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Pelanor Eldrich
Let's make a deal...
Join date: 8 Feb 2006
Posts: 267
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05-01-2006 07:59
From: Gabe Lippmann RL property speculation is a tricky business and people can and do get screwed by overvaluing property, changing market dynamics, interest rate fluctuation, etc.
The cost of my virtual property is a pittance compared to the exorbitant RL property taxes I pay. Property taxes are so high that many long time residents of city neighborhoods can no longer afford to hold property they own outright because they can't pay the property taxes. People with average US incomes can't afford to simply hold RL property and suck up taxes and maintenance costs for no reason.
As ordinal pointed out, you aren't paying only for the virtual space, but the license to use a certain number of prims and to have a dedicated stall to run a business from or to hold events that you, as "owner", have control over. This is especially true in places like the Bay Area of SF, where little old ladies sell out their 50 year old cabins for millions and everyone who bought 20 years absolutely must rent every free room to afford property tax (unless they're truly loaded). They also know that once they sell out, they'll never be able to afford to come back. Having said all that, property tax in RL is usually 2-3% property value/year. Contrast that with SL tier which is over 100%/year in most cases.
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Gabe Lippmann
"Phone's ringing, Dude."
Join date: 14 Jun 2004
Posts: 4,219
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05-01-2006 08:08
From: Pelanor Eldrich Having said all that, property tax in RL is usually 2-3% property value/year. Contrast that with SL tier which is over 100%/year in most cases. It would be a bit higher if you add in all the other costs of property ownership such as water bills, infrastructure maintenance, etc. Either way, the 5% of property value I pay in RL taxes is a hefty sum and comparing percentages of 100s of thousands of dollars to the fee amounts we pay in SL is a bit skewed. I think we can all agree that SL virtual property is a very different animal than RL property ownership. However, both have significant costs relative to the other costs in the environment, neither are a "sure bet" in terms of valuation, and as in all things, value is highly subjective.
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Sevidra Batra
Registered User
Join date: 28 Apr 2006
Posts: 17
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05-01-2006 10:13
From: Tiger Clinton I think there's a common misconception that Land in SL is valuable and thus if someone is holding a lot land, that means he/she is successful and reputable. But that's simply not true. Well, honestly, this is a misconception in RL too. I mean, let's face it. How many high-powered CEO's have more "reputation points", so to speak, than... oh... let's say your average construction foreman? From: Tiger Clinton There is a fundamental difference between land in RL and land in SL. And I think it warrents a discussion. I agree there are differences. I disagree with the difference you listed. Here's why (bold added for emphasis): From: Tiger Clinton If you buy land in the US, you exchanged usd for something that has permanent value, as long as the US government stays in place. There's very low maintainance cost associated with owning land so that the owner can hold on to the land for a long period without any economic hardship. If you buy land in SL, as a resident of SL who is accepting the laws (TOS and EULA) of Linden's government, you exchanged L$ for something that has permanent value, as long as the Linden government stays in place. The last sentence in your paragraph I disagree with both in RL and in SL. If you own a crudload of land in rl and you aren't renting it out or making it earn money, and you aren't already rolling in dough, you WILL go bankrupt. Eventually. The same is true in SL. Both have fees, taxes, upkeep costs, and building costs. Both have permanent maintenance and perpetual problems of various sorts and varying severity. And both can make quite a bit of money, if you know how to leverage them. From: Tiger Clinton You are not buying an asset! The cost of maintaining your land per annum is greater than the Land! That's why there are so many abandoned land in SL. Nah, that's because people aren't all businessfolk and are buying it for a lark.  The cost of maintenance in rl is hefty. And if the government goes kaput, you lose any deeds you don't have the guns to back up. Now, as to the next statement: From: Tiger Clinton If you buy land in SL, you are in fact renting a server from LL. The cost of land is the initial setup cost and the monthly fee is the cost of rental. You are not buying an asset! The cost of maintaining your land per annum is greater than the Land! That's why there are so many abandoned land in SL. If you buy land in RL, you are in fact renting an idea from the government. The cost of land is the initial beaurocracy cost for paperwork, plus markup for time and imagined value. The monthly fee (read, taxes and maintenance on the property) is the cost of rental. You are not buying any more of an asset than you are in SL, save maybe for the fact that more people acknowledge the governance of the US government than acknowledge Linden as a sovereign state. There are people in this world (cultures even) where land ownership is laughable - how can you 'own' a planet? How can you 'claim' land? But our government acknowledges and verifies it, and they have the guns to protect it, so we entrust them with keeping the records of who owns what. All of money is an idea, an imagined transaction. That doesn't make it any less real, if you can grok the strangeness of this thought process. Just a few thoughts I had upon reading your post. I've not got the money (yet) to buy land, but when I do, I intend to make good use of it, both for myself and for the community (the Belladonna Society is a content-oriented group, thus the community focus). The fact that it's Linden's government and not the US or UK or any other government doesn't concern me all that much, save to understand that the community is smaller. Linden is smaller, too, which means a more personal focus from the government and less concerns about stupid willy-nilly stuff that government should NEVER be involved in.
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Loydin Tripp
It may be virtual but...
Join date: 28 Apr 2006
Posts: 150
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05-01-2006 11:25
I apologize if someone has already made this point...
Tiger, value is a perception. Anything in any social group whether it be currency, land, food, stocks and bonds, petrol or a reputation is based on a value. That value in then converted to a trading representation of that value (currency) which has an exchange rate, again a perceived value.
In pure economic terms value is determined by supply and demand but economic thinking often fails to take in social values and pressures. There are many examples but take the internet boom and meltdown. Much of what people were funding was crazy but there was the perception that if you did not get in you were missing out. As history played out a few got very rich and a whole lot people got poor.
All societies build into our culture the value of land and its importance, don't get me wrong it is, but that does not guarantee its relative value through time or location. Look what the placement of railroads or major freeways did to cities and towns who did or did not get them. Governments need to have land values high, for taxes and to insure that it backs up all other values, we no longer have a gold standard.
The economist who predicted the internet meltdown is now saying that we are heading for a real estate meltdown in America. We have all the same factors that led to the internet investment failures or the 1929 stock crash: a massive glut of product in response to a speculative demand, a spiraling upward value spike, local and state governments basing their taxes on these unrealized and perceived values and a whole lot of people borrowing on margin to pay for it.
Sure it is possible that SL could go out of business or make a decision that changes that nature of the game and thus devalue the whole deal but how is that any different than the stock market? Thats why they call it "taking profit" because until you do that it is still just a perception and subject to all possible fluctuations.
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