Real Estate Crash

You choose to live in virtual world that belives in capitalism and free markets. Deal with it.

No different than real life... Did you buy Google stock because you wanted to support Google's growth, or did you do like me and buy Google's stock figuring that if it became the next Yahoo! you would make a large profit?

Either way, you helped Google. You bought the stocks and helped Google get the money they needed faster. That being said, I have to agree with Rockwell's statement.

On another note, Stephen, thank you for enlightening me I've been pretty busy in RL lately and haven't been able to keep up with all the most recent developments.

And 7 more just been added, let's see what happens next

Uhm...actually, no. We live in a virtual world owned by LL and operated under whatever rules happen to suit their fancy this week. If they decide that the land pricing is having a negative effect on SL, they will change the playing field. Ever notice how the LindenX only moves a few cents in one direction or the other? That wasn't always the case

Linden Lab doesn't believe in capitalism and free markets? What the **** are you smoking?? True, they may buy/sell L$ from time to time to stabilize the currency rate, but their approach is laissez-faire, not overly stringent with regulation.

The Lindex is less volatile now because there is more liquidity and more speculators to keep rates competitive. Same with the land market. More speculators = more liquidity = more competitive prices. More competitive prices doesn't mean cheaper necessarily, but sometimes it does.

I don't understand this beef with free markets, people...

If people bought land only because they actually wanted to use it instead of to try and turn a quick profit the prices likely would never have spiked as badly as they did in the first place. Land is provided by LL for people to build on, not as an investment opportunity. If you buy it for the latter rather than the former you do it at your own risk.

"Land is yours to own and resell. We had been reading Hernando De Soto's The Mystery of Capital and Jane Jacobs and all these books about innovation and ownership and why great places are great places. And we said, Let's just make this a real world. Let's let it have a real economy and let's make property have real value."

-Philip Rosedale, Linden Lab CEO

from http://www.inc.com/magazine/20070201/hidi-rosedale.html

Property isn't just land. LL isn't going to create artificial scarcity in the land market simply to enrich opportunists. The reason for the recent price spike was that they'd gotten very behind in adding regions to the mainland while catching up a large backlog of island orders.

In the town where I live, the last few years have seen real estate costs sky rocket. Buying and flipping property is very common and I have a number of clients that make their living 100% on the profit from quick sales of property. If they have to hold it, they have to deal with property taxes and that kills their profit margin.

In any commodity that is unique, like land, or maybe artwork, antiques or even intellectual property, the price will always increase until their is a lessening of demand. Its called the Law of Substitutes. If their is a cheaper commodity that is a perfect substitute (i.e. salt or something like that) the price will moderate as new producers will always enter the market (until prices moderate to a point that they can no longer profit).

Lets say that Hairmaker Extraordinaire makes the most realistic and most popular hair in SL. Her hair was so good, that no one else's even came close. She could charge a fairly hefty price but still her price would be limited because of substitutes, i.e. other hair. Now the substitutes are not perfect because they are not as beautiful, so they cannot charge as much as Hairmaker. Her prices are limited though because consumers have a buy/don't buy threshold where they are not willing to pay any more. They will settle for a lesser hair and pay less.

Now lets say that Hairmaker, instead of making hair that she can sell endless quantities of, creates a Limited Edition hair. Assume that she only has 100 items to sell but they are resaleable. So the buyer can resell it to someone else. The price of the Limited Edition hair will continue to rise as owners resell their hair after Hairmaker is sold out of her 100. Why? Because this hair is so good, that there is no substitute and there will always be 100 people that want it.

Land is similar. Now in RL, there is a finite amount of land so, in theory, prices will continue to go up forever with no limit. That $250,000 house and land next door could be worth $2,500,000 in 20 years or $250 million in 100 years. On the other hand, in SL, land is not exactly finite as we have seen recently, so prices moderated as more supply came on the market. In truth, there isn't a whole lot of risk in buying real life real estate because the price will always tend to increase. On the other hand, in SL, there is the risk that the finite supply suddenly becomes not so finite.

True there is a cost in producing hair or skins or hats in SL. Thats is the cost of your time and skill and SL certainly provides a vehicle for you to be compensated for that talent and time. On the other hand, there is no risk. LL has chosen to release entire sims through an auction process. Even at currently moderated prices, they cost between 1700 to 2500 real American Dollars likely charged on a credit card. That is a real bill that will come at the end of the month (probably carrying a hefty interest rate 12% plus). On top of that, each sim purchased creates a new negative cash flow of $195 a month. If the purchaser of the sim at auction cannot sell the land within 30 days, she will get that nasty credit card bill in the mail as well as a charge for tier from LL.

If the LL want to moderate prices, they could release all land in 4096 blocks at auction which would be a size that end users would enter the auction process and compete directly against people who intend to resell the land. I assume that wouldn't be feasible though since there would be literally hundreds and hundreds of auctions going on at the same time. A potential downside to small block releases is the limit on future "big projects". If the entire map were carved up into 4096 blocks and thousands of people biught them at auction, it would be almost impossible to pull together a large block (1/4 sim plus) to build a mall, a rental resort or even a big extravagent project like the great big Texas you see on your map. While thousands and thousands of little plots with houses and small businesses on them might seem a good idea, it would take out alot of the interesting parts of the entire SL world. Projects like the Ivory Tower, Abbot's or the Spaceport would never happen.

Now I do think that LL has been remiss in generating "first land" and even a 10 day waiting period might be a good idea. Now I know that when I got my first land I knew that it wasn't going to be big enough, but it was basically free (after you get the premium membership of course). But before I sold it, I looked around at prices and got an idea of what I could get for it. I ended up selling it the next day for 9999L to a land baron. If she sold it for more, I have no idea, but I don't care because that was a great profit and made me enough to start paying rent on a house and getting my building skills and business going.

Another rambling missive on economics SL style. It comes down to > RISK = > REWARD.

Actually, it should be REWARD => RISK. RIsk doesn't imply, nor does it create reward. The possibility (or probability) of reward is what drives people to accept risk.

Also, I should add, that what you call "COST" is just a risk that has a 100% chance of happening. It's worse than the [non-100%] risk of incurring that expense.

My advice to all who are really troubled by this real estate "something". Stick it out, my friends. I am a noobie here, but a longtime investor and I'm telling you that if this SL world survives, you're gonna make money.

My advice:
1. If you have no investment experience, get the book "Investing For Dummies".

2. Something to think out: This thing is going to blow up on sex alone. Though I couldn't invest directly in this trade, think about all of the people in real life nowadays that have phone sex, chat sex, computer camera sex, etc. This is the ultimate in interaction regarding this activity. Guess what else, this is a world that you become part of. People need somewhere to live. My dad always told me, "People need 2 things, food and shelter." Well, the food thing probably won't fly, but people will need a place to stay. If you have land, you'll be able to furnish this.

3. Also think about this: How much money do you blow on the weekend at the club, etc. 95% of the time, you get nothing material in return. At least money invested here has profit potential.

4. Continue to invest periodically (at least quarterly) and keep your eye on the market. You'll soon figure out how to gauge the market. You can make money wheter the prices are going up or down. Increase the size of your ownings as the market goes down if you can afford the tiers, etc. Capitalize on sudden increases in prices by selling. Etc., etc., etc.

I profited during the real world "technology bubble" and still continue to profit today. Just had to change how I invested. Hope this helps.

Except that land in SL generally isn't unique. It's just disk and memory storage on a server somewhere, pretty much fungible, and most of it is "mature flat green" if you're to believe the land sales listing. Some areas are exceptional, but the majority of locations are pretty much interchangable. What makes it different is what you put on it and what people around you put on it. If that wasn't the case NOBODY would run a "bot", the risk of getting "uniquely bad" properties would be too high.

Land is similar in that it can be made ad infinitum in the same way, and artificial scarcity can be applied to it in the same way.

And content makers do have risks. I have equipment, development time, software, advertising and tier costs, all of which costs money, and factors into the prices I charge.

Land flippers don't do a damn thing except... flip. They have a lot less costs than I do, and I dare say, they probably make far more money than me. My content business (which you seem to sneer at a bit) is only just starting to break even after a year... it's yet to pay the money and time back I've put into it. But I'm in it for more than just the money... it's a labor of love too.

I won't count the land barons here who actually create added value in their private rental properties, such as Dreamland, Otherland, Caledon, Azure Islands, etc. These people have huge risk and costs at stake, far more than your average small time land flipper.

As far as I am concerned, Goudeau is going to arrive before I will buy another meter of mainland again. Quite happy with paying tier to Anshe Chung and Mr. Shang's Caledon for top quality locations, and so it shall stay

Tony, your last sentence sums it up perfectly -- changing how you invest. I agree with you. There will always be opportunities provided SL continues to grow and those opportunities will always include taking advantage of people's misconceptions.

The function the land baron fills is a factor of time and money for the seller, as you yourself point out. Without the land baron, the landowner has to choose between a longer time to get a market price or a lower price to sell now.

Both the seller and buyer are consumers; many consumers are seller and buyer at different points in time or of different products.

I personally am a big fan of free markets, and appreciate the extent to which SL is a free market.

That being said, to characterize LL's role in the value of the L$ as "buying and selling L$ from time to time" or to attribute the stability of the value of the L$ as due to "liquidity and speculators" is misleading. In the first three days of February they sold L$45.3M of the 171.1M sold in all (about 26% of all L$ sales), and bought none. This has had the effect of setting a hard ceiling--keeping the L$ from strengthening above L$266 per US$1--and bringing over US$55,000 per day into LL's coffers.

This is helpful to people who want to buy L$, and arguably helpful for those running businesses in SL (after all, people are using those L$ to buy land, pay rent, buy clothings, buildings, scripts, etc.). It is unwelcome by those who have profited from those businesses and want to cash out.

Ooh man, I missed a 4608 mainland parcel for 2.6 lindens per sq. m. ; the next higher was at 10.9.

I should have put my groceries up faster.

Is that so low a price that it would most likely have been an error?

Hypathia,

I am in the content business myself and not in the land business. I know how much work goes into a project. I built a custom desk that was a functioning roll top and I put at least 6 solid hours into it. Alas, furniture is not a big seller and I was only able to charge 450L for it. So I worked for about .27 cents an hour on that one.

I am just saying that some people lost a lot of money recently in the land business. We are talking thousands of real $. I dare say that I cannot imagine how I could lose thousands of $ making furniture and hats. No one is going to come repossess my computer or my Photoshop. I may lose alot of time, but if I didn't enjoy designing and building, I wouldn't do it. I started building for myself long before someone suggested I sell the things I was building.

If someone is willing to risk thousands of dollars, one would think they would only do it if there was a commensurate reward. I have nothing against anyone that chooses to try to make money in SL, whether it is a land baron, clothing designer, pre fab builder or a casino operator. If there wasn't a demand, then people wouldn't stay in the business. I was looking around at rental mall space and was totally shocked to see how much the various virtual sex machines and such sell for. Yet people will pluck down 3500L or more for a strap on virtual pleasure machine LOL. Its all about demand. If I could script, I would probably get into that business as well because that is serious money there.

The land barons are a creation of LL. It is a function of selling new land in whole sim sizes. I only need a 4096 plot so I am not going to go buy a whole sim. On the other hand, someone has to buy those sims from LL and if they don't cut them up and sell them, well...... there aren't any 4096 plots for people like me.

The point is people, mostly the new ones, dont understand that SL land values dont work the same as RL land values. Demand, supply and position can indeed make the price go up or down, but it will always tend to move to the standard land price given by new sims costs. If getting a whole new Island SIM costs now 1'675US$ one time set up, thats around 480'000 Lindens and you get 65'536 square meters, that makes a square meter cost for new land of about 7,5 Lindens smq, and that on a new Sim with Class 5 server. Anything sold for more is just speculation. So a 512 meters plot should actually go for something around 4000 Lindens.

Yep, that's about right. Actually the going price before the price spike was usually between the 3k - 3.5k L$ range.

Well that was before the island new prices think.

Why would someone purchase an entire region and pay that first month tier, only to sell the land off at cost?

I'm getting pretty tired of people declaring that land should be worth X and anyone paying over that is an idiot.

If you like you can draw a correlation between the auction price of mainland sims and the price on the rest of the mainland but I don't think that we can say one causes the other (rather than the other way around). If you try even harder you may find a correlation between private islands and mainland sims but the link is very fuzzy and difficult to pin down.

Land hasn't been 5/sqm in 6 months. That's an eternity in SL which, let's be honest, only has a history going back 2 or 3 years. The whole world has completely turned upside down more than once in the last 6 months.

Land prices are subject to supply and demand and people will continue to pay what they want to pay not what some self declared land overseer thinks they should pay. If I am happy to buy a parcel for 50/sqm and someone else is happy to sell it to me than That. Is. What. It. Is. Worth.

My logic says something different.
I would disagree in what you say that anything over 7,5 is speculation.

Private sims are 1675.
For 1 year TCO is 1675+12*295= 5215 US$ . So if I want a private sim for 1 year that's the total cost
Instead in Mainland , even if a sim goes for 2875 US$ in auction and you get it , you still have TCO=2875+12*195=5215. So to break even the TCO you pay actually 11,7 L/meter
This is the break even point.
Of course we all know the cons of mainland (ugly builduings, casinos, no zoning, no terraforming etc)

But also you don't estimate in L/meter the factor of the feeling to own land in Mainlad. Weather normal , bad or good, whatever we think, it's a different story for people to pay tier fees in Lindens and not in a third party. It has been proved right that many many people, just prefer to pay tier fees directly to Lindens.

That's a factor it really can't be estimated, how much is someone willing to pay more for that. So if you call the result speculation or not, that's another story.
Combine this with inability (till now at least) of Lindens to follow the population growth in providing mainland land and you have these extremes in prices, (that really many people paying with no complaints).

Either you bought some land for 20L/sqm or are selling it. Anyway, imagine nobody want to buy land anymore and there is empty land nobody wants, think the price will not drop below the standard price the Lindens make for new Simulators, because it would be a loss, except its some ex firstland.



If you pay a mainland sim for 2875 you may be sort of retarded imo.