Land Market analysis - what happened!?

This is a request for a Resident Answer from any experts out there - what has happened to land prices over the last few months, and why?

I'm aware of the major events (private island sim price increases, &c) but any serious analysis out there, $L per meter aggregates for certain land types and why, that sort of thing?

I've been living in a bit of a hermit kingdom; Caledon has been full and relatively 'land fee cheap' as I don't allow the land resale feature to be used by residents - I'm deathly terrified of allowing A Good Thing For All being destroyed by land speculation via that feature should the 'bubble' burst.


I'm a fan of parts of the mainland, but I saw some crazy high land prices in the sims Noobhorror, Casinolag, Campchair and Blingtard. Are people out of their minds!?

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I remember being in a top management meeting of an electronics corporation, in March 2001. Nobody saw it coming - nobody had a clue the bubble was about to pop and leave very little standing. I didn't see it coming either, but the experience left me very shy of what markets can do.

Is the land bubble going to pop, when the Christmas rush is over and the days get more amenable to basketball and bicycling in the evening? Are 1.9M of the 2M people going to get bored and play World of Warcraft instead?

I can't put my finger on it, but like Obi Wan Kenobi when Alderaan was blown up, I feel something reeeeeally funny about today's land market. Like something is horribly wrong... something stupid and obvious in hindsight that will bite us all later.

Experts, thoughts?

Des, from what I've seen, land prices have more than doubled in the last month. I'm not sure if it's a direct effect of the announced tier increases or merely coincidental. Are people out of their minds? Quite obviously. There are 2 512 sq m parcels for sale next to my place on the mainland. One is priced at 17,000L$ and the other at 32,000L$. Prices like these are reminiscent of the Dutch Tulip craze.

Land speculation on this scale is going to price alot of people out. Between the tier increases and now the land price increases I've abandoned all my plans to expand my landholdings in SL. My only hope is that the bubble, if it is such a phenomenon, will soon burst.

I believe much of the problem is caused by a lack of land output from the Lindens. I appreciate that they have/had a hardware shortage, and then most of the new hardware was going toward filling the massive backlog of grandfathered island orders.

However, no matter the reason, the output of new and formerly-abandoned land at auction simply hasn't kept pace with the growth in population. New sims are fetching around US$3000 at auction at the moment, a month ago they were fetching maybe US$1500, meaning that the barons are paying twice as much for land wholesale. They aren't going to turn round and sell that land at a loss, so a lot of land by definition will have to go for over 12.5L/sqm. Also, the lack of first land is having an impact at the lower end, any first land plots put up for resale under 6000L will get snapped up pretty quickly, again forcing the minimum realistic price for land over 12L/sqm.

Until new sim, first land and "recovered" land output increase dramatically to cover the shortage and the growth in population in the meantime, it's only going to keep going upwards, I'm afraid. And that would require more Lindens working on land, in addition to the overworked Guy.

Point taken, Stephen. We could be watching nothing more than supply & demand mechanics in action. The population has doubled in 2 months and the land supply certainly hasn't. Yep, there's a certain logic to it.

Some of it is no doubt due to the "first land scam" thats going on right now.

When there is no cheap land available, people either have to buy the cheapest they can find (which may be >L$10/m2) - or just not buy it (or upgrade to premium if they're a basic).

Short term profit for self, at the expense of long term stability and expansion for everyone. It's a pity some people aren't more "community minded".

Broccoli

"Cheap" is a relative term of course.

Something else that may be relevant is exchange rates. Most SL residents in the US are used to seeing small fluctuations in the US$/L$ exchange rate, and many will have seen rates over 300L/US$. However, people outside the US also have their own exchange rate to take into account. At the moment, the US$ is pretty weak against the Euro and GBP, making land more affordable for those outside the US.

Stephen, the word 'affordable' is an ad-man's cudgel. Even though I live in the UK, the RL exchange rate fluctuations do not influence my SL plans or budgetting. All my land-related plans in SL depend on my SL income. In my case, I'll sit out the current round of price increases, wait for the cyclical downswing to kick in and see how things shape up at that point of time. Or for you cardsharps, 'stick'.

I'm in the UK, and I'm very aware of the US$/GBP exchange rate. I find it hard to believe I'm the only one. If you're funding it directly from SL income then the exchange rate part of the equation simply cancels itself out. However, for many people, land is bought using L$ they've bought on the LindeX.

Anyway, it's obviously your prerogative to stay out of the market, but I'd be wary of making assumptions about the frequency or scale of any cycles you think you see.

Couple of points

1:- People who put plots of land up for sale for L$30/sqm or higher are not stupid or even worth discussing. People have always done that. Just look at the land sales page it goes all the way up to 1000s per sqm. It's not greed either because no-one is forced to pay the prices. It's merely a statement that the owner values the land highly and isn't agressively trying to sell it. It's not interesting what people are selling for, what is interesting is what the buyers are paying.

2:- Land prices are rising fast. It's obviously a bubble. The primary cause was the private island increase, the land shortage isn't helping. At this point though the whole thing is caused by speculators (like myself). This is not like the tulip bubble though because no-one is actually borrowing money to spend it on land so we can't have a sharp fast price collapse. As a result it's going to be hard to burst this one. I think it'll take a serious commitment from Linden Lab to release enough mainland sims to bust the tier of all the speculators. Probably a sim a day for a couple of weeks would be enough, maybe a little more. Remember though, Linden Labs neither lose nor make money based on the value of mainland*. They probably couldn't care less except with regard to how it affects first land.

All in all though, land isn't really that expensive. $25 for a 512sqm plot is about what we're paying today and I don't think that's particularly a lot of money for a one off fee.

3:- First land is worth more than the ten dollar monthly fee from LindenLab. This is causing people to create accounts and buy up all the first land. I think this is a serious problem that needs to be addressed. My preference would be for LL to force the value of land down by increasing supply but some kind of programming solution might work too. One idea might be to make first land smaller or link it's size to the market value of land and the linden dollar so that it's always worth less than the basic costs.


*Edit: I guess LL does make money from sale of mainland sims which are going for 3k a piece right now. So in that sense it's a big advantage for LL to drive the value of land upwards. This makes it even less likely that prices will come down. Although I do believe they'll fix the first land problem somehow.

The latest headline tells all. In October, SL hit 1 million subs. That has taken 3 years, correct? Then from October until now, SL has 2 million. That's doubled in two months. Wow!

I'm new to SL (week old today!) and I can tell you, of course Linden Labs cares and you hit it right on the head. It is affecting first land. As in, I have been unsuccessful in getting any. I actually saw some last night (2 plots) in the search for the first time. I quickly teleported there and they were already sold. There were a lot of folks standing around and more teleporting in. First land goes fast . . . and I can't afford any other land at this time. (I don't want to pump a lot of US$ into a game that I don't know if I'm going to stick with or not.)

For someone like myself new to SL, if I am unable to "get into" the game, so to say, I'll leave. I'd very much like to have my own land, start to figure out things that I can do, make, contribute to the community, etc.

Right now, I feel like a lost soul, no home. I don't feel comfortable logging out in someone elses yard. I know, it sounds funny, but it is human nature to want to be "home" or in familiar/safe surroundings before retiring for the day.

So, SL is in a catch 22. All of these new folks, like myself, that are unable to find their own land, may not stay around for very long. There are more sims/online games coming sooner rather than later and they will leave to find a new "home" elsewhere. That is when the bubble will burst.

- Kat

I just had a look at the spreadsheet included with with the recent economic graphs provided by Zee Linden. A few simple calculations show premium accounts growing by 30.4% during the month of November, hours used also growing by 30.4% (just coincidence, they aren't the same in other months) but land area increasing by only 16.7% over the same period.

Assuming people sign up for premium accounts for the sole purpose of owning mainland land, and also assuming that none of the land area increase were private islands (which obviously isn't true), growth in demand is outstripping growth in supply by a factor of 2.

Doing some more calculations, you can see that land growth is usually between 100% and 160% of premium account growth, but for 3 of the past 4 months it's been betwen 50% and 65%, and for the other month it was only 100%, and very similar figures are obtained from looking at the growth in user hours. So it's easy to see that growth in demand has been significantly outstripping growth in supply for the past quarter, whereas it's usually the other way around.

Some good points there, Elanthius, however you're wrong when you state that Linden Labs aren't interested in the value of mainland land. The current bubble is obviously also affecting the prices of new sims at auction. The price achieved at auction goes directly to LL. They are now getting US$3000 per sim in comparison to US$1500 a month ago and US$1000 two months ago.

Before the island announcement, new sims were waiting for bidding to start, and often did not reach much higher than the starting price. That suggests to me that land prices at the time had reached a point of equilibrium. That equilibrium simply can't return until we see a good few months of land growth in excess of premium account growth, and all that will do is make prices level off again, not drop.

As you pointed out, it's not the same situation as rl land, because nobody has mortgages for sl land, so the concept of the distressed seller doesn't really exist.

This reminds me of the last time land prices went ballistic:
Shortage of land, too many buyers.

Last time this happened was about two years ago, prices were up to 20-25/m2 on average.

I think prices will normalise quickly when LL can meet demands again.

Don't forget many plots of land have outrageous prices because the owner thinks the neighbors want it so bad they will pay it.

2000m plot on our sim for 100,000k, because it is the last little chunk I don't own. I will never pay it.

I am sure there are tons of these type chunks of land where the owner is trying to make a profit.

Good point. And with that, you can include the advertisers who put their plots up at ridiculous prices, either to get more advertising from people looking on the map, or to hopefully persuade nearby residents to buy it just to get rid of the advertisement.

I know how you feel Kat. I just rented a home for the first time, (1024sq m, 250 prims available) and its the best thing I ever did in SL. Having a "home" makes all the difference. So don't leave just because you can't find first land. Oh, and renting's cheaper anyway!

Suzi

I know it's just because I've been subjected to decades of capitalist propaganda but I really don't see that as a problem. If I have something rare like the last plot of land on a sim then of course it's worth more and I should charge more for it. As for the 16s with advertising or even worse the ones with disgusting porn on them well, maybe something could be done about that but I'm in favour of more freedom not less.

In addition to LL not putting up new land.

A conspiracy theory could be that certain large land baron/ private island owner groups are working to make their estate land appear relatively cheaper to offset the lost in tier advantage from before.

Of course, the first land scam and the lack of new mainland did not help.

You mean in the same way that a certain large private estate owner has been very active in recent auction bidding, winning many of them yet has absolutely no mainland land listed on their website for several days in a row?

I bought a 512m2 parcel at a premium price because it came with a view of the sea. But it was cheap if I consider how much other luxuries cost in RL (I can spend more on a drink here in London than a $6000 LD parcel, for example).

I don't see the bubble bursting because prices are accessible in RL terms. Most people participate to enjoy the exprience and not necessarily make a profit.

LL should make more First Land available because it's unfair that premium users wait around and have to compete for limited availability. First land should be assigned randomly at signup.

If this is the case we'll see a rationalisation of pricing but not a collapse as bubble-bursting suggests. And people like me will continue paying premium amounts for premium land.

That's interesting. 6000 L$ buying off of the exhange right now is around 22 US$. That's an expensive drink for me.

Also, I've been checking for 512 m3 lots and they seem to be going for around 8000 L$ and those lots are not really "good looking" lots.

Granted, I'm not looking for beach front lots, but I would like something that was half way decent.

So, for me, spending 10 US$ a month, plus another 30 US$ or so, just to get some land to play on (not to even mention buying items to go on it, clothes, etc) . . . that's is more than I'm willing to pay for an online game/sim.

For me, at least, and I am guessing for most new folks coming online, the start up cost is too much for a newb to get "into" the game.

I'm not giving up hope, just wanting to share my experience so far as a newb.

- Kat

As long as land growth (by LL) doesn't keep pace with the growth of the SL population, land values will continue to rise. (Actually, the portion of SL population interested in owing or renting land, not the whole population -- but the growth rates are probably similar.)

SL membership is rising exponentially. SL land may be growing exponentially, but with a lower growth rate.

Eventually we'll reach the equilibrium point, where the SL population growth rate declines due to server slowness and/or land prices. At that point, prices should stabilize somewhat -- fluctuating with bursts in population or land availability. No doubt SL wants to provide land as fast as feasible to keep prices reasonable and boost the SL population as high as possible. This is obvious profit incentive for them, which is a good thing for us.

And the point above that posted prices aren't useful information: trading prices are. So, unless there's a listing of prices actually paid, we can't really say much.

Of course, we could still have a bubble based on speculation; if enough folks think the way I do that land prices are sure to keep climbing, that tends to cause a bubble. No doubt we have a combination of normal market pressures (supply & demand) as well as psychology (potentially overestimating future demand).

BTW, the tech bubble started collapsing in April 2000, not 2001. Or, if you guys were a year late figuring it out, you got what you deserved! And anyone who paid attention to real market data had a clue before that -- clues I got but ignored, idiot that I am.

Kat, I agree with you, so I'm going homeless in SL. It's a lot more comfortable than in RL, thank goodness. Still looking for a good hostel, though (might be easier to find if search was working!)

Not unheard of in London.

Wow, a simple sensible solution to the First Land problems that I've not heard before. Seriously, LL should do this.


Or NYC. I look forward to moving somewhere else because everything will suddenly feel so inexpensive.

Without knowing how volatile the land (buying only to put it up for sale again vs buying and keeping it) is right now it's anyone's guess .

Month after month, the spread of spending doesn't change too drastically. Out of all the people logging on, only 1 in 4 ends up spending at least L$ 1. It's another 1 in 4 that spends more than L$ 5k.

Less than 1 out of 16 residents is spending your "drink" equivalent or more in a whole month, Lhorentso, let alone spending it just on one bit of land so it would seem you're more of an exception than the rule .

(Only 1 in 15 can own land in the first place so that seems to work out quite nicely )