Average Second Life Land Price Dropped Over 50% in 2009, Analyst Data Suggests

Second Life business/demographics analyst Metaverse Business has a very useful new page which displays numerous SL user and economic stats on a single, interactive panel. (The data is taken from the Lindens' raw economic feed.) When Metaverse's Louis Platini showed me the page, one graph jumped out at me: the average price of Second Life land, expressed in terms of L$ paid per square meter. According to his chart, the price of land last year steadily dropped from L$1.8 to L$.8. The decline, Mr. Platini told me, is even larger over the last few years:

"The price of land (L$/sqm) is dropping since 2007," he told me. "July 2007 the price was L$8.4/sqm, while for January 2010 it is L$.85/sqm. I didn't know this until I saw that graph." When translated to US dollars, we're only speaking of a price drop of pennies, though large landowners and buyers are likely to notice the difference. In any case, what's the best explanation for this decline in market value?

Comments

[Mark Burhop]

You should always buy land. They don't make it anymore...oh, SL ... never mind.

[Dirk Talamasca]

There is only one explanation and that is that LL just keeps flooding us with too much land.

Rather than using the resources already available and consolidating them in a move similar to forcing Adult Oriented businesses to move to another continent, LL simply adds on new regions for new LDPW projects and far too much abandoned land remains. You know it is getting bad (or worse) when a Linden messages you to inform you that land has been abandoned next to land that you own on the mainland and asks if you'd like to purchase it.

Rather than plop down new regions for each LPDW project, work with residents. Move them to a new piece of land they are happy with and consolidate the remaining abandoned land into a section of regions on which to begin projects.

[Arcadia Codesmith]

The market was outrageously overpriced by rampant speculation and now it's correcting. Excellent news for people who put land to productive use, not so great for slumlords.

[coco]

uh. the interest in SL from non users is falling off, and those inside it are making and spending less money on a system that is taking more and more and offering less and less.

[Dedric Mauriac]

I believe part of the problem is Mainland versus Private Regions. You can often buy a private regions parcel for far less, but has an associated tier price with it. Also, they need to break it down further into six separate categories: Mainland (PG, Mature, Adult) and Private Islands (PG, Mature, Adult). I'm sure you'll start to see differences in average prices.

[Hiro Pendragon]

"When translated to US dollars, we're only speaking of a price drop of pennies"

512m plot, the smallest tier worth of plot, drops from approx 900L to 500L. On SLX prices, that's about $3.50US to $2.00. The difference is $1.50, which is not "pennies". Certainly, it's not a ton of money, either if you consider people who have a premium SL account and nothing more.

A sim is 128 times as large. That's approximately $170US. But again, it's a 50% drop in value. It's alarming.

I guess since Linden Lab doesn't generally decommissioning sims, and we've seen sim numbers growing at a slower pace since 2008ish, we could be watching a simple illustration of pricing based on supply and demand.

But it's not that simple. Private sims have outnumbered mainland sims. Private sim prices are not, as far as I know, included in these statistics. So we're not looking at supply and demand for all of SL's land, but for Mainland sims. (And since Linden Lab, in 2005, promised to improve Mainland sims with the same controls as private sims, and they have not as of yet, while private sims have gotten improvements beyond the CPU upgrades, I'd say there's a big culprit right there.)

[Flashing Merlin]

When I first entered SL in 2007, I compared land at Linden auctions with land on private islands. The island land was much cheaper to buy, and the monthly cost per prim was less, so I opted for a private island. However, after a few months the island developer decided to sell his island, and the Lindens informed me that I had no rights to the land I thought I owned.

I moved to another island, and months later also lost that property. Not wanting to keep moving, I decided mainland was worth the price, and paid more than I could believe for a beautiful waterfront mainland plot. The Sim soon sold out. However, as months passed, many landowners abandoned their land, and I bought additional plots in the Sim for much less than the one I bought at auction.

The point is, at no time did the Lindens lose money on these land deals, so there was no reason for them to change their policies. However, as others pointed out, years of over supply eventually drove down the price of mainland plots, so finally the Lindens have reacted and now fewer plots are offered in land auctions than when I first looked at the auctions in 2007.

But the monthly land fees haven't gone down, so the Lindens are probably doing better now than in 2007 because much more land is occupied. In fact, if they gave away small plots of land (as YoVille gives away apartments), but kept charging monthly land fees, they'd probably make even more money, so I doubt the lower prices are much of a concern to them.

[Wildstar Beaumont]

The real issue is tier. All the money goes there eventually. And it is so high that land prices must drop to almost nothing to make land interesting

[CyFishy Traveler]

Supply and demand in action. Completely unsurprising.

It it always makes me laugh to see Anshe Chung wannabies bawwwwing that Linden Lab is making their lives difficult by supplying so much land. News flash: this isn't real estate, it's virtual estate and the rules aren't quite the same.

[JeanRicard Broek]

Everyone now knows "Land" is not an asset, it is an Expense.

[Hottie Something]

The current prices are a reflection of the market being flooded with new land. There are sims and sims worth of abandoned land out there.

Private Estate lands have been given away for cheap for a long time. The significant drops in mainland prices are more recent and coincide with this new adult continent.

I have a small suspicion that LL is trying to carve out its own small section of the land market by driving the prices of mainland so low. But that does not make sense in light of their chummy attitude to us larger land dealers. Or perhaps they are trying to "reboot" mainland by making it less desirable long enough to clear it out and create a nicer cleaner mainland?

Or maybe they really just don't know what they are doing and they are like a little kid who is put charge of keeping a pet hamster and not only has no idea how much to feed it but also likes to poke it with a stick occasionally to see what it will do?

Don't get me wrong. I love LL. They keep me from having to work a job. But sometimes I don't know what they are thinking when they do things. So far, in our 2.5 years of business though, Segarra Estates has never been hurt by the economic ups and downs that they cause by their meddling. But that's mostly because we take precautions and then take advantage when the market turns.

Anyway thanks for the graph and info Hamlet. I knew mainland prices were way down but I hadn't seen the data!

[Troy McLuhan]

There are still mainland parcels selling for above the average price (per square meter), because not all mainland parcels are equal. For example, mainland parcels near protected waterfront usually sell for more.

On the other hand, some real estate businesses will "sell" you a parcel for L$1 or even L$0 (for the whole parcel): they mainly want to get someone paying regular rent.

My point is that the average doesn't tell the whole story. There's still a lot of land selling for non-average prices.

[Tateru Nino]

There was a huge drop in the published average in 2008 ( http://dwellonit.taterunino.net/sl-statistical-charts-testing/ )

However the issue here is that this figure is an average, where the majority of data factored in consists of unrepresentative outliers.

Actual land prices may or may not be following this trend - the Lab's published avg sqm land price figure isn't indicative of how much you might expect to pay.

[Hottie Something]

Actually Troy you are right but the only reason why land bordering linden protected water is perceived as worth more is because they think this guarantees them open water beside their parcel. At most however it only guarantees you that nobody will be building there--at least I hope so. As I discovered today when LL chose to remove three sims of protected water from around the mainland sim one of my little parcels is in. The sad thing is neighbors still have not realized as nobody was informed and some are still selling at inflated prices and calling their parcel "On Open Sea Linden Protected".

So if the flooding of the market with mainland hasn't hurt the market enough this kind of thing surely will finish the job. I really dont care in the end about the ridiculous price I paid for the parcel--I absorbed it long ago...its sad I wont be able to jet ski so much right off my parcel but our holdings are all primarily in Estate Land and this was sort of a homebase/office. Its not like I had the piece for a rental. Still though let this be a reminder that LL can and will do whatever it likes when it likes. Lizard and I have always counted each day that we are able to continue to do business in SL as a blessing that could be taken away at any minute--LOL.

[Optikal Planer]

After making some money selling my land at 8.0L per square meter, some weeks later I re-bought at around 4.5L ..I sold that at around 4.0L and re-bought at around 2.0, thinking it can't go much lower, now its sitting on 1.0L ..that is the price linden 'gives' it away at.. now its seen as the 'norm'.

For the last year or so I've dealt in nothing but roadside land (also loosing its value., who wants to advertise or set up a shop on a road that is not used), old land (+/- 40m terraforming) & places near linden protected parks etc.. commonly known as 'rare land' and why their prices are often so high. Though now the lowest mainland price is 1L psqm.. I'm still selling nothing lower than 20L psqm.
Location Location Location.

The reason behind the dropping land prices, as already mentioned by others.. simple over-supply,. I'm more interested in why.