Virtual property sells for US$635,000 in real money

If you're already struggling to afford property in the real world you may be discouraged by the inflation in virtual real estate prices.

Earlier this month, Jon Jacobs, known as 'Neverdie' online, sold a piece of online property in the game Entropia Universe for $635,000 (all figures in U.S. dollars). The real estate came in the form of the virtual world's largest "resort asteroid" and was sold in small parcels to a number of buyers.

Jacobs made waves in 2005 when he bought the property for the then unheard-of price of $100,000. What once seemed foolish to many as been vindicated by a shocking return on investment of 535 per cent in just five years. Jacobs also derived income from the property while he owned it, renting out virtual hunting and mining rights. He recouped his initial investment after eight months.

Similar to the better-known massively multiplayer online role-playing game World of Warcraft, Entropia allows its players to battle creatures, explore worlds and collect and trade items. What makes Entropia different is its currency system. Players can exchange real money for virtual currency and back again at a fixed rate pegged to the U.S. dollar — for a small transaction fee of course.

Entropia made headlines last year with a similar sale in which Buzz 'Erik' Lightyear bought a space station for $330,000. At the time the purchase was the most expensive in the history of virtual real estate.

The virtual property market is far from new. Gamers in Second Life have been buying and selling property since 2003. One Second Life player Ailin Graef, better known by her avatar's name Anshe Chung, announced in 2006 that she had become the first online personality to make more than one million dollars entirely by buying and selling inside the virtual world. Her savvy at making money online led CNN to name her the "Virtual Rockefeller" and landed her on the cover of BusinessWeek.

If what you're reading is leading you to consider abandoning your real-life property aspirations for virtual ones, take some time to consider a few of the negatives.

While the virtual economy can result in solid profits, laws regulating virtual transactions remain fuzzy. Real money made online is taxable and the U.S. government is considering making transactions conducted in digital dollars taxable as well. And if taxes don't worry you, monthly fees and transaction charges should give you pause. In Second Life, most users must must pay a monthly bill on property similar to a condo fee.

Prospective buyers should also keep in mind that while real money is being made in online real estate, unlike its solid cousin, the virtual market knows no bounds. Game makers can drive down values at a whim by increasing the amount of property on the market and there is no physical limit to the amount of real estate that can be created. Let's just hope the virtual property market doesn't grow large enough to spark a worldwide recession.

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