Land Rush!
by prokofy on 23/12/06 at 1:24 pm
Land frenzy has prompted some hustlers to chop up larger parcels into smaller newbie plots of only 256 m2 or ad sales parcels of 16m2 that can sell at 100 times the cost of a residential parcel. 
By Prokofy Neva, Dept. of Virtual Estate
OMGODZORZ1111 land is through the roof! A crappy 512 m2 is selling for a whopping $20,000! OMG that is $39/m2, and $70 US. Oh noess that can’t be?! Why, says one oldbie, I haven’t ever seen prices anything like that since 2003. Why, prices on mature have always been $5-$6/m tops, no? Why, says a midbie, I have never seen prices like that on a 512 except for Boardman. Why, it’s $8-10/m tops, no? This is a terrible development, people will be driven out of SL from the sticker shock, their creativity will be terribly suppressed, they will never have a home, it’s miserable.
Oh, no, says the newbie of 2006 — a real newbie, not an alt — who buys what seems like overpriced bubble land without a wince.” (There can never be LOTS of prices like this unless LOTS of people were paying them.) “That’s merely the price of dinner for two in my city — I don’t mind paying that for a one-time fee and hey, I’ll flip it for $25,000 if I don’t like it? What’s not to like?” He is neither ripped off, naive, or angered at being “bilked” because he has nothing to which he can compare these prices. The meaningless, subsidized prices of 2003 or 2004 are an abstraction. He’s in today’s land market, not yesterday’s.
So…what’s going on?
The Lindens always heavily managed the auctions and land releases to keep land always at a perfect socially-just $5/meter. It might dip up or down half a dollar, but never more. They stopped doing that months ago — possibly in response to a critical hardware shortage and even more critical manpower shortage for terraforming and development — not likely a conscious change in their previous miraculous hybrid socialist/capitalist land policy (keep land prices low inworld; keep sales moving for the company outworld).
Today, the average price of resident-to-resident land sales is $9.19/m, not $5.5/m — nearly doubled, and that’s why prices on the best stuff is nearly 10 times as high. In November, 8,252 acres (4096 m2) were sold; this month to date it’s already 9,099 acres, despite what should be a seasonal slump when people go out and do more RL stuff. Why? Because the world just keeps growing so hugely fast at such a pace.
For one, it’s the real-life-ization of Second Life. SL has always tended to drift toward finding RL levels — for labour, for goods, for time, for land. We couldn’t keep the Miracle Grow Snowglobe for ever. Of course, we don’t really know how to price an acre of SL land, given that there aren’t ready RL or even Internet equivalents…except we do. The land market is doing that for us. The price is $15-25/m, the price you see now — that’s what markets do, they find value and prices (where a willing seller meets a willing buyer). Six weeks ago, overpriced stuff like this sat baking in the sun; today it is turned over 4 times before morning, with the original seller kicking herself for not getting more.
Before, a small group of oldbies on the forums could band together with a small group of newbies discovering no first land was for sale, and scream loudly enough to get the Lindens to crank up the land-printing machine again and keep prices subsidized and low. Today, they’ll no longer be able to do that because the world is finally growing at a pace faster than the Lindens can make it, and land is finally finding its value as it would in a RL situation where the old adage would apply, “buy land, they aren’t making any more.” In time, this situation will correct itself — but not in the old way, in new ways that will likely put prices more permanently at a higher level.
Here are some explanations for why this is happening now:
1. Island prices increased to $1695 and tier doubled to $295 in November, sending shockwaves through the whole market. The result (if not the purpose) has been to drive smaller landlords out of business, get rid of casual blingtard couples and pave the way for large corporations making continents to be the basic customers for island sales in blocks.
2. Soon rumours of mainland tier also to be raised to $295 in February prompted more people with island sticker shock to seek out smaller pieces of mainland quick and hang on to them — now they are predictably more expensive.
3. The Lindens simply don’t seem to be building any edges of the world anymore. They’ve released only a few whole sims on the auction, and these went for whopping figures like $3300 US. They are selling off smaller pieces of sims in Lindens, and even on the “wholesale” auction where you can find bargains, land in Baileya, and older beat-up atoll sim with that blue tinge of toxic waste in the soil fetches $16/m; PG land that I once released for $1/m to land-swooping Nolan Nash (to give you an idea of its value) is now $15/m. Will the Lindens put out more? They used to sell whole sims for US $1000 or a little more daily, you would be virtually assured of getting something at that price if you just waited a few days. Today, people pay US $605 US for 4096 m2, what used to be the price of a a quarter of a good sim. Zee Linden was right — they were undervaluing their product, and while their initial core group of customers wailed at the new prices, other, newer customers just came along and paid them without any fussing.
4. A new generation of even bolder and more tacky land barons have emerged who do things like take a beautiful, pristine, gracefully inclined snow sim parcel in Shimmer on the waterfront (fairly rare) and carve it up into bits of 16m2 and 256 m2 to sell for a fortune (so the smaller amounts will make a seemingly lower price) — and find they can get buyers among newbies desperate for any land now that first land isn’t put out anymore — at least they can use their free tier. Or they’ll take a beautiful brown-sugar beach waterfront in Bongwhong and carve up waterfront and water into numerous 512 squares with spits of “mini-islands” in them and sell them as little tropical paradiselets — and find buyers! These new baby barons aren’t going anywhere, they have a great roller coaster to ride, but hasn’t crested yet.
5. Anshe isn’t going on every auction or every other auction — she seems to have enough to do. Have we reached even Anshe’s saturation point? In fact, the reaching of Anshe’s saturation point may be the single most important development in the land market, because she and other mature land barons were keeping prices lower by never bidding above their margins. It has always been Anshe who has been the main buyer of auction sims more than others. It’s always been Anshe chopping them up, and keeping the market saturated enough so that others have to pay a lot more to beat her — then risk not have decent margins, and then lose.
It was always Anshe, and a handful of other well-known barons — but no more. Look on the auctions today — not a single one of the old familiar names. Despite everyone grumbling about what seemed like too-high prices, it was Anshe’s willingness to keep on grabbing market share that kept prices lower. That couldn’t last forever — nor can her past willingness to buy people’s liquidated land and hold it endlessly. It seems she might be content to leave that unpleasant and thankless chore to the new generation of baby barons.
6. Fewer people are liquidating in order to make the move to the islands — the new price of islands is too high, and if tier is grandfathered on the mainland as it was on the islands, better to hang on to what mainland tier you hold now, and not let it go, if these prices last — or even if they don’t — you will be assured of getting back at least what you paid, given you once paid something like $6-10/m.
7. Lindens prefer to lay out lots of servers as new islands for individuals, groups, or the increasing number of corporations in SL, and sell them for $1695 predictably, rather than to put them on the auction where they might sell for $1000 or $1200, unpredictably.
8. New first land isn’t being put out, so that the cycle of newbies buying and selling first land and people consolidating parcels and reselling them for less than on other sims isn’t happening. Thus lots of little subsidized parcels aren’t coming on the market to depress it further, and newbies aren’t waiting for their share of subsidized government land, they are using their tier to buy higher-priced but better-looking stuff.
9. Barons are flipping to each other, each one evening out his tier, positioning himself, jockeying for a place — sometimes the land never comes out of that flipping cycle. They are flipping at such a furious pace that the prices rise from $15 to $25 to $35/m in a few days…and then stay — where they are often finding end users, thus fueling another mad cycle.
10. The rampant increase in griefing and rude intrusions has caused many to decide that rather than rent, and live with landlords’ limitations like rules barring red ban lines or security orbs, they would rather buy and put up their aggressive alarm systems so that they can enjoy more privacy without flying asstards trying out their pose balls when they aren’t home or when they’re in the middle.
So, is this a grand time to be getting into the land game and making a fortune? No — because it’s a classic real estate bubble. It would burst soon enough, as all SL bubbles do (remember the first now? remember when the chemical waste look of the atoll was the only authentic sandy beach we had?). To be sure, there are bargains to be had on the mainland and flips to be flipped. But flipping when the game of musical chairs might stop at any minute could leave you holding a very large bag.
Several things could burst the bubble:
o Lindens suddenly lurch back into socialist mode and flood the auction with $1000 mainland sims again. But…are they done with the mainland? This is an open question. There’s room for them to keep growing the mainland…but will they? We never did get a definitive answer on this issue when they said six months ago that they were going to put out 1,000 sims by the end of the year — and did, long before the end. Here we are. Any more planned?
o Worsening game performance may cause some to tier down and liquidate to cash out. Yes, “game” — that’s what most still call something that has a 50 percent chance of working at log-on, and another 50 percent chance of losing all your inventory.
o New island land glut coming right around the corner — member all those panicked buys before November 15? All those people are going to be chopping and selling by next week. Islands are intensely changing hands now, too, as people frantically seek the grandfathered tier, or decide that the panic-buy they made to keep the tier grandfathered was pointless.
o Poor-newbie resistance to further bubbling. If the right mix of press coverage occurs, the newbies could be less rich and less inclined to buy land. Not likely,though, — they’re buying the stuff so far.
What’s the ultimate lesson? Suddenly, at these awful, highway-robbing mainland prices of $3300 on the auction for a whole sim, or $650 for a mere 4096 m2, or $260 US for a 4096 inworld at $18/Lindens per meter — the island that used to seem like highway robbery at $1695 now seems like a bargain.
And that’s my conclusion about all this: the Lindens will do nothing, they will keep on doing what makes sense for them — selling more predictably-priced sims at a higher rate, and mainly islands. The mainland will go the way of the events grants, the stipend delta payments, the dwellopers’ awards. It will either be closed, with only the Governor Linden welcome areas remaining, or left to fend for itself, with the land bubble bursting as more and more people wake up to the reality of griefing and blight on land that isn’t covenanted — and then the places with more geographical character or interest may continue to sell as collectors’ items. Anshe concluded this months ago — look around the mainland today, and it’s rare you’ll see one of those ubiquitous signs she used to have with the white and red logo. Six months ago, she cornered the market on waterfront, put up her signs, and put up next to them little “portals” that if you pressed on them, took the buyer shocked by her mainland prices to the much more stable and cheaper island empire, where they were more inclined to buy. Mission accomplished!
humanoid
Dec 23rd, 2006
It seems like they’re relying on land rather than user accounts to generate income. Selling higher priced land to a small number of users must work for them. I hope people understand that any ‘land shortage’ in SL is artificial. LL’s ability to make new land is limited only by their ability to aquire hardware and resources to maintain it.
Prokofy Neva
Dec 23rd, 2006
limited only by their ability to aquire hardware and resources to maintain it.
That’s my point. They don’t have the stock of hardware now because they already have lots of orders on backlog they are already trying to fill — all for private islands at the old rates — THAT is the land rush, the scramble to get islands at the old rates. Originally, they would have gone to a handful of FIC. Frankly, because the Herald caught wind of it and publicized it, they were forced to keep the order office open and take all the orders that came in by Nov. 15. Today, they are processing a *fifty-percent increase in land in SL*. That means these backlogs WILL be the land glut as they come online, not Lindens making the glut.
So then we’ll see — will island developers start offering 512s for $250 a week in rent? For only $1024 upfront purchase price? Or will they sell them for more *because they can get more*?
Furthermore, there IS a shortage of manpower — Lindens chose to put programmers on setting up servers for existing island orders rather than setting up servers to run mainland acutions. That’s my whole point. Indeed, the Lindens have reached a shortage point, and the shortage exists because their priorities changed.
Will they simply solve this problem next month by investing themselves in 2000 new servers to sell at $1000 each, or $2000 each, or for the small amount they get in tier back for 128 512 owners?
No. They will sell islands for $1695 because they will have the orders for them.
Ordinal Malaprop
Dec 23rd, 2006
Yes. Well. What is it that people who actually want to buy land can do? That’s what I’m concerned about personally; I don’t give a toss whether barons and speculators win or lose. We have a situation now where anyone wanting to buy land has to pay a ridiculous price (considerably above actual value unless they have previous equity to trade in. It’s all very well saying “oh this is the market applying itself to SL” – fine, the invisible and bloody hand etc, it’s not intrinsically good that that happens.
Personally, I’m stuck; land reform or revolution, absolutely key concepts to RL property rights, are impossible in SL, for a start.
Prokofy Neva
Dec 23rd, 2006
Ordinal,
Sure, it’s not about what land barons or speculators need or want…except it is, in the end, the way it’s set up.
What is a “right” or “fair” price. What you decide? It’s the same problem as all those saying the LindEx is “too cheap” or “too expensive”. If you make a free market, it tends to make some stuff too expensive for some and too cheap for others.
Who decided that land — server space — should always and everywhere cost only $12.25 for a 512 m2 in mature and not $70 US. And why?
That’s the problem. $12.25 might “feel like” a better price — it’s cheaper. It’s not even minimum wage in some countries. Would it be fair to make a square of land in SL about the cost of something less than minimum wage — labour for an hour? Or about the cost of dinner for 2 at a fairly ordinary Chinese restaurant? Or? What *would* be right?
I don’t say that the invisible hand is *good* — I report on what happens when the Lindens’ socialist-capitalist system falls apart. It was capitalist for them while it lasted — enabling them to sell servers for $1000 to some people fast, and $1250 to others fast. Then they decided, oops, they undervalued their product, and changed it to $1695 for the fixed island price. So what would be the “correct” mainland price, in your view?
The “market” says — double what islands cost. That doesn’t seem fair at all — because you get double the blight and lag on the mainland and half the protection, even if you do get “real ownership”. So how can you “do the right thing” and make mainland land cost, say, $1250? You can only do it by persuading the Origin of All Things, Linden Lab, to put MORE servers on the market and socialize the prices — make them less. To do that, as I’ve explained, they have to:
o put out first land sims which do them no good — it means giving away a server, giving away any tier, and having to wait months until a few of the people on that server start paying even $5/month for the consolidated 1024s.
o put out servers they’ve got in stock not for $1695, but for the $1000 opening bid they established to keep prices lower — and take a loss
What else can they do?
Well, I’ll tell you what they should be tempted to do and probably *do* do — sell lots more money through Supply Linden. That makes the Linden dollar cheaper, and when it is artificially kept cheap, people don’t mind the pain of buying land at double or triple it’s old price. In fact, they ARE doing that with their steadily increasing Supply Linden sales — currently at
Honestly, there isn’t a good solution when you have a synthetic land market. The chickens finally came home to roost. What will happen though is the bubble will start bursting when all those new islands come on line and compete for prices — and sell land not for $650 or $250 US for a 4096, but $125 or something — or even less. Most sales probably do happen with islands now, not with mainland, precisely for this reason.
All this bloody hollering about mixed island and mainland offerings in the Land For Sale list overlook the really salient fact that customers do not care. They do not cry in droves that they’ve been fooled or scammed — instead, they move in. They like islands, and they like island rentals run by people who keep entire continents nicer and safer. You’ll never get them to adopt the screeching hysteria of Lyndar Lehane (remember that campaign on the forums?) or the social-justice homilies of Nobody Fugazi (see his latest) as Gospel. They don’t mind rentals in the land-for-sale list *shrugs*. They can grasp the difference by looking at the map, the price, the offer.
Lyndar or Nobody may have allergies to buying what doesn’t seem like a purchase but a rentals, but thousands of other people don’t. And it really looks silly
Today, you can find those old land prices you used to remember and thought of as “reasonable” — on islands. You will find them as a purchase of a deed to enable you merely to have the right to pay lesser tier to that island dealer than you would to Linden Lab — or the same tier but with no subscription cost and with less blight.
Just a thought
Dec 23rd, 2006
:Yawn: LL could care less what some blog passing itself off as a news source has to say about their practices.
No credit goes to anyone except the possible backlash that would have occured should any real news source misquote one of the official Linden Blog entries.
as for the land? Welcome to the thrills and spills of the land markets – a market that’s been quite strained in real life due to the lack of we humans to create new land out of thin air.
Personally? I’d have to say this is a good move if LL really wants their fantasy virtual world to mimic reality, even in the most basic of ways.
Vanessa
Dec 23rd, 2006
“for the small amount they get in tier back for 128 512 owners”
I think you’re completely missing the point. All those newbies complaining about the lack of first land shows that LL is doing a pretty good job of fooling them into thinking that first land is a great and wonderful thing and worth going premium for.
Cheap first land serves a purpose: someone who falls for the ploy almost instantly finds out that there’s not a whole lot they can do with a mere 117 prims so they either tier up, or don’t renew their premium. Either way it’s extra money in LL’s pocket.
$1280 a month for a sim’s worth is a far better deal than the in comparision paltry $195 or $295 whole sim owners pay.
Prokofy Neva
Dec 23rd, 2006
*currently at L$109,144,902. Wow. Up from $L77,327,855
Prokofy Neva
Dec 23rd, 2006
It’s about time the Lindens promoted first land — they didn’t for so long. But then they have to back up the promotion — and put out land, which they aren’t doing.
$1280 isn’t correct. The first 512 m2 in tier is *free*. So the Lindens get 0 tier off that sim. If you are going to start factoring in the price of a subscription, then you’d have to figure it in on other sims, too. At the end of the day, as I explained elsewhere, the sink they have to pay out in stipends, and the gift out of the economy of as much as $20,000 for resale of something that is free and for which they don’t get the tier, is in fact a loss.
Prokofy Neva
Dec 23rd, 2006
Also we’d have to figure out how many first-landers they retain; what they tier up to; and whether their move isn’t in fact to private islands. I’ll bet a lot of first-landers wind up going to rent on the mainland or buy private islands. Would love to see the numbers. I’m going to start a new poll on this.
Rock Ramona
Dec 24th, 2006
Ill tell ya whats going to be fun to watch is towards the end of spring when all the huge corporations have a board meeting and ask their people they put in charge of this new second life thing how things are going…….and they report that this was prolly a waste of time and money.The CEO s pull the plug and start leaving SL like rats from a sinking ship.Someone is either going to have to come along and buy LL and put 50 mil into the platform and actually do something cool or the Second Life of 5k members on a Friday nite will be back sooner than you can say Happy Halloween,,,,,,,,Anshe see s the same thing and is chillin,you watch,,I know ill be happier lmao
blaze@blaze.com
Dec 25th, 2006
It’s totally obvious what they’re doing.
They’re raising the prices of mainland so you can you still profitably rent out islands, even at the new tier.
This is how they avoid having to raise tier prices on the mainland.
Will it work? Stay tuned..
urizenus
Dec 25th, 2006
that sounds right, Blaze.
Prokofy Neva
Dec 26th, 2006
>This is how they avoid having to raise tier prices on the mainland.
I understand what you’re saying blaze, but I actually think they will indeed raise mainland tier in February 2007, just as Zee Linden has already indicated. They didn’t promise NOT to raise mainland tier. Indeed, islands will be bitching that they have to pay double tier and the mainland has half of what they have to pay, etc.
You’re premise assumes the old world, where the Lindens worried about what inworld business, especially on their carefully-watched “leaders’ board” did with each and every change to the grid. But now they don’t care about that. They have scads of new big businesses coming in buying up dozens of sims at a time. They don’t need to worry whether a few dozen of the main island renters are griping that they can’t make a buck when mainland is cheap because people buy mainland instead of renting from them on their nicer islands. They can afford to ignore them completely.
Furthermore, people coming in DO buy this overpriced stuff anyway, as they don’t know it is overpriced.
Not only will mainland tier rise, I suspect they’ll also get rid of the 10 percent tier bonus for mainland groups because they’ll say there just aren’t enough mainland groups really making use of the bonus in some “compelling way” (in their concept of compelling) to justify what is their “loss” (I view it as a legitimate bulk discount and legitimate incentive for the hardships of the mainland which chiefly consist of Linden-indulged blight, griefing, and lag.
With the plethora of 16m2 extortionist signs; club-thiefs who have a veto on your use of the sim and its FPS; and griefing people who even stand on Linden land to grief you from your land you just banned them from, anyone attempting to keep the mainland nice deserves a 10 percent bonus.
I think it’s also more than possible that the Lindens will *not* grandfather mainland tier. They’ll say it’s just too hard to figure out all the book-keeping on a million little pieces; they could do it with the islands because there aren’t as many owners and they own just one server — mainland tier can be spread across many sims.
This seems utterly outrageous, I know; yet it’s somehow my instinct that they’ll do it. They’ve long wanted to flatten tier, and they’ll make it so that people have more granulated tier, and maybe even pay LESS tier as individuals; they will then make it cost more to maintain more a sim.
The doubling of tier of islands was designed to shake loose land-flippers and unstable owners; for some reason having to do with deep-seated ideology, Philip is really very irritated by arbitrage and he only seems to want the most high-end content and larger buyers doing islands; the doubling of mainland tier will also be to force developers and landlords to move to islands.
Anshe is now completely gone from the mainland. Did you notice? I checked and double checked — she has 6 plots — 6! — listed on her website on the mainland, all on those double-priced bulk sims with the names like “Schwanson Schlegel”.
Her staff says they will buy more on the auctions but after the prices die down. Why lose your margins now in bidding wars with baby barons hope for the college break playing the auctions?
At the end of the day, theorizing that the Lindens are going to make more sims to keep mainland prices lower and make more first land for newbies, versus theorizing that they will make more islands for richbies, is all irrelevant. When they have more sims, they’ll make them into islands which sell better and for more money than mainland. And ultimately they care about whatever formula will give them *70 percent of their revenue* if you read Zee’s statements recently (sales and tier on land are 70 percent of the revenue).
So I think they won’t care what happens; they’ll just get what they can for islands and mainland — the absolute top price. They’ll do that because they’ll discover that they *can*.
Desmond Shang
Dec 26th, 2006
Seems to me the reasons and the effects are fairly well known.
No matter how you slice it, the reason for the increases is simply: charge what you can get for your product! Multiple millions invested, and of *course* the investors want a return. And they should get one.
Price hikes are sensible insofar as you are not eating your own future. Second Life is hot in the media, hot on the technology forefront, hot in terms of personal use. Kinda reminds me of the radio tech boom. It’s a technology that has its place but it isn’t going to be white-hot forever.
So what happens when the next-best-thing is *not* Second Life?
One look at history, and then the ten year, or often, even the five or two year track record of new technologies, and prices are going go in one direction only. Straight down.
So yes, I think land prices are a bubble market these days. Fueled by a price hike, fueled by uncertainty, and fueled by the stampede of new users. None of these can stick around for long.
Nobody *needs* virtual land, not yet. I see a direct tradeoff to the inflated prices – a selling of the grid’s future, as it were.
High prices being the driving force for one’s own competition, and a deeply corrosive factor on the long term customer base.
If the grid is no longer inexpensive, people are faced with a choice: Virtual dreams, or real dreams.
What would you choose?
Prokofy Neva
Dec 28th, 2006
I think the price hikes are deeply corrosive. It means that people feel that in order to grow, or even stay treading water, they have to sell their land or flip land dangerously. And that means they sell their future, i.e. they would be selling the land they need to continue their business *because they can’t be assured of getting new land at anything like the old price*.
Anshe has gotten out of the mainland and is waiting til prices simmer down. I know of a few others who have started selling expired rental land and not buying new mainland and going to islands. This may be an LL plan to let nature take its course and make the mainland for end users only — those who are rich enough to afford it and therefore keep the blight from it.
But I doubt they actually thought throught the spillover of the island price hikes to the mainland, or that within 30 days, it would turn into *this* — $3300 sims on the auction and $650 4096s inworld.
Watching the land musical chairs right now, I do see it slowing a bit. I see the flipping starting to slow and the end users starting to ebb. It may start climbing back down — unless, of course they double tier in February for the mainland where the tendency might then to be to hang on to tier if they grandfather it — and dump if they don’t.
Foghorn Leghorn
Dec 31st, 2006
Regarding Anshe not bidding on mainland sim auctions: don’t forget she bought 200 islands just before the November 15 deadline, taking her from 350 to 550 sims. She probably has enough on her plate developing and paying for those.