How does one purchase real estate in Iceland? Is it possible for foreigners to buy a house in Iceland? What are the average house prices across the country, and are there any regulations that can jeopardize the house-buying process? Read on to find out everything there is to know about purchasing a property in Iceland.
As Iceland continues to enchant foreign visitors’ imaginations, many begin to fantasize about staying in the country far longer than the mere duration of their holiday.
Some will even go a step further, seriously contemplating whether they could live on the island permanently. This dream should come as little surprise, given the endearing effect that Icelandic society often leaves with people.
Consider the lack of crime, the strong educational and healthcare systems, the incredible natural landscapes, the friendly local population; all of this and more draw people toward a longstanding relationship to the country, a relationship that many would like to take to the next level.
Pxhere. Creative Commons.
Purchasing property in Iceland is arguably the greatest commitment that one can make towards this small island. Whether one is looking to purchase property here to establish a permanent residence or hoping to rent out a property to foreign guests or local Icelanders, the Icelandic housing market is one of ever-changing opportunities.
When we look at the genesis of the visitors traveling to Iceland, the majority hail from the United States of America (27%), with guests from the UK (16%), Germany (7%), Canada (5%), France (4.6%) and China (4%) following.
These figures reflect property buyers in Iceland, with Americans taking the crown for their purchasing interest. Of particular note, however, is the sheer number of Icelanders living abroad who choose to purchase a second home in their mother country. Second-property purchases have undoubtedly increased since Iceland's economic recovery following the 2008-2011 financial crisis.
One of the overarching rules which apply to foreign and prospective property owners is the need to gain approval from the Ministry of Justice in Iceland. The ministry deals with a wide range of civic action, including human rights, immigration, policing and personal rights, elections, etc.
Housing Financing Fund claims that EEA citizens legally domiciled in Iceland can purchase real estate like any natural-born citizen. To secure a residence permit, one must apply to the Icelandic Directorate of Immigration.
For those with no intention of residing in Iceland, it is still possible to purchase a property if they seek special permission from the Ministry of Justice. However, it is highly recommended that a prospective buyer spends some time in Iceland to become acquainted with the Icelandic real estate market. This time will allow them plenty of opportunities to understand the ebbs and flows of the trade.
Wikimedia. Creative Commons. Credit: Thomas Quine.
Average house prices and their rate of inflation vary wildly between Iceland’s different regions. For one, this is following the population trends in each respective area. And yet, given the market's flexibility, any prospective buyer should understand that these rates continue to sculpt themselves in different directions, mainly due to four primary motives.
The four major driving factors of the real estate market are the current economy, interest rates, demographics and government subsidies, all of which prospective buyers should consider before going forward on a proposed investment.
As explored in our previous articles, How To Move To Iceland | The Ultimate Guide and How To Find a Job in Iceland, relocating to another part of the world takes much consideration to surpass seemingly insurmountable obstacles.
One of these is the current trend of soaring prices, a pattern fuelled by Iceland's ever-increasing influx of visitors. In 2017 alone, the entire country’s residential property price index nearly tripled from 8.06% in the previous year to a whopping 23.15%.
As should be expected, properties in the capital, Reykjavík, are more expensive than those situated in Iceland’s smaller towns. In 2017, the prices of a single-flat home in Iceland increased by 25.5%, while a multi-flat came in at just under 24.5%. Currently, the average residential property in the capital is between 40 million ISK (US$ 382,500) to 50 million ISK (US$ 478,130).
The cheapest parts of the city to purchase property are Hafnarfjördur and Mosfellsbær, both of which sit on the city’s outskirts. These locations follow the expected trend due to the limited amount of property closer to downtown. Over recent years, it has become clear that construction in the city cannot keep up with the pace of the demand.
The most expensive town in which to purchase property in East Iceland is Egilsstaðir due to it being the largest populace in the region (approx. 2,350 people) and having nearby amenities, including a hospital, college and airport.
The cheapest area in the country to purchase property is the sparsely populated Westfjords. In fact, in the past, it has been known for the local municipality to give out real estate lots for free in the hope of bolstering the Westfjords population.
If the intention is to reside in Iceland, then the reasons are clear and compelling. This county is renowned for its incredible scenery, forward-thinking, English-speaking population, and richly creative culture, which has secured it as one of the safest and most aesthetically pleasing locations on earth.
Granted, for what Iceland makes up in captivating natural environments, it lacks in urban development, reflecting the country’s minute population of approximately 350,000 people. Thus, one of the biggest reasons to purchase property here is an investment in Iceland's future.
The old days that saw Iceland isolated from international visitors and any influence on the world stage have long gone; the country commands too much interest from the outside. With that interest, naturally, comes cold, hard cash. Despite the current issues with the construction pace in Iceland, this new funding means this nation's urban development is still very much in its early stages.
Speaking to local Icelanders, it is not uncommon to hear that their family homes were constructed by an ancestor back in the day. Such construction has contributed to this island's unique architecture, with many examples demonstrating the Icelandic knack for balancing their homes beautifully with the surrounding environment.
This DIY approach to house-building has, naturally, become far more regulated over time. However, opportunities are still widely available for those looking to begin their journey with nothing but an empty lot, some blueprints and a head full of ideas.
To build, rebuild, or alter a property with extensions, one must obtain a building permit from the local municipality’s inspector. The building inspector will converse with varying committees to ensure the renovator meets all construction regulations before providing a permit.
For those looking to purchase property in Iceland, a local and English-speaking real estate agent will likely be necessary, if only for the insider knowledge and purchasing opportunities they can bring to the table. However, this does entail extra costs.
The real estate agent's fee can be between 1.5% and 2.4% of the property’s overall cost. On top of that, the stamp duty rate for property transfer comes out at 2000 ISK, added to 0.8% of the official property value. Finally, the cost of registering the property will be 0.1% of the property value.
Below are a few examples of English-speaking real estate agents in the capital.
Fjaroargotu 17, Reykjavík, IS-220, Iceland, IS
Tel: +354 05 20 2600
Laugavegi 97, Reykjavík, IS-101, Iceland, IS
Tel: +354 04 40 6000
Laugavegur 66, Reykjavík, IS-101, Iceland, IS
Tel: +354 03 11 3101
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