When thoughts move to investing in real estate or purchasing a second home abroad, Iceland may not spring to mind, but it should. Why? The thriving property sector offers attractive returns, and the standard of living is high, making the scenic glacial island the ideal place to buy in 2022.
We spoke to Páll Pálsson, a real estate broker and an owner of Pálsson Fasteignasala, a leading Icelandic real estate agency. According to Mr Pálsson, “the Icelandic property market is one of the fastest growing in the world over the past five years, with demand strengthening amid limited supply, and valuable opportunities for investors to create wealth for the foreseeable future”.
Reykjavík, Iceland
Flourishing real estate market
Iceland has experienced a marked rise in house prices in recent years, driven by growing tourism, robust economic growth, and limited supply. In just under a decade (2010-2019), values have increased by 109%, and on average, by 9% annually since 2000. More recently – from Q1 to Q2 2022 – the nationwide residential property price index rose by 22.88%. On top of that, real estate sells in record time, at around 4%-8% above the asking price.
According to Pálsson Fasteignasala, there are four major drivers: the economy, interest rates, demographics, and government subsidies. Prospective investors should consider these before moving forward with a purchase.
Advantages of investing in Iceland
The majority of foreign buyers are from the US, UK, Germany, and Canada. Many factors draw them to Iceland, ranging from the high standard of living and the dramatic and diverse landscape to the low crime rate and the strong education and healthcare systems. People who invest in a holiday home in Iceland appreciate the relaxing, peaceful, and quiet vibe.
Many family homes were constructed generations ago by ancestors, giving the architecture a unique feel. Furthermore, the population is low (approximately 376,250), meaning buyers are investing in Iceland’s future – an exciting and potentially profitable opportunity.
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How to invest in Icelandic property
In terms of eligibility, the Housing Financing Fund states that European Economic Area (EEA) residents legally domiciled in Iceland can purchase real estate like natural-born citizens, as long as they meet certain requirements. To secure a permit, they must apply to the Icelandic Directorate of Immigration. If investors don’t intend to live in Iceland, it may be possible to purchase a property by seeking special permission from the Ministry of Justice.
It’s advisable to use an English-speaking real estate agent, for the local knowledge and purchasing opportunities they bring to the table. Their fees range from 1.5% to 2.4% of the property’s overall cost. Meanwhile, stamp duty is 0.8% of the official value if the owner is an individual, and the registration cost is 0.1%.
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Benefits of living in Iceland
Reykjavík is located on the southwest coast and is known for its thriving nightlife, vibrant cultural scene, and colorful, quirky buildings. Over 60% of Iceland’s population lives in the city and the six surrounding municipalities – Kópavogur, Hafnarfjörður, Garðabær, Mosfellsbær, Seltjarnarnes, and Kjósarhreppur – many of whom speak English.
The small city offers a host of things to do, from fishing and whale watching to visiting microbreweries and artisan coffee shops. Music-wise, Secret Solstice and Iceland Airwaves are popular annual festivals. In terms of high-end restaurants, Michelin-starred Dill and Óx fit the bill. And for golf? A handful of courses are within a 20-minute drive of Reykjavík, including Keilir – number one in the country.
High-end homes at the geothermal space resort Blue Lagoon, Iceland
Beyond the capital, there’s much to explore, from black sand beaches, imposing fjords, and vast ice caps, to geysers, volcanic craters, and lava fields. Just a short drive away, it’s sometimes possible to see the elusive Northern Lights, and the relaxing waters of the Blue Lagoon are reachable within 40 minutes.
Additional residential areas range from Egilsstaðir in the east – the most expensive town to purchase property – and Westfjords in the northwest, the most sparsely populated region.
In general, residents prioritize a healthy work-life balance that’s family-focused. Surrounded by nature and clean air, it’s no wonder Iceland ranks as one of the happiest nations in the world.
A pair of premier listings
This light and airy split-level apartment spans 170 square meters and is ideally located on Hverfisgata in downtown Reykjavík. The next owner will enjoy a lift up to the condo, three spacious bedrooms, a large living and dining room, and high ceilings. In terms of décor, it’s all about crisp white walls and accents of blue.
Additional noteworthy features include wooden flooring, two bathrooms, and three parking spaces next to the property. Out and about, it’s just a short walk to restaurants, schools, kindergartens, and shops. Price-wise, the stylish duplex is on the market for $1,900,000.
Slightly out of the center of Reykjavík in the popular area of Fossvogur, there’s a plot of land where a detached $2.5 million home is being built across three levels. The estimated construction time is 10 months, and the buyer can choose materials and furnishings.
Detached $2.5 million home in Fossvogur, Reykjavík
When finished, the contemporary residence will span 280 square meters and feature four bedrooms, a spacious living and dining room, a fully-equipped kitchen, a garden with a sundeck, and a garage.
Upstairs, the master will house a walk-in closet, and there’s the option to have a second master suite on the ground floor.
For more unique properties and additional information about buying real estate in Iceland, contact Pálsson Fasteignasala.
