The global credit crisis has taken its first casualty – not just at the level of a bank, but a country. Iceland is the first sovereign state to succumb to this crisis, having to seek urgent support from fellow Nordic neigbours and also Russia as it nationalised its 3 major banks. The question posed on interest.co.nz in an interesting opinion piece by Neville Bennett is “Will we (NZ) go down the Iceland route“.
As the bog post highlights there are similarities especially in terms of being a small independent state vulnerable to this credit crisis with such a high net foreign liabilities amounting to 160% of GDP in the case of Iceland, that compares to NZ at 89% and Australia at 61%.
I though it would be interesting to complement the financial analysis with some perspective of the property market in Iceland. Now whilst the comparison is made that Iceland is similar to NZ in size, that is only true when you measure both countries against say India or China, in reality the population of Iceland at 303,000 is only the size of Canterbury. It is a harsh landscape with the only habitable areas around its coast line with the centre of the country a barren harsh environment of geysers and volcanic wasteland. The land mass is roughly half the size of NZ at around 130,000 sq kms.
Some smart Google searching eventually brought me to the only significant real estate website in Iceland, not as you may have thought realestate.is or property.is or even hús_fyrir_sala.is (naturally that is house for sale in Icelandic). No in the case of Iceland the media companies seem to dominate with the website of the daily paper Morgunbladid providing a comprehensive portfolio of property.
The current exchange rate of Icelandic Kronor to NZ$ is around 67, so this means that property is not that cheap – take this 2 bedroom city unit on the market for around NZ$195,000, nice and modern layout, but given the scale of the economy and population it is no bargain. Clearly as the opinion piece by Neville Bennett states, the Icelanders enjoyed similar to NZ’ers property price inflation fueled by easy access to foreign debt attracted by relatively high interest rates brought about by a reserve bank using the weapon of interest rates to manage inflation – sounds familiar.
One interesting thing I did find in investigating Icelandic property was a government funded Housing Financing Fund (Íbúðalánasjóður) which provides long term low interest loans of up to Kr 20 million (NZ$300,000) for up to 80% of the purchase price of primary residences. The current fixed rate for periods of 20, 30 or 40 years are 5.4%!
A little outside the funding of this government scheme is this property at the upper end of the Icelandic property market, it is a 410 sqm house of 9 main rooms on the market for Kr 100 million (NZ$1.5m).
What is interesting and maybe is a result of a similar slow property market is a few properties listed which have defiantely been on the market a while evidenced by the snow – which given it is mid October now means that these were listed last northern winter – a tell tale sign not so conspicuous with NZ property.
With the continuing problems in the US property market one of the largest and most respected real estate companies 
Sure the US had been benefiting from an unbridled run of economic growth and perpetuating the model of the classic “land of opportunity” – but to see how loans could be written to people who had no requirement to prove the status of their income or assets (more likely liabilities) always staggered most people (at least in hindsight) and then to see that these new borrowers could be offered “low start mortgages” with rates half of what the flexible lending rate was at the time only could have resulted in one possible outcome – something the world has come to better understand over the past 12 months.
The result is the closure of a well funded and well supported real estate website in Australia! MyHome.com.au – just 16 months after launching to compete with the 6,000 kg gorilla of Realestate.com.au and its adversary Domain.com.au. MyHome is to close up shop and withdraw from the market. The reason for the decision is not clear although visitor traffic seems at the heart of the issue with latest stats of less than 500,000 monthly unique browsers, far short of the projected 1,000,000 projected at the launch.