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.
I think people are over dramatizing the situation in Iceland. Iceland has very low employment, of less than 2% even after the crizes. Housing price has not dropped after the crises. You can see the price index here:
http://www.fmr.is/chartfx2/visitala_stor.aspx
Thomas,
Thanks for sharing this local perspective. As is often commented on in this blog – the media naturally sensationalise the truth.
The graph looks to interesting – is it possible to see the longer term price index for housing over the past 10 years to see if it reflects closer to the NZ trend?
Interesting graph, it appears that the Iceland index was pegged at 100 in 1994 and is now around 350. In NZ the median house price was around $120K in 1994, rose to $350K, now $330K. That makes their housing boom look similar-sized to ours.
However, during that time Iceland’s GDP/capita rose from about US$20K to US$40K (PPP), or even over $50K in $US before the krona crashed and burned. That is 5% growth per year for 14 years, I don’t think NZ can match that. The examples you showed make property in Iceland look, if anything, cheap relative to incomes, compared to NZ.
Of all the countries that experienced a property boom or bubble, nearly all are now crashing in spectacular fashion: Ireland, Spain, Denmark, UK, USA. I can think of only NZ, Australia, and Norway as holdouts, and Norway has oil money. California has now fallen 40% from its peak 3 years ago and by most accounts has quite a bit left to fall. It would be very difficult to “over-sensationalize” what has happened in California, it is just unbelievable. At the peak, 50 square metre hovels in Compton – famous for gangs and crack houses and one of the poorest and most dangerous areas in the US – were going for US$450,000. Have a look at http://www.doctorhousingbubble.com.
Cheers,
Robert
Robert,
Thanks for your input and contribution. I would have to say that NZ is not holding out in terms of property market falls. The scale of the NZ property market and the diversity of the market creates a less than perfect statistic in median prices. I think if you were to have an equivalent to a Case/Schiller Index in NZ for same property sales we would see price falls. The real estate industry is witnessing it and feeding back to vendors the reality of setting realistic price expectations if they want to sell property in today’s market.
[...] there isn’t much to be had in regards to finding English language property listings in Iceland. From the little bit we saw, listings aren’t that cheap either and with the falling Krone, they might become cheaper for [...]