The total valuation of all real estate in Iceland has risen by 11.7% year-on-year, according to next year’s real estate valuation, just released by the Housing and Construction Authority (HMS). Inflation over the past year measured 10.2%, meaning that the real value of property has only risen slightly.
“We are looking at big population growth, such rapid population growth that it has been suggested that Icelanders haven’t multiplied so rapidly since the 18th century. At the same time, housing construction is not keeping pace with this population growth and interest rates have risen a lot,” stated Tryggvi Már Ingvarsson, manager of HMS’ real estate department, at a presentation on the 2024 valuation report yesterday.
Highest rise in East and Westfjords
Just how much real estate has risen in value varies from region to region, with the highest rises in East Iceland and the Westfjords, at 22.4% and 20.5% respectively. The lowest rise was in South Iceland, at 12.9%, while it was only slightly higher in the capital area at 13%.
The real estate valuation in Seyðisfjörður, East Iceland, rose dramatically, or over 40%, likely due to many construction projects in the town. In Reykhólasveit and Vesturbyggð (the southern Westfjords) property value also spiked between 30 and 40%. As average property prices in those areas are much lower than, for example, in the capital area, such hikes do not amount to so much in ISK.
The capital area contains 60% of the entire country’s residential property and about 75% of the value of all residential property in Iceland.
Property value key for municipal coffers
The yearly real estate valuation in Iceland is important for municipalities, as around 15% of municipal funds come from property taxes, the largest part from commercial property taxes. Low valuation can have a negative impact on municipal coffers, especially if it is below inflation, which is the case in many regions.
Mayor of Vesturbyggð Þórdís Sif Sigurðardóttir attributes the dramatic rise in property valuation there to growth in the aquaculture and tourism industries. While there is little property vacancy in the region, the municipality is working to kickstart housing construction projects.
Property taxes are calculated based on property valuation, so while a rise in valuation means homeowners’ investment is paying off, it also means an increase in property taxes. Last year, property value rose 20% year-on-year, an all-time record.