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Statistics Iceland reports that property prices continue to rise across the country as the nation’s economy continues to strengthen. Iceland experienced a rough period following the global financial crisis and watched as its banks collapsed and house prices fell, but things have continued to improve since 2011 policymakers hope a new plan to bail out the country’s largest mortgage lender will help even more. Experts expect property prices to continue rising, while modest growth is forecasted for the overall economy. For more on this continue reading the following article from Global Property Guide.

Iceland’s property market remains strong, amidst improving economic conditions.

The nationwide residential property price index rose by 6.9% during the year to October 2013, the highest year-on-year increase since June 2012, according to the Statistics Iceland. When adjusted for inflation, residential property prices increased by 3.1% during the year to October 2013.

During the year to October 2013:

  • Prices of single-flat houses in Reykjavik rose by 5.6% (1.9% inflation-adjusted). Multi-flat houses saw prices increase by 7.7% (4% inflation-adjusted).
  • Outside the capital, house prices increased by 4.3% (0.7% inflation-adjusted).

Iceland experienced an unprecedented housing boom from Q1 2000 to Q1 2008, with property prices surging 152.9% (71% inflation-adjusted), fuelled by rapid economic growth from 2000 to 2007, when the economy expanded by an average of 4.6% annually.

However, the collapse of Iceland’s banks in 2008 saw GDP shrink by 6.6% in 2009 and by another 4.1% in 2010. From Q1 2008 to Q1 2010, house prices fell by 15.1%.

To save the economy and to help homeowners, Iceland’s state-controlled banks have forgiven mortgage loans for more than 25% of the population since end-2008, equivalent to about 13% of the country’s annual GDP.

The economy bounced back in 2011, with a real GDP growth rate of 2.9%. In 2012, the country’s economic growth was 1.6%. As the economy recovered, house prices rose again by 13.3% from Q2 2010 to Q4 2012.

Recently, the government unveiled a plan to inject ISK9 billion (US$75 million) to bail out the country’s biggest mortgage lender, Housing Finance Fund (HFF). HFF issues inflation-indexed mortgages, and is struggling to repay its debts due to an inflation rate which exceeds 4%, putting HFF at a disadvantage to rivals providing standard mortgages. The government already injected ISK33 billion (US$260.9 million) into HFF in 2010.

Property prices in Iceland are expected to continue rising in the coming months. The Icelandic economy is expected to grow by 2% in 2013, and by another 2.5% in 2014, according to Statistics Iceland.

This article was republished with permission from Global Property Guide.