29.07.2010 14:39
According to a new survey carried out by the Consumers' Union of Iceland, rent has risen in the greater Reykjavík area since the beginning of the year, with the increase ranging up to 17% for the largest flats advertised. The survey revealed that five-room flats were advertised for rent at an average price of ISK 1,253 per m2 in July, as opposed to ISK 1,066 in February. Thus an average 160 m2 flat costing ISK 170,000 per month in February now costs ISK 200,000, an increase of 17%. Rent on studio apartments rose by 7% over the same period, while three-room and four-room flats rose by 4.5% and 4%, respectively. On the other hand, rent on two-room flats declined by about 2% during the period. The flats covered by the survey were advertised for rent by Iceland's major rental agencies and were all on the open market. The Consumers' Union of Iceland has studied rental prices on a regular basis over the past two years and has found that rent is now higher than in April 2008, when the first survey was taken.
Demand for rental property remains strongRental agreements are commonly indexed to the CPI, which means that rent prices rise in line with general price levels. The general price level has risen by only 1.3% so far in 2010, however, and therefore explains only part of the increase in rent. The law of supply and demand probably makes some impact here, as demand for rental housing has exploded since the crash. According to the National Registry of Iceland, 4,565 rental agreements were concluded during the first six months of the year, an increase of 86% over the same period in 2008. Demand for rentals was particularly strong in 2009. It has retreated somewhat once again but remains brisk; for example, 834 residential rental agreements were registered in June 2010, almost 24% more than in May and 3% more than in June 2009. Housing market much healthier than before In view of economic conditions and the recent situation in the rental housing market, it is quite appropriate that many consumers should choose to rent rather than buy. Housing market turnover has shrunk by as much as 80% since the crisis struck, and prices are down nearly 40% in real terms from their peak in early 2008. In the past few months, however, housing deflation has slowed down substantially. According to Statistics Iceland (SI), real house prices in Iceland have fallen by 2% thus far in 2010, after declining by 10% in 2009. Prices have been quite volatile in recent months, and purchases have been sparse. In fact, the market could begin soon to tempt potential buyers who have waited out the storm: interest rates are much more palatable than before, prices are down sharply since the collapse, rent has risen in the recent term, and the first signs that the recession has hit bottom are beginning to surface. The chief hindrances in the housing market at present are expectations of further price drops and delays in restructuring of household balance sheets. The residential real estate market is unlikely to recover to any marked degree before household financial restructuring is complete, the employment situation has improved further, and uncertainty about future household income has been reduced.