House Hunting in Iceland: A Lakeside Cabin for Under $800,000

Four Bedrooms and Boat Storage on Lake Thingvellir

$795,000 (108 MILLION ICELANDIC KRONA)

This four-bedroom summer house is perched on a green hill overlooking Lake Thingvellir, the largest lake in Iceland, in the rural southwest region of Grafningshreppur, about 30 miles east of Reykjavik.

The 1.9-acre property sits among a cluster of summer houses along the lake’s rocky western edge, just south of Thingvellir National Park. Homeowners have access to the beaches, while anglers cast their lines for arctic char and brown trout. The park is known as a fisher’s paradise, but it is more famous as the founding location of the world’s oldest parliament, Althing, which began meeting in A.D. 900. In 2004, the area was designated a UNESCO World Heritage Site.

After buying the lot in 2006, Larus Helgason built the 2,271-square-foot wood house in 2009 alongside his college-age son, Bjorn Ragnar Larusson, now a structural engineer, and a few local craftsmen. Once completed, it served on and off as the family’s summer house before becoming lodging for tourists and travelers who wanted to spend a night in the silent countryside. (Summer houses in Iceland are used as vacation properties for locals, who often rent them to tourists. They are not considered legal for permanent residence.)

“We’ve rented it out to over 100 groups over the years, and they’re always amazed at how staying there brings a sense of peace that you cannot buy,” Mr. Larusson said.

The two-story structure was designed to magnify the rugged, verdant landscape, which took shape after the eruption of a volcano about 9,000 years ago.

A gravel road leads up to the house, which features a rain screen made of timber panels and several metal roof slats, protecting it from Iceland’s rain and snow seasons. Cross-laminated timber plywood makes up the outer walls, and a steel structure was installed to reinforce the walls, windows and second-floor spaces.

The foundation of the house is a 970-square-foot, prefabricated concrete basement that opens to the driveway through a garage door. It has a full bathroom and a ceiling crane for washing recreational vehicles.

Iceland’s pricier summer homes, which usually include hot water and central heating, typically feature large lower-level spaces like this, said Fridrik Stefansson, a broker with Miklaborg Real Estate, which has the listing. Besides storing cars, snowmobiles and boats, the best of them also protect houses against earthquakes.

The first-floor common space, with a wood stove, dining table, living room and kitchen, has high ceilings and big windows on three sides, all with expansive views.

Doors open to a wraparound terrace with a tempered glass railing and unobstructed views of the lake. Mr. Larusson said the terrace is detached from the house — supported by a steel base joined to the house and dug into the ground — so that walking on it doesn’t create noise or vibrations indoors.

A hallway opposite the living room has three wood-clad bedrooms and one bathroom.

A switchback staircase made of Canadian oak leads up to a lounge that doubles as a fourth bedroom, as well as a light-filled work space and a veranda facing south. The angled shape of the second-floor windows aligns with the slope of the roof.

Behind the house, a glass-encased Jacuzzi opens up to the starry Icelandic night sky with the touch of a lever.

With Reykjavik about 45 minutes away, the rural property is in prime position to reap the benefits of both the bustling city, where 60 percent of Iceland’s population lives, and the pastoral Southern region. Keflavik, Iceland’s international airport, is about 75 minutes southwest. Selfoss, a river town with about 7,000 residents and a museum dedicated to the American chess champion Bobby Fischer, is about 25 miles south.

Market Overview

It’s no secret that Iceland is an expensive place to live. Following the recession of 2009, home prices surged as the country became a global tourism destination and housing supply remained limited.

But in the past few years, as developers raced to build new properties in and around the capital region, prices began to cool. The market took another hit last year when WOW Air, one of Iceland’s two main airlines, closed, damaging the tourism market.

In July 2019, the nationwide residential price index rose by about 4.2 percent over July 2018, marking its slowest growth in five years, according to Statistics Iceland.

Asdis Osk Valsdottir, managing director of Husaskjol Real Estate, said that before the pandemic, a house in Selfoss might sell for 40 million to 50 million kronur ($293,000 to $365,000), the same as a three-bedroom apartment in Reykjavik. According to the National Registry of Iceland, houses in the capital area currently cost between 80 million and 110 million kronur ($590,000-$800,000), while apartments go for 50 million to 64 million kronur ($365,000-$470,000).

When the first coronavirus case was confirmed in Iceland on Feb. 28, officials were already preparing an aggressive national program of testing, quarantining and contact tracing. The island nation, with about 360,000 residents, never fully shut down, though it did impose tight restrictions on large gatherings and certain industries.

As of Aug. 4, Iceland had reported just 1,915 Covid-19 cases and 10 deaths, according to the World Health Organization.

Despite the country’s success in controlling the virus, its tourism sector was further disrupted when the borders closed, which in turn threatened its housing market. With many foreigners currently unable to enter and many locals choosing not to travel abroad, more Icelanders are exploring the apartment and summer-home markets, both of which are now seeing an uptick in sales.

Iceland’s decision to partially reopen its borders to tourism on June 15 added fuel, creating “an even livelier summer market than usual,” Mr. Stefansson said. (Along with European nations, Iceland isn’t allowing Americans to visit unless they are romantically linked with an Icelandic national and can provide proof of previously living together.)

Gretar Jonasson, managing director of Felag Fasteignasala, Iceland’s Association of Realtors, said brokers have continued to host in-person showings and open houses with staggered arrivals, using masks, gloves and hand sanitizer. Sales fell by 30 to 40 percent during March and April, he said, but rebounded in May as local buyers returned to the market.

Ms. Valsdottir said she has been busier during the past three months than at any time in her 17-year career. “I was not expecting to say this in March,” she said, “but by July 1, I had sold the same amount of properties in volume as I did last year in total.”

Domestic travel and summer-home sales aren’t the only reasons Iceland’s housing market is bouncing back. Last fall, the newly appointed director of the Central Bank of Iceland’s financial stability department lowered market rates from 4.5 to 1.7 percent after the collapse of WOW Air. The central bank rate is now at 1 percent. The resulting increase in first-time buyers — who now make up nearly 30 percent of the market — has breathed life back into the market, said Olafur Sindri Helgason, chief economist of Iceland’s Housing and Construction Authority.

“The most significant change we see is in the number of listings that are being taken off the market, which is usually an indicator that the property has been sold,” he said. “We see a huge surge in these numbers all over the country, an almost 50 percent increase compared to last year.”

The low rates have helped keep Iceland’s housing market stable, but its future remains heavily dependent on its tourism industry. If unemployment continues to rise, Mr. Helgason said, purchasing power and home prices could fall quickly.

“There’s economic uncertainty here that will probably affect the decisions of local and foreign buyers for years to come,” he said. “Plus, winter is coming and we don’t know what will happen then.”

Who Buys in Iceland

Since the start of Iceland’s tourism boom, most of its foreign buyers have been European, many from Britain, France and Scandinavia, Mr. Stefansson said. Most of his firm’s foreign buyers hunt for second-home apartments in downtown Reykjavik or properties in the countryside.

Ms. Valsdottir said her foreign clients do the same, adding that North Americans have become increasingly interested in the market. She works with many Canadians as well as U.S. citizens.

Buying Basics

With the exception of European nationals, foreign buyers in Iceland must first request permission from the country’s Minister of Justice through an online application. Ms. Valsdottir said that property rights are granted in most cases as long as the prospective buyer conducts business in Iceland.

After gaining approval, the buyer works directly with the seller’s broker because Iceland law requires that one agent represent both sides of the transaction. Lawyers make up about 30 percent of real estate agents in the country, Mr. Jonasson said.

A notary must review all signed contracts, with stamp duties costing the buyer about 0.8 percent of the registered value of the property. Mr. Stefansson said for this property, the price is 2,500 kronur ($18) per document.

Websites

Languages and Currency

Icelandic; krona (1 krona = $0.007)

Taxes and Fees

The monthly estimated taxes on this property are about 40,000 kronur ($295). Mr. Stefansson said taxes are usually lower on summer houses because of the residential restrictions.

Contact

Fridrik Stefansson, Miklaborg Real Estate, 011-354-569-7000, miklaborg.is

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