According to the Icelandic Tourism Board, tourism arrivals in the first seven months of 2019 fallen 2.4 percent to 1,13 million from the same period last year, in sharp contrast to the average annual growth of 24 percent from 2013 to 2018. The sudden decrease in the number of tourism arrivals was mainly due to the collapse of WOW Air, which left passengers lulled in March 2019. Compounding the adverse effects of the fall of WOW Air in March, the Boeing 737 Max crashed after two new aircraft crashed in the previous five months killing hundreds. Icelandair, the flag carrier of the country, now has nine Boeing 737 Max aircraft that it cannot fly. Actually, Icelandair has been forced to shoot 45 pilots flying the Max recently. land
Tourists to Iceland
According to data tool Diio by Cirium, scheduled flights are down 27.4 percent throughout the rest of 2019.
"We are prepared for a deeper recession, and the number of visitors we are receiving seems to indicate that this is happening," said Governor Mar Gudmundsson of the Central Bank.
Slowing hypothecary market growth
In June 2019 the Central Bank of Iceland reduced its seven-day benchmark deposit rate by 25 basis points at an all-time low of 3.75 percent after a 50-base point reduction in May 2019. As a result, the general interest rate on indexed loans decreased from 3.65 percent a year ago to 3.19 percent in July 2019.
Nevertheless, the mortgage market is slowing significantly. According to the Central Bank of Iceland, the total amount of outstanding residential mortgages rose by modest 2.3 percent to ISK 646.02 billion (US$5.19 billion) in July 2019, which, according to August 2013, was far below the 8.5 percent growth of the previous year and the lowest increase since the previous year.
Iceland's hypothecary loans
July 2019 for new loans:
Residential hypothecary loans floating rate: up 18.5 percent by ISK 9.98 billion (US$ 80.22 million)
Residential fixed-rate hypothecary loans: almost 71% y-o-y to ISK 1.67 billion (USD 13.39 million).
Mixed residential building activities
The beginning of the dwelling has begun to fall.
Countrywide:
According to Statistics Iceland, housing starts fell 11% to 2 525 units in 2018 from 2 836 units a year earlier. The average housing starts plummeted to only 650 units each year between 2009 and 2016 – a marked decrease from an annual average of 3,500 units between 2003 and 2008.
Construction housing grew by 5.1% year-on-year to 4,545 units in 2018, the highest since 2010.
In 2018, the number of accomplishments rose by 30.3 percent to 2.303 units, up from an annual average of 1.100 units between 2009 and 2017.
Construction of Iceland housing
In Reykjavik, the capital:
Starting from 2 208 units a year ago, housing starts fell from 42 percent in 2018 to 1.281 units but still above the annual average of 560 units from 2009 to 2016.
Constructed dwellings dropped 5.1% y-y to 2.845 in 2018, up from an annual average of 2.600 units between 2009 and 2017.
The total number of housing finishes grew by 7.3% a year to 1,435 units in 2018, up from an average of 770 units per year in 2009-2016, but still below the average of 1,800 units per year in 2003-2008.
Based on projections from Arion Research, nearly 2 600 residential buildings – the highest level since before the global financial crisis – will be completed this year.
Mismatch in supply
In the middle of slow sales, an increasing number of occupied high-end apartments are flooding the capital. In fact, a recent Morgunblazið report has shown that 331 apartments in ten new downtown Reykjavík townhouses, which make up approximately 64 percent of the new supply, are still not sold. Hafnartorg and Höfðatorg are the most expensive apartments. Upon completion, a unit could cost over ISK 200 million (US$1.6 million). Some of these units were launched at the end of 2017. Another 240 units will be sold next year and more than 1,000 apartments are planned to be built.
That is why investors and constructors are now reluctant to put their money on the housing market. One manufacturer who initially expected to take 12 months to sell his flats now targets 18 months because of low demand. Another is that the apartments are expected to sell for 12 months longer than they were originally thought.
"The luxury market is being catered by contractors, which now seems more or less saturated," said Asgeir Jonsson, University of Iceland economist.
Although hundreds of new luxurious apartments are vacant, there is still a lack of affordable housing. According to government estimates, around 8,000 homes are needed to cope with the country's affordable housing shortage.
"In the suburbs, which are cheaper, they shouldn't have stopped building," one manufacturer said. "The downtown apartments are more expensive and less family-friendly."
To address the affordable housing shortage, last year the Government announced an increase in housing subsidies and market access to land. The new measure comprises:
Sale to the Reykjavik City Council of a considerable area of governmental land for construction;
Deregulation of housing and planning standards to accelerate new buildings;
Introducing incentives for longer-term housing rental;
Increased rental benefits and special efforts to build low cost housing for students and people with disabilities;
Provides special support to families who purchase their first home.