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PROPERTY

Is now a good time to buy property in Norway?

As Autumn approaches, many people are considering buying a home in Norway. But is that a smart move? Here's what real estate experts told The Local.

Pictured is a street in Bergen.
Is now the best time to try and buy in Norway? Pictured is a street in Norway. Photo by Lena Borge on Unsplash

Home prices in Norway rose by 1.9 percent in August 2022, according to the most recent housing price statistics from Real Estate Norway (Eiendom Norge).

Adjusted for seasonal variations, prices rose by 0.6 percent. At the end of August, the average price of a home in Norway amounted to 4,601,168 kroner.

“House prices rose sharply in August. It is common for house prices to rise in August, but the growth this year is strong for August, as the seasonally adjusted increase of 0.6 percent shows,” CEO of Eiendom Norge, Henning Lauridsen, stated in a press release. 

“The (central bank’s) key interest rate was raised once again in August and is now back at the same level as before the corona pandemic. 

“So far, the somewhat higher interest rates have not had an impact on the housing market, and that in itself is not surprising since interest rate increases have historically been slower than interest rate reductions. In the longer term, the interest rate will have an effect,” he added.

On the one hand, the Norwegian economy is characterised by high activity and low unemployment. On the other, Norwegians are feeling the pressure of skyrocketing electricity and food prices, as well as overall inflation, as well as rising mortgage repayments and interest rates.

In such turbulent times, many people who are currently paying rent in Norway are considering a purchase of a home to hedge against the volatility in the market.

But is that a good idea?

Consider buying a home – if you’re currently renting

The interest rate in Norway is still relatively low if you compare it to what it was just ten years ago, real estate agent Mads Wickmann at Nordvik Bolig AS told The Local. 

“Historically speaking, in Norway, we see that home prices always increased – it just depends on how much. Look at the crisis in 2007 and 2008. Prices went down in that short period but continued to grow shortly after. The trend is always going up. 

“With that in mind, if you’re renting a property, I’d say that it would be better to buy now – or at least start looking at properties. Remember, if you’re renting, you are just paying the actual owners of the property instead of investing in a property you will own and paying down your debt.

“While we haven’t seen an immediate effect of the increased interest rate in August, and prices rose, there will be an effect in the longer term. Furthermore, home prices in Norway are cyclical – they’re lower in the Autumn and Winter.

“We have some differences in the market after two years of the Covid-19 pandemic, but most years before that, you had prices go up in the first four months of the year, then a period of stagnation, and then a dip from October to December. Then prices start to grow again from January as buyer interest grows and due to the lack of properties on the market,” Wickmann explained.

He advises people to look into buying a property now so that they can participate in bidding rounds as soon as possible – especially if they have a partner or if they’re renting.

“It’s probably harder for single people, but with two wages, couples will likely be able to handle interest rate increases. My opinion? I would rather start looking into buying now than renting. 

“Buy now, don’t wait; start making down payments. As time passes, you will have paid off some of your debt, and there is a chance of the property value increasing,” the Nordvik Bolig real estate agent pointed out.

Stay within your budget

Grethe Wittenberg Meier, head of PrivatMegleren, Norway’s third largest estate agency, agrees with Wickmann. She told The Local that prices are likely to go down this Autumn and that buyers should be out and in the market early.

“Try and see if there are properties you like in the market. See if you can get the right price. Prices will likely go down this Autumn, so it will be a good time to buy. It’s a good idea to get involved in the bidding process in the Autumn. 

“Set a budget, stay within your budget, and you could get lucky. Furthermore, there will be more properties in the market that you can look at in the Autumn,” Meier said.

At the same time, both Wickmann and Meier pointed out that there is a lot of uncertainty in the market. The energy price crisis and overall inflation might affect both the broader economy and housing prices.

So far this year, as Eiendom Norge pointed out in its latest report, there has been a stronger development in housing prices than most experts expected at the start of 2022, and the year as a whole will probably end with a robust overall increase in home prices.

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PROPERTY

What you need to know if you want to rent out a room or annexe in Norway

If you’ve got a spare room or annexe you might want to put it to good use, especially as the earnings could be tax-free. Still, there are several rules in Norway you’ll need to be aware of.

What you need to know if you want to rent out a room or annexe in Norway

Plenty of homes in Norway, especially those that are more expensive, come with an independent annexe, and ad listings will typically list how much you can earn if you were to rent this out.

You may also have a spare room or basement you want to put to good use. Many see renting out annexes and basements as a great way to boost their income or offset the cost of their mortgage.

Long-term or short-term?

Before putting a room, annexe, or basement on the market for rent, you must have a rough idea of how long you want to rent it out.

The length of the tenancy will affect things like taxes and where you would want to list the property.

For example, Airbnb makes more sense for those wanting to rent a room or their property for a few weeks.

In Norway, rental income up to 10,000 kroner from short-term rentals is tax-free, provided each rental period is less than 30 days. After this limit has been reached, 85 percent of income is taxable at a rate of 22 percent.

READ MORE: The rules for renting out your home on Airbnb in Norway

If you have a dormitory, annexe or studio on your property that you wish to rent out for longer, then you will need to check that it meets the legal requirements to be rented out.

One of the most important distinctions is often made between whether the area you wish to rent out is an “independent unit” or part of the existing housing.

Whether the home has a separate entrance is typically one of the key distinguishers. Spaces that are considered independent units have stricter requirements, such as a private bathroom and fire safety measures.

Spaces must also have ceilings of at least two metres, with slightly different rules for sloping roofs. Certain rooms will also need to have windows and escape windows and a fire separation between the apartments.

Dormitories (hybel) are not considered independent housing, but the tenant must still have access to a bathroom and toilet, even if it isn’t their own private bathroom. The other rooms must be suitable for permanent residence under the rules of your local authority.

You can rent out a room in your home. However, the tenant must have access to a toilet in the home.

Should you choose to rent out a space, be that a room or dormitory, that doesn’t meet requirements, you could be legally liable for any incidents, or the tenant may have the right to terminate the tenancy or demand a reduction in rent.

Most Norwegians turn to Hybel.no or Finn.no to rent out a room or annexe. 

The tax rules

Renting out rooms or dormitories is so popular because the income can be tax-free in many cases.

A few requirements must be met for the income to be tax-free. You can rent out several dormitories tax-free on the same property, but there cannot be more than one “family flat/ familieleilighet” on the property. These are self-contained apartments suited for two adults and a child.

You must also collect less than half the rental value of the entire property. Alternatively, rental income is tax-free if all or part of the home is rented out for less than 20,000 kroner in the income year.

Norway’s tax administration has an online wizard that will give you an overview of whether your rental income will be tax-free.

Your responsibility as a landlord

As you will all be aware, renting out a room isn’t as easy as posting an ad and waiting for the tax-free income to roll in.

For example, you will need to have a proper contract in place, and the deposit must be paid into a separate account from the tenant or landlord.

There are also rules on when a landlord can access the property, and they will typically always need the permission of the tenant to access their space.

In addition, there are rules on when a landlord can raise the rent and how much by.

All this is as well as being aware of the rules and responsibilities for who covers what in Norway when things go wrong.

Luckily, there are plenty of organisations and resources, such as Husleie.no, that can offer landlords advice. These resources help with things like rent collection, contacts, and deposit accounts.

READ ALSO: The most common disputes between tenants and landlords

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