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Buying property in Norway: scams and pitfalls

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Everything you need to know is included in our Norway Property Pack

Norway's quality of life and natural beauty are attracting more foreign buyers to its real estate market.

However, as you might know already, this property market can be tricky, especially if you're not from around here. You might encounter unexpected issues and difficulties along the way.

Our network of customers who bought properties and our on-site local advisors have highlighted several issues. We've listed them all in our Norway Property Pack.

We’re going to take a closer look at a few of these in this article.

Is it safe or risky to invest in real estate in Norway?

Yes, Norway boasts one of the safest environments for property investment globally.

However, in places like Oslo, the rapid property appreciation over the past decade has given rise to concerns about a housing bubble.

Here's an example to illustrate: In the upscale neighborhood of Frogner in Oslo, properties that were bought in the early 2000s have seen their values multiply, drawing comparisons with housing markets in cities like Vancouver and Sydney.

While outright scams are rare, overvaluation in heated markets can pose risks. Buyers might find themselves purchasing at the peak, only to face potential devaluation if the market cools.

A distinctive aspect of Norway's real estate landscape is the "boligkjøperforsikring" or home buyer's insurance. This is a unique concept where buyers can get insurance against hidden faults or defects in the property, offering an added layer of protection.

However, the often-cited five-year residency rule for foreigners can be a hurdle.

An interesting case in point is the picturesque Lofoten Islands, where rising interest from foreign investors led to concerns about locals being priced out. This is one of the reasons behind Norway's restrictive policies on foreign property ownership.

While Norway's property market is robust, potential buyers should be wary of the high costs linked not just to the property's price but also its upkeep.

For instance, traditional wooden houses, common in cities like Bergen, may appear charming and quaint. However, these structures often require more frequent maintenance due to Norway's wet coastal climate, a factor often overlooked by foreign buyers.

Norway's legal system is commendable, but its efficiency can sometimes be a double-edged sword. Take, for example, a boundary dispute.

In Norway, boundary disagreements aren't uncommon, given many properties, especially in rural areas like Telemark, have been passed down through generations, with borders marked by natural landmarks. While such disputes get resolved with precision, they can sometimes be time-consuming due to the thoroughness of the Norwegian system.

While many foreigners have seamlessly integrated into Norway's property landscape, challenges remain.

A notable incident involved a British expat in the town of Stavanger, who wasn't aware of the rules governing shared housing associations, known as "borettslag." Unknowingly, he found himself in a complex web of shared responsibilities and costs when a common area in his building needed urgent repairs.

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Watch out for mistakes when buying property in Norway

The concept of "eierskifteforsikring"

One specific pitfall you should be aware of when buying residential property in Norway, especially as a foreigner, is underestimating the importance of the "eierskifteforsikring," which translates to "change of ownership insurance."

This insurance is unique to the Norwegian real estate market and is often overlooked by those unfamiliar with local practices.

When a property is sold in Norway, the seller typically takes out eierskifteforsikring.

This insurance is designed to protect the seller from future claims made by the buyer related to defects or issues with the property that were not known or disclosed at the time of the sale. As a buyer, you should be acutely aware of this because if the seller has this insurance, your primary recourse for any undisclosed defects or issues post-purchase is through the insurance claim process, rather than directly against the seller.

The mistake often happens when foreign buyers, unaware of this practice, assume that they can directly hold the seller accountable for any undisclosed issues discovered after the purchase, as is common in many other countries.

This misunderstanding can lead to unexpected legal and financial challenges.

While eierskifteforsikring provides a level of protection, you should not solely rely on it. Conduct a thorough inspection and understand all aspects of the property.

Engage with a local real estate expert or legal advisor who can guide you through the nuances of Norwegian property law and practices.

The concept of "festetomt"

Another unique aspect you should consider when buying property in Norway is the concept of "festetomt."

This term refers to a leasehold plot of land, which is quite common in Norway but might be unfamiliar to foreigners.

In Norway, it's not unusual for the land a house is built on to be owned by someone other than the house owner. This means you could purchase a house but only lease the land it's on, known as a "festetomt." The lease is typically long-term, often spanning several decades, but it's crucial to be aware of the terms.

The key mistake here is assuming you are buying both the house and the land outright.

Failing to recognize the leasehold nature of the land can lead to unexpected costs and limitations. For instance, the landowner might charge an annual rent ("festeavgift"), which can be subject to adjustment at certain intervals.

Additionally, there might be specific conditions in the lease regarding the use of the land or future developments.

This scenario is quite common in certain areas, especially in suburban or rural parts of Norway. It's essential that you closely examine the property's title and related documents to understand whether you're dealing with a festetomt.

You should also factor in the long-term costs and potential limitations of the leasehold.

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Problems with "borettslag" on property purchases

A unique and often overlooked aspect in the Norwegian real estate market is the impact of "borettslag" on property purchases.

A borettslag is a type of cooperative housing association that is very common in Norway, particularly in urban areas like Oslo. Understanding how a borettslag operates is crucial for a foreigner buying property in Norway.

When you buy an apartment in a borettslag, you're not buying the physical property itself but a share in the cooperative that entitles you to use a specific unit. This arrangement differs significantly from outright property ownership, which is more common in other countries.

One potential pitfall here is not fully understanding the financial health and rules of the borettslag.

Each borettslag has its own regulations and fees, and the financial obligations can vary greatly. For example, some borettslag may have significant collective debt that is reflected in higher monthly fees ("felleskostnader"), while others might have strict rules regarding renovations or renting out the property.

Another key aspect to consider is that decision-making in a borettslag is collective.

This means that significant changes, like major renovations or financial decisions, are often subject to the approval of the borettslag's board or its members.

This cooperative model is quite common in Norway but can be a complex concept for foreigners.

The mistake often lies in underestimating the implications of being part of a borettslag, both financially and in terms of autonomy over the property.

The risks related to "konsesjon"

Another aspect unique to buying property in Norway, particularly relevant to foreigners, is the concept of "konsesjon" – a concession or permit required for certain types of property transactions.

This is particularly pertinent when purchasing agricultural properties or large plots of land.

In Norway, there's a regulation that requires foreign buyers, and sometimes even Norwegian citizens, to obtain a concession from local authorities to buy certain types of property, particularly agricultural land or properties with large land areas. The konsesjon process involves proving that the purchase is beneficial for the local community and the land will be used effectively.

The common mistake here is not realizing the need for this concession or underestimating the complexity of obtaining it.

Some foreign buyers proceed with a property purchase without realizing that their transaction requires konsesjon approval, leading to legal complications and potentially invalidating the sale.

This requirement is more frequent in rural areas where agricultural land is more common.

As a foreign buyer, you should be particularly cautious when considering such properties.

It's important to check whether the property you're interested in requires a konsesjon. If it does, be prepared for a potentially lengthy and complex process.

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Risks associated with "sameie" agreements

Yet another unique aspect to consider when buying property in Norway, especially as a foreigner, is the significance of "sameie" agreements in multi-ownership properties.

A sameie is a form of joint ownership that's common in Norwegian real estate, particularly in properties where several parties own different sections or units, such as in duplexes or certain types of apartment complexes.

In a sameie, each owner has an individual ownership right to a specific part of the property (e.g., an apartment unit), along with a shared responsibility for common areas and expenses.

The critical factor to understand here is the nature of these shared responsibilities and how decisions are made among the owners.

A common mistake for foreigners is underestimating the complexities involved in a sameie agreement. This includes not fully understanding their portion of shared responsibilities, such as maintenance fees, decision-making processes for renovations or changes in common areas, and resolving disputes among owners.

This type of ownership can lead to unexpected financial burdens or conflicts if not properly understood and managed.

For instance, if major repairs are needed in the building's common areas, the costs are typically divided among the owners, which could be a significant expense you hadn't anticipated.

To avoid these pitfalls, it's crucial to thoroughly review the sameie agreement and understand your rights and obligations within this structure.

Pay attention to how costs are shared, how decisions are made, and what your responsibilities are.

The impact of the "Fellesgjeld" risk

A specific aspect you should be aware of when buying property in Norway, particularly as a foreigner, is the impact of "fellesgjeld" on apartments in co-operative buildings ("borettslag"). Fellesgjeld, which translates to "joint debt," is a collective debt shared by all members of the borettslag and is an integral part of many Norwegian housing cooperatives.

When you buy an apartment in a borettslag, the price you pay often includes a portion of the building's collective debt – the fellesgjeld.

This debt can significantly impact the overall cost of the property and your monthly expenses. The mistake many foreigners make is focusing solely on the purchase price of the apartment without fully considering the impact of the fellesgjeld.

Fellesgjeld is used for various purposes, such as financing common area improvements or building maintenance.

It's important to note that fellesgjeld is not a personal debt but is tied to the apartment. It affects the monthly maintenance fees ("felleskostnader") you pay as part of living in the borettslag.

The challenge here is understanding how much fellesgjeld is associated with the apartment you're interested in and how it influences your financial commitments.

High fellesgjeld can lead to higher monthly fees, which might affect your budgeting and long-term financial planning.

It's essential to thoroughly research and understand the specifics of the fellesgjeld for any borettslag apartment you consider purchasing. Look into how the fellesgjeld is structured, what it's used for, and how it's expected to change over time.

You should also consider how the fellesgjeld and associated fees fit into your budget and whether it aligns with your financial goals.

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Issues related to "Grunnbok"

An often-overlooked aspect specific to the Norwegian property market, especially for foreigners, is the significance of "grunnbok" - the official property registry in Norway.

The grunnbok is a crucial document for any property transaction, containing detailed information about the ownership, mortgages, and encumbrances on a property.

A common mistake, especially for those unfamiliar with the Norwegian system, is not thoroughly reviewing the grunnbok entry for a property before proceeding with a purchase. This registry provides essential information that can significantly affect your rights and responsibilities as a property owner.

For instance, the grunnbok will list any existing mortgages or liens against the property, which could impact your ability to secure financing or even the legality of the sale.

It also records any easements or rights of way that might exist, which could affect how you can use the property.

Not being aware of these details can lead to unexpected legal complications or financial liabilities after the purchase. For example, if there's an undisclosed lien on the property, you might find yourself responsible for debts you weren't aware of.

Before purchasing property in Norway, you should always request a copy of the grunnbok entry for that property.

This will give you a clear understanding of any legal encumbrances or issues that might affect your ownership.

"Boligkjøperforsikring" or homebuyer's insurance

A unique and important aspect to consider when buying property in Norway, especially for foreigners, is understanding the role and limitations of "boligkjøperforsikring," which translates to "homebuyer's insurance."

This insurance is specific to the Norwegian real estate market and offers protection to buyers against certain unforeseen defects or legal issues with a property after the purchase.

The common mistake here is assuming that boligkjøperforsikring covers all potential issues or defects you might discover in your new home after the purchase. However, the scope of this insurance is limited. It typically covers legal defects, such as errors in the property's official documentation or undisclosed encumbrances, but may not cover physical defects or issues that a thorough inspection should have revealed.

As a buyer, you might think that having homebuyer's insurance means you're fully protected against any post-purchase surprises, but this is not the case.

It's essential to understand exactly what the insurance covers and, more importantly, what it does not.

For example, if you discover a major issue with the plumbing or electrical system after moving in, the insurance may not cover the repair costs if these issues could have been identified in a pre-purchase inspection.

Therefore, while boligkjøperforsikring can be a valuable safety net, it should not be a substitute for due diligence.

You should still conduct a comprehensive inspection of the property and consult with a real estate expert or lawyer to understand any potential legal issues.

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The concept of "forkjøpsrett"

In Norway, a unique and often overlooked aspect in the property buying process, especially for foreigners, is the concept of "forkjøpsrett."

Forkjøpsrett translates to "pre-emption right" and is particularly relevant in the context of cooperative housing associations (borettslag) and some condominiums (sameier).

Forkjøpsrett gives existing members of a housing cooperative or condominium association the right to buy a property at the same terms as the current buyer, essentially allowing them to step in and take over the purchase. This right is exercised after a sale agreement is made but before the sale is finalized.

A common mistake for foreigners is not being aware of or underestimating the impact of forkjøpsrett on their property purchase. You might think you have secured a property after your offer is accepted, only to find out that an existing member of the association exercises their right to pre-emption, and you lose the property.

This right is particularly prevalent in cooperative housing in Norway.

When a property within a borettslag or some sameier is sold, the association typically announces the sale to its members, who then have a set period to declare if they want to exercise their forkjøpsrett.

To navigate this, you should inquire about the existence and terms of forkjøpsrett when considering a property in a cooperative or condominium.

Understanding the likelihood of this right being exercised can help you assess the risk of losing the property after making an offer.

The risks related to "Oddsalg"

A unique aspect in the Norwegian property market that can be particularly relevant for foreign buyers is the concept of "oddsalg."

Oddsalg refers to the sale of a property at a price significantly below market value, often due to specific circumstances such as a forced sale, a quick sale requirement, or a sale within family members.

For foreign buyers, the pitfall in oddsalg is not understanding the potential tax implications and legal scrutiny such transactions can attract. In Norway, selling a property significantly below its market value can trigger attention from tax authorities. They may view the transaction as an attempt to evade taxes or as a gift, which could be subject to gift tax.

This issue is not very common in regular property transactions but can arise in specific situations, such as when purchasing property from a relative or acquaintance at a lower price.

As a foreign buyer, you might be tempted by what seems like a great deal, not realizing the potential legal and tax consequences.

When considering an oddsalg, it's crucial to consult with a Norwegian legal and tax expert.

They can help you understand the implications of buying a property at a below-market price and ensure that all aspects of the transaction comply with Norwegian laws and regulations.

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