Common Mistakes When Buying Real Estate in Iceland

Published on January 14, 2026 and written by Cyril Jarnias

Buying real estate in ICELAND is a dream for many foreigners: spectacular landscapes, a generally stable market, strong legal security. But behind this appealing image lies a very specific regulatory, tax, and technical environment. Many buyers—even experienced ones—make the same, often costly, mistakes because they project “mainland” reflexes onto a country that operates differently.

Underestimating the Complexity of the Legal Framework for Foreigners

One of the most common mistakes is thinking that having the money is enough to buy any property, as in most European countries. In ICELAND, ownership rules are clear but highly regulated, especially for non-residents and non-EEA nationals.

Buyers who rely on superficial information—or generalizations about the country’s “openness”—later find themselves blocked at the registration stage, or even facing a rejection from the Ministry of Justice.

Confusing the Right to Visit with the Right to Acquire

Many foreigners believe that being able to travel freely or stay in ICELAND automatically gives them the right to buy property there. However, the key law regarding property, the Act on the Right of Ownership and Use of Real Property (No. 19/1966, amended by Act No. 74/2022), clearly distinguishes between:

– Icelandic citizens and persons legally domiciled in the country;

– nationals of the EEA/EFTA who meet certain conditions;

– other foreigners, who must obtain formal permission from the Minister of Justice.

Misunderstanding the Status of EEA/EFTA Citizens

Another frequent mistake: thinking that simply being a citizen of an EEA or EFTA country is sufficient to buy without restrictions. In reality, these individuals are treated like Icelanders on the condition that they are domiciled in ICELAND or fall into specific categories related to freedom of establishment, services, or capital.

In practice, it often requires:

– being registered as a resident;

– having an Icelandic identification number (kennitala);

– submitting a specific declaration with the purchase contract, in accordance with Regulation No. 702/2002.

Many European buyers overlook these formalities, only to discover that their deed cannot be registered until their situation is regularized.

Neglecting the Permission Requirement for Non-EEA Nationals

For non-EEA/EFTA nationals (including, since late 2020, British citizens), the critical mistake is signing a preliminary agreement or committing funds before obtaining approval from the Ministry of Justice.

– it applies to a single property, typically not exceeding 3.5 hectares;

– it is granted either for direct professional use or due to a close connection with ICELAND (marriage to an Icelander, close family, regular extended stays, etc.);

– if the application is based on this “close connection,” the buyer cannot own other properties in the country.

Overestimating the flexibility of these criteria, or setting up artificial legal structures (shell companies, arrangements without real substance) in the hope of “circumventing” the system, exposes one to an outright refusal of permission—and thus the impossibility of registering the transaction.

Forgetting Restrictions on Certain Types of Properties

Many investors instinctively target isolated land or houses, without realizing that ICELAND protects its territory very strictly. Key prohibitions and limitations include:

Ignoring these constraints leads to acquisition or development projects that will never materialize, after months of procedures and expenses.

Delaying the Request for a Kennitala and Administrative Procedures

Another classic: waiting until you’ve found “the right property” to start the administrative machinery. However, no real estate transaction can be finalized without an Icelandic identification number (kennitala), whether you are a resident or a simple investor.

Obtaining this kennitala via Registers Iceland generally takes 2 to 3 weeks. Add to that:

– a potential permit application to the Ministry of Justice (several weeks to a few months);

– opening a local bank account, sometimes necessary;

– anti-money laundering checks by banks and notaries.

Buyers who commit to tight contractual deadlines without securing these prerequisites risk being unable to meet the signing or payment dates, leading to penalties, loss of deposit, or even cancellation of the sale.

Underestimating the Purchase Procedure and the Strength of the Land Registry

ICELAND has a very transparent land registry system (Fasteignaskrá), but it must be used correctly. Many foreign buyers make two mistakes: relying solely on what the seller says and neglecting the registration phase, even though it is what confers true legal security.

Believing that Signing “Is Enough”

The sale of a property in practice follows several structured steps:

1. Offer and acceptance. 2. Drafting and signing of the kaupsamningur (purchase contract), often with a deposit (around 10%). 3. Final checks (financing, permits). 4. Signing of the deed of transfer before a Notarius Publicus. 5. Registration with the District Commissioner and integration into the land registry.

Neglecting the Title Search and Easements

Many foreign buyers rely on the seller’s good faith, or even a summary provided by the agent, without any lawyer examining in detail:

– current mortgages and liens;

– easements (right of way, geothermal pipelines, public access to the coastline…);

– the exact boundaries of the plot;

– registered uses (residential, commercial, mixed).

Compressing Due Diligence Timelines Excessively

Theoretical timelines may seem short—a simple cash transaction can be completed in 3-4 weeks. In practice, for a foreigner, the complete due diligence phase (title check, permits, compliance with zoning plans, natural risk analysis) often takes several additional weeks.

Committing to an unrealistic schedule, for example by accepting a “closing in 30 days” clause without allowing time for:

– obtaining the kennitala;

– having documents reviewed by a lawyer;

– ordering a technical building inspection;

amounts to de facto waiving these checks, or conducting them too hastily, at the risk of missing major red flags.

Ignoring the Reality of Prices, Costs, and Financing

Another recurring trap: thinking that ICELAND is a “cheap small market,” or comparing prices to those in a European countryside. The country is one of the most expensive markets in Northern Europe, especially in the Reykjavik region.

Underestimating Price Levels and Their Dynamics

Recent figures show a tight market:

– population of approximately 390,000 inhabitants, over 65% of whom live in the capital region;

– average prices around €4,400 / m² nationwide (2025);

– in downtown Reykjavik, typical range: €5,500 to €6,200/m²;

– capital region in general: often over 60 million ISK in value per dwelling, exceeding $400,000 USD.

A frequent mistake is to extrapolate past increases or, conversely, to believe in a “bubble ready to burst.” However, history shows:

Period	Average Annual Increase in Residential Prices
2010 – 2016	3 to 5%
2016 – 2019	8 to 10% (tourist boom)
2020 – 2022	1 to 3% (pandemic)
2023 – present	5 to 7%

Failing to incorporate this dynamic into your purchase or investment plan can lead either to overpaying for a property for fear of “missing the boat,” or waiting indefinitely for a drop that never comes, while financing costs increase.

Forgetting Transaction Costs and Recurring Charges

Many foreigners focus on the listed price without including additional fees. In ICELAND, a property purchase typically involves:

Item	Order of Magnitude
Stamp duty (transfer tax)	0.8% (individual) to 1.6% (legal entity)
Registration fees	≈ 0.1% of value + fixed fees per document
Lawyer’s fees	150,000 to 350,000 ISK (often 0 to 1% of price)
Technical inspection	80,000 to 150,000 ISK
Permission fee (non-EEA)	≈ 120,000 ISK
Currency exchange spread / transfer fees	0.5 to 3% of the amount transferred
Agent’s fees (often seller’s side)	1.5 to 2.5% (indirectly factored into the price)

In total, 2 to 6% of the price goes to transaction costs. Added to this annually are:

Annual Charge	Indicative Level
Municipal property tax	up to ~1.6–1.65% of the official value
Insurance	≈ €400 to €1,200
Utilities (heating, electricity)	≈ €1,500 to €4,000 depending on size and system
Rental management (if renting out)	7 to 25% of rent depending on rental type

Buyers who do not anticipate these charges tend to oversize their purchase budget and then find themselves strangled by recurring costs.

Misunderstanding Local Financing

The Icelandic mortgage market is accessible to foreigners but much more restrictive than in other countries:

The classic mistake: signing a preliminary agreement assuming the local bank will finance “like back home.” Many foreigners end up opting for:

– a cash purchase;

– a mortgage refinancing in their home country;

– or structures like a HELOC (home equity line of credit on a property already owned elsewhere).

Not securing this issue well in advance risks being unable to meet the payment schedule stipulated in the contract.

Neglecting the ISK Exchange Rate Risk

ICELAND is neither an EU member nor part of the Eurozone. The currency is the Icelandic króna (ISK), which is relatively volatile. Recent orders of magnitude are:

– 1 EUR ≈ 140–155 ISK;

– 1 USD ≈ 130–145 ISK.

Many investors underestimate this risk. An adverse exchange rate movement can:

– suddenly increase the acquisition cost in your original currency;

– significantly reduce the net profitability of resale or rental income.

Ignoring this parameter is akin to involuntarily playing the foreign exchange market, sometimes with amounts close to the value of the property itself.

Neglecting Technical Inspection in a Country with Extreme Conditions

In such a harsh climate and unique geology, buying without a professional inspection is a serious mistake. Yet, many foreign buyers settle for a quick visit, or even online photos, especially for properties located outside Reykjavik.

Confusing Bank Valuation with a True Expert Assessment

As elsewhere, banks commission value estimates to secure their loan, but these appraisals are not intended to protect you on the building’s condition. They do not replace:

– a structural inspection;

– checking for moisture, mold, insulation defects;

– verification of systems (electricity, plumbing, heating).

Skipping an inspection to “save” a few hundred euros often translates into thousands, or even tens of thousands of euros in unanticipated repairs.

Underestimating the Impact of Climate and Geothermal Conditions

Icelandic houses are subject to constraints rarely found in other countries:

Without an inspection, it’s easy to miss:

– structural cracks due to ground movement;

– chronic leaks hidden by recent paint;

– corrosion on elements exposed to geothermal gases;

– very insufficient insulation in older constructions.

In some areas, consulting the Icelandic Met Office’s hazard maps is essential to understand exposure to natural phenomena. Not doing so means accepting a physical and financial risk that is largely avoidable.

Misjudging Heating and Energy Costs

One of the great advantages of Icelandic homes is geothermal heating: about 90% of households have access to it, and in Reykjavik, houses are heated exclusively this way. The cost is remarkably low:

But the frequent mistake is: not taking into account the key elements that influence the situation.

– assuming all properties benefit from the same conditions;

– ignoring the actual state of the system (radiators, piping, heat exchangers, urban network).

A poorly connected house, an old system, leaks, or undersized equipment can increase costs and reduce comfort. Conversely, in the rare areas still heated by electricity or fossil fuels, the bill climbs quickly if insulation is poor.

A serious inspection should include:

– the type of system (direct use of geothermal water, heat exchanger, electric heating);

– age and maintenance history;

– envelope insulation (walls, roofs, windows).

Not accounting for these parameters risks turning a “dream property” into an energy sinkhole.

Dreaming of Rental Investment Without Mastering the Rules

Driven by tourism and a housing shortage, ICELAND attracts many investors who imagine attractive returns, particularly through short-term rentals. Here too, bad surprises await those who don’t read the regulations.

Overestimating the Potential of Tourist Rentals

The figures for gross yield may seem attractive:

Segment	Estimated Gross Rental Yield
Downtown Reykjavik apartments	~4.5 to 5.2%
Residential in capital region	~4.0 to 5.0%
Seasonal rentals in tourist areas	~6.0 to 8.0% (very seasonal)

However, many buyers make several mistakes:

– basing their projections on summer rates, when rents drop in winter (November–February) and occupancy rates fall sharply;

– underestimating management fees: 15 to 25% of revenue for professionally managed short-term rentals;

– forgetting costs for cleaning, linens, maintenance, tourist tax, VAT on tourist accommodation (11%).

Ignoring Legal Limits on Short-Term Rentals

The Icelandic government has reacted to tourism pressure on the housing market by strictly regulating Airbnb-type rentals. Classic mistakes made by foreigners:

– renting a residential property more than the permitted number of days (often around 90 days/year) without a specific permit;

– not applying for the necessary municipal license;

– forgetting registration with the Icelandic Tourist Board and subjection to VAT on short-term accommodation;

– buying in areas where short-term rentals by non-residents are heavily restricted.

Underestimating the Difficulty of Remote Management

Outside of Reykjavik, some regions (like the Westfjords) offer attractive purchase prices and spectacular scenery. But managing a property remotely in these areas is far from simple, especially in winter:

– weather that can block access;

– difficulty finding regular cleaning and maintenance service providers;

– communication sometimes more complicated with contractors not used to foreign clients.

Many investors end up entrusting everything to management companies, which mechanically reduces net profitability. Not including this cost in the economic model is a common mistake.

Forgetting Zoning, Environment, and Natural Risks

Because ICELAND seems “empty” and wild, some buyers imagine they can build or transform almost as they wish. In reality, the country has a very comprehensive regulatory arsenal regarding planning and environmental protection.

Underestimating the Rigidity of Zoning Plans

Zoning law is based primarily on the Planning Act and various detailed regulations. Each municipality develops:

– a master plan (residential, commercial, industrial, mixed-use, special zones);

– detailed plans for each neighborhood, with rules on heights, volumes, placements, etc.

Frequent errors:

Modifying a zoning designation is a heavy, uncertain process, subject to consultations and sometimes appeals. Starting from the idea that “it will be sorted out after the purchase” is particularly risky.

Neglecting Environmental Impact Assessment Obligations

For certain projects (subdivisions, tourist complexes, infrastructure), the law requires an Environmental Impact Assessment (EIA), governed by a specific law and regulation. Environmental and public health authorities have effective control power, with a history of sanctions for non-compliance.

Even for more modest projects, buying land or a building while neglecting:

– soil quality (industrial or historical pollution);

– proximity to protected areas;

– impact on groundwater, especially in geothermal regions;

Minimizing Exposure to Geological Risks

ICELAND is located on the Mid-Atlantic Ridge, with:

– active volcanism;

– frequent earthquakes, sometimes related to geothermal exploitation;

– risks of glacial floods and landslides in some valleys.

Authorities publish hazard maps and detailed data. Many foreign buyers do not consult them, especially when buying an existing house rather than land.

However, natural risks have several consequences:

– higher insurance premiums in certain areas;

– specific construction requirements (foundations, anchors, materials);

– potential evacuation episodes or disruption of property use.

Not integrating these elements into the evaluation and negotiation means accepting an additional uncertainty without compensation.

Poorly Managing the Relationship with Professionals

The Icelandic framework is highly regulated, including for real estate professions. Yet, many foreigners operate based on habits acquired elsewhere, leading to misunderstandings, redundancies, or worse, a lack of genuine advice.

Confusing the Seller’s Agent with the Buyer’s Advisor

Icelandic real estate agents are subject to certified training and a license issued by the Ministry of Justice. They play a key role in marketing and negotiation. But, as in most countries, the agent is primarily mandated by the seller.

Relying solely on them for:

– legal analysis;

– verification of easements and debts;

– estimation of environmental risks;

Dispensing with a Local Lawyer

The other classic mistake is not engaging an Icelandic lawyer, on the grounds that “the system is safe” or that “the agent handles everything.” However, the applicable law is very specific (multiple acts: Civil Code, Property Act, Mortgage Act, money laundering law, etc.), and most documents are in Icelandic.

A local lawyer can:

Not having this independent perspective increases the likelihood of signing irreversible commitments without fully understanding their implications.

Underestimating the Language and Practice Barrier

Even though many professionals speak English, the official working language for contracts, registries, and laws remains Icelandic. Misunderstandings are frequent when:

– clauses have been poorly translated;

– certain nuances (e.g., regarding deadlines, termination conditions, or guarantees) are not clearly explained;

– the buyer does not dare ask all the necessary questions during the signing meeting.

Systematically requesting certified translations of key documents, and allowing time to have them reviewed, is a precaution often overlooked.

Poorly Anticipating Renovation Work on Older Buildings

As elsewhere, many purchasers think they are getting a “good deal” by buying a property to renovate. Except that in the Icelandic climate and a tight labor market, costs quickly skyrocket, sometimes exceeding the price of a new build.

Underestimating the Cost and Duration of Renovations

International studies show that about 45% of renovation projects exceed their initial budget. In ICELAND, several factors exacerbate this phenomenon:

In some cases, upgrading basic installations (electricity, plumbing, heating, ventilation) quickly reaches the equivalent of several tens of thousands of euros, or even exceeds $100,000 for major renovations.

Discovering the “Surprises” of an Older Building Too Late

Without a thorough diagnosis, a buyer can miss: structural problems, mold, equipment failures, hidden defects, or environmental risks.

– structures weakened by moisture and frost;

– obsolete or virtually non-existent insulation;

– dangerous or non-compliant electrical systems;

– presence of asbestos or problematic materials in some post-war buildings;

– hidden fungi and mold, common in poorly ventilated areas.

Neglecting the Impact of Work on the Overall Schedule and Budget

Foreign buyers plan to occupy or rent out the property a few weeks after purchase, even though:

– obtaining building or renovation permits can take time;

– the waiting list to find available contractors is often long;

– outdoor work is highly seasonal.

This lack of schedule margin amplifies the real cost: temporary rentals during the work period, delays in putting it on the rental market, potential penalties towards contractors or future occupants.

Choosing the Wrong Horizon: Residing, Investing, or Both?

Finally, many mistakes stem from the buyer not clarifying their primary objective enough. ICELAND does not offer any visa or right of residence in exchange for a real estate investment. Buying property does not open the door to citizenship, nor even to an extended right of stay for a non-EEA national.

Confusing Real Estate Purchase with a Residence Strategy

Non-EEA nationals wishing to stay longer than three months must go through the standard procedures with the Directorate of Immigration (work, family reunification, studies, etc.). Being a property owner gives them no particular advantage, other than a local address.

Neglecting the Exit Strategy

The Icelandic market is narrow: about 390,000 inhabitants, strong concentration in the capital region, rural areas sometimes very illiquid. Not thinking ahead about how you will resell risks:

– being stuck with an asset difficult to sell in a quiet period;

– becoming overly dependent on tourism or a very specific segment (e.g., high-end short-term rental);

– losing part of the capital gain to fees (22% capital gains tax).

A clear exit strategy (resale, long-term rental, transfer) should be integrated from the purchase decision phase.

Conclusion: Buying in ICELAND Without Getting Burned

ICELAND is neither a rule-free El Dorado, nor a hermetic country where everything would be impossible for foreigners. It is a market that is:

– legally solid and very transparent, but strict on foreign ownership;

– expensive, but historically resilient and supported by a diversified economy;

– technically demanding, especially due to the climate and geothermal factors.

The most frequent mistakes are less due to “hidden traps” than to erroneous assumptions: believing the rules are the same as at home, underestimating formalities, neglecting exchange rate risk, skipping technical inspection, or fantasizing about Airbnb returns without looking at local regulations.

In ICELAND more than elsewhere, the key is to accept taking the time: time to understand the legal framework, examine natural risks, honestly assess renovation needs, and crunch the numbers beyond the postcard landscape. It is the best way to benefit from the Icelandic market without discovering too late that you have bought far more complications than square meters.