Real Estate Laws and Regulations to Know in Iceland

Published on January 14, 2026 and written by Cyril Jarnias

Buying, building, renting, or simply owning property in ICELAND means navigating a particularly structured set of rules. The country has built a very protective legal framework for ownership, but it is also strict regarding the environment, transparency for foreign investors, and tenant protection. For a buyer, investor, or future resident, understanding these rules is not a luxury: it’s the condition for successfully completing a project without unpleasant surprises.

A Solid Real Estate Market Framed by Rigorous Law

The Icelandic real estate market is based on strong property rights, a reliable public registration system, and a justice system perceived as transparent. The population is around 390,000 inhabitants, with more than 65% concentrated in the capital region around Reykjavík, which also concentrates the majority of economic activity.

ICELAND has also experienced major shocks – the 2008 financial crisis, pandemic, volcanic eruptions, and population displacement in Grindavík – but the market has shown a remarkable capacity for recovery. This pressure is now manifested by a genuine housing crisis, particularly in the Reykjavík region, with strong rental demand, especially in the residential segment.

To measure the scale of the phenomenon, one only needs to look at some price benchmarks.

Examples of Average Prices per Square Meter by City

City / Area	Average Price per m² (ISK, center)	Average Price per m² (ISK, outside center)
Reykjavík	~586,459	~444,992
Akureyri	~450,000	~360,000
Hafnarfjörður	~550,000	~390,000
Keflavík	~255,000	~220,000
Capital Region (average)	~1,000,000	–

In the capital region, more than 85% of homes exceed 60 million ISK in value, a sign of a tight market. Gross rental yields are around 5% on average, with variations depending on the area and property type.

The Legal Foundation of Property in ICELAND

The core of Icelandic real estate law rests on several major pieces of legislation. The most central one for the question of ownership is the Act on Property Rights and the Use of Real Estate (Act No. 19/1966), modernized notably by Act No. 74/2022. This text regulates who can own a property, under what conditions, and defines the limits imposed on foreigners.

The Civil Code (Act No. 40/2002), the Property Act (Act No. 55/1993), and the Act on Co-Owned Real Estate (condominiums) complete this framework. The state retains the power of eminent domain for public use, coupled with an obligation for fair compensation.

In practice, the sale of a property is conducted through a sale contract, the kaupsamningur, signed before a Notarius Publicus, and then registered. Intermediaries must be either lawyers or certified real estate agents, although an individual can, at their own risk, proceed without an intermediary.

Buying a Property in ICELAND: Steps and Essential Documents

Every real estate transaction follows a well-established sequence. Foreign buyers must first ensure their eligibility regarding rules on ownership by non-residents. Once this point is clarified, the procedure involves several key phases.

Most often, the buyer begins by making a written offer containing the necessary contingencies (financing, obtaining permits, etc.). Once accepted, the parties sign a kaupsamningur including the price, payment terms, the date of possession, and any special conditions.

Preparing the file requires: rigorous and organized work.

At the moment of final signing, the Notarius Publicus verifies the regularity of the deeds, the capacity of the parties, and supervises the transfer of funds, ideally via an escrow account. The transfer becomes enforceable once the deed is registered in the land registry and the corresponding taxes are paid.

Typical Structure of Transaction Costs

Item	Usual Bearer	Indicative Range
Transfer Tax / Stamp Duty	Buyer	0.8% (individual) to 1.6% (company)
Registration Fees	Buyer	≈ 0.1% of value
Notary	Buyer	≈ 0.1%
Lawyer’s Fees	Buyer	0 to 1%
Agent Commission	Seller	1.5 to 3%
Total Cost Buyer	Buyer	0.9 to 2.7%
Total Cost Seller	Seller	1.5 to 2.5%

Failure to regularize within deadlines (for example, exceeding two months to present the deeds to the registration services) can lead to penalties on stamp duties.

What Foreigners Can (or Cannot) Buy

ICELAND adopts a controlled openness policy towards foreign investors. The general principle is simple: the more integrated you are into the European Economic Area, the easier access to ownership is; the more you come from a third country, the more regulated the procedure is.

Citizens of the EEA / EFTA and the Faroe Islands

A citizen of a state of the European Economic Area, a country of the European Free Trade Association, or a national of the Faroe Islands benefiting from the Hoyvík Agreement can acquire a property in ICELAND under the same conditions as an Icelander, provided they are legally domiciled in the country and fall into one of the cases provided for by Regulation No. 702/2002 (free movement, establishment, provision of services, or movement of capital).

Non-EEA Nationals: Authorization from the Ministry of Justice

For a buyer from a third country, the situation is more complex. Unless there is a special case of long-standing domicile in ICELAND, an express authorization from the Minister of Justice is necessary to acquire a property right or usage right beyond three years.

This authorization typically covers one single property whose surface must not exceed 3.5 hectares, with a prohibition on holding other properties in the country. An extension up to 25 hectares is possible when the property is essential for a professional activity (agro-tourism, industry, etc.), but there is no exemption for a purely residential purchase of large area.

Two main grounds allow the granting of a permit:

– Direct use within the framework of a professional activity carried out in ICELAND;

– The existence of a “close link” with the country: marriage to an Icelandic citizen, close family ties, repeated stays over a long period that have created stable attachments.

Foreign states, their administrations, and public companies cannot, except for diplomatic exceptions (embassy), obtain this type of permit.

Applications are submitted to the Ministry (email or mail) with the original purchase contract, information about the property (cadastral number, area, intended use), description of any other properties possibly held in ICELAND, as well as, for companies, the capital structure and the identity of the beneficial owners. Documents must be in Icelandic or English, or accompanied by a sworn translation. The processing time generally extends over several weeks, even a few months.

Special Cases: Companies and Funds

For legal entities, the law distinguishes several categories. A partnership where all partners are Icelandic or residents for at least five years does not need permission. Similarly, a limited liability company or a foundation does not require authorization if it is domiciled in ICELAND, if all its directors are Icelandic or long-term residents, and if at least 4/5 of the capital as well as the majority of voting rights belong to Icelandic citizens.

Limitation on Raw Land Ownership

A law that came into effect in 2020 caps the land area an individual can own at 10,000 hectares without special authorization from the Ministry of Agriculture. Furthermore, the direct purchase of agricultural land by foreigners is in practice heavily restricted, even prohibited, with the state favoring use through long-term leases rather than outright sale.

Urban Planning, Building Permits, and Environmental Constraints

As soon as a project involves building, heavily renovating, or changing the use of a building, the investor faces a second block of regulations: urban planning and construction law.

The general framework is set by the Planning Act No. 123/2010, supplemented by a large number of regulations and the Building Act No. 160/2010. The stated objective is to ensure rational and sustainable land use, personal safety, and protection of heritage and the environment.

Planning is organized at several levels: a national planning strategy valid for 12 years defines the main orientations (regional planning, major infrastructure, priority areas). Each region and then each municipality implements this strategy in regional plans, municipal plans (master plans), and local plans (deiliskipulag), which govern neighborhood by neighborhood the density, heights, permitted uses, and construction conditions.

The procedure for developing local plans includes a project description, an initial consultation, an opinion from the National Planning Agency, a possible environmental impact assessment under Act No. 111/2021, then a public inquiry for at least six weeks. The final version must be approved by the municipal council, validated by the National Agency, and published in the official gazette to take effect. If not published within one year following the end of the consultation, the procedure must be restarted.

Building Permit: Procedures and Requirements

The permit application is submitted to the municipal planning department, often via an online portal, as in Reykjavík where applications go through the Housing and Construction Authority’s platform. The standard file includes forms, architect’s plans (site plan, floor plans, sections, elevations), structural calculations, geotechnical study, fire strategy, technical network diagrams, documents on energy performance and accessibility, as well as the professional liability commitments of the professionals (architects, engineers).

Regulations impose very detailed standards: minimum dimensions for circulation, door widths, ramp slopes, provision of parking spaces, elevators in most multi-unit buildings, acoustic requirements, natural lighting, and energy performance. Universal accessibility is a guiding principle, with an obligation to limit steps, provide ramps, elevators with standardized dimensions, and sometimes heated exterior pathways to limit ice.

Processing times vary from a few weeks to several months depending on the project’s complexity and the applicant’s responsiveness to the municipality’s questions. Inspections during construction are mandatory, leading to the issuance of a certificate of completion (occupancy permit) once compliance is confirmed.

From September 1, 2025, a new requirement applies: performing a Life Cycle Assessment (LCA) for a large number of new building permits. This tool, supported by the Construction Authority and private partners, aims to measure the carbon emissions over the entire life cycle of the building. Small buildings (sheds, agricultural buildings, modest vacation homes, limited extensions) are exempt, however.

Real Estate Taxation: What it Costs to Hold and Sell a Property

Taxation related to real estate in ICELAND breaks down into municipal taxes, taxation of rental income, and capital gains taxation.

Each municipality levies an annual property tax calculated on the cadastral value of the property (land and building) as assessed by the Housing and Construction Authority (HMS). This assessment is revised each year, with property owners notified at the beginning of summer and able to submit comments within a month.

Rate Examples in Reykjavík

Tax Category	Types of Properties Covered	Rate on Cadastral Value
A	Homes, farms, vacation homes, agricultural outbuildings	0.18%
B	Schools, healthcare facilities, libraries, gymnasiums	1.32%
C	Offices, shops, industries, tourist accommodations	1.60%

A recent adjustment has reclassified some homes used as tourist accommodations (class II) from category A to category C, applicable from January 1, 2025, with no retroactive effect. Thus, an apartment operated with a commercial license for tourist stays is taxed as a commercial property, even if the register still describes it as residential. “Homestay” rentals without a commercial license remain taxed as simple homes.

Finally, transfers upon death are subject to an inheritance tax on each heir’s share, generally 10% above a significant allowance, with a total exemption for the surviving spouse. Real estate properties are taken into account at their cadastral value. This aspect falls more under inheritance law than current real estate holding taxation, but it has a direct impact on family estates and succession strategies.

Renting: A Strictly Regulated, Tenant-Friendly Framework

Anyone wishing to invest in rental property must familiarize themselves with the Leigulög, the Rent Act (Act No. 36/1994), amended several times. International observers qualify this framework as largely favorable to tenants.

A lease must be in writing. It specifies the identity of the parties (with kennitala), the property description and its registry number, the area, the duration (fixed-term or indefinite), the rent amount, payment terms, the security deposit, and the tenant’s rights of first refusal. A verbal agreement remains legally valid but is automatically interpreted as an indefinite-term lease, which considerably strengthens tenant protection.

The contract must be registered with the rental registry of the Housing Authority (HMS). This step conditions the tenant’s access to housing benefits and allows the landlord to more simply declare their rental income. Registration also protects the tenant’s rights vis-à-vis a subsequent purchaser of the building when the lease grants benefits beyond the legal minimum.

The initial rent is set freely but must remain “normal and reasonable” in light of the local market. On an indefinite-term lease, a rent increase is only possible once per year, generally indexed to inflation or according to an agreed formula. Fixed-term leases cannot have an increase during the contract term, unless there is an explicit clause. Disputes over the rent level or the application of rules can be submitted to the Housing Appeals Committee, whose decisions are binding and subject to appeal in court.

The landlord is responsible for major maintenance and structural repairs, as well as maintaining safety equipment (smoke detectors, fire extinguishers). The tenant is only responsible for minor repairs and normal wear and tear. Unless there is a very clear agreement, they cannot be required to repaint or refurbish surfaces. If they do not remedy damage they have caused, the landlord can have it repaired after a formal notice and invoice them for the work.

Short-Term Tourist Rentals

The rise of platforms like Airbnb has pushed the legislator to tighten the rules. Renting a home to tourists for short periods (less than 90 days per year, in principle) requires a license issued by the municipality and registration with the Icelandic Tourist Board. Properties must comply with specific safety and hygiene standards, as well as local regulations.

There is a limit on annual income (about 2 million ISK) and number of days for rentals of properties classified as permanent residences. Beyond these thresholds, the status shifts to commercial accommodation, implying heavier permits and tax rules, notably an 11% VAT on tourist accommodation. The government has announced its intention to further tighten this framework, particularly in the capital region, to free up housing for permanent residents.

Financing, Currency, and Exchange Rate Risks

For an Icelandic resident, access to mortgage credit is through local banks or specialized institutions. The corporate tax rate (20% for limited liability companies) and the general level of taxation form a fairly standard environment for Northern Europe, but interest rates on mortgages remain higher than those observed in many continental countries.

The national currency, the Icelandic króna (ISK), has historically been highly volatile. After the 2008 crisis, capital controls were imposed and were only fully lifted in 2017, although protective measures remain to prevent speculative flows. Despite the current absence of restrictions on repatriating rental income or sale proceeds, investors must keep in mind that exchange rate fluctuations can significantly amplify or reduce gains and losses in foreign currency. Using hedging instruments or a long-term holding strategy can reduce this risk.

Legal Risks and Due Diligence Best Practices

Despite a robust legal framework, a real estate project in ICELAND can encounter several pitfalls. The most frequent ones concern:

– Lack of ministerial authorization for a foreign buyer subject to it;

– Interpretation differences due to language, as the Icelandic versions of texts are authoritative;

– Registration issues (unregistered rights, unreleased mortgages);

– Ignored zoning constraints (non-conforming use, illegal constructions, restrictions in coastal or geothermal zones);

– Underestimation of natural hazards (volcanism, landslides, floods);

– Condominium or neighbor disputes, especially concerning common areas or easements.

For construction or heavy renovation projects, consulting the hazard maps published by the Icelandic Meteorological Office (Veðurstofa Íslands) is essential, as well as subscribing to insurance covering natural hazards. In some cases, especially near coasts or in geothermal areas, specific rules govern foundations, setback distances, or energy use.

Residence, Visas, and Absence of a “Golden Passport”

Unlike some countries that have linked residence or citizenship to the purchase of real estate, ICELAND does not offer any real estate investment residence program. Acquiring a home, even of high value, confers neither a right of stay nor facilitated access to nationality.

Investment can, however, play an indirect role in some cases, for example within the framework of productive projects creating jobs or qualified investments in eligible sectors. But again, the rules fall under the general residence permit regimes for investors, with no automatic link to the act of purchasing real estate.

Where to Invest: Some Geographic and Yield Benchmarks

The heart of the market remains the Reykjavík region, with highly sought-after neighborhoods like Laugavegur, the Old Harbor, or Hlíðar. Gross rental yields there range between 4.5% and a little over 5% for downtown apartments, slightly less in the rest of the capital region. Akureyri, in the north, offers potentially higher yields (up to 6.5% on residential), as do some tourist areas (vacation homes, guesthouses) where yields of 6% to 9% can be achieved, albeit with high seasonality and increased regulatory risk.

Gross Rental Yields by Property Type

Property Type / Area	Estimated Gross Rental Yield
Downtown Reykjavík Apartments	4.5 – 5.2%
Residential Capital Region (overall)	4.0 – 5.0%
Residential Akureyri	5.0 – 6.5%
Vacation Rentals in Tourist Areas	6.0 – 8.0%
Commercial / Offices	5.5 – 7.0%
Guesthouses / Small Hotels	7.0 – 9.0%

Tourist demand remains very marked by the summer season, with rents potentially doubling or tripling between June and August compared to winter. An investment strategy must therefore integrate this seasonality, as well as the regulatory limits on short-term rentals.

ICELAND, a Demanding but Legible Market

Behind the postcard image – volcanic landscapes, hot springs, northern lights – ICELAND proves to be a sophisticated real estate market, where transparency of registers and the solidity of rights come with particularly detailed rules. The foreigner wishing to buy there must deal with sometimes restrictive authorizations, interest rates higher than elsewhere in Europe, and a volatile currency, but they benefit in return from a predictable legal system, codified procedures, and an administration that tends to apply the law consistently.