Published on and written by Cyril Jarnias
Investing in ICELAND Real Estate is increasingly appealing to European and North American savers. With its spectacular landscapes, robust economy, tight rental market, and tourism boom, the country ticks many boxes for a long-term investor. But behind the postcard image lies a very particular market: different access rules depending on nationality, specific taxation, high volatility of the króna, housing shortage in Reykjavík, geological risks… It’s impossible to enter seriously without a minimum of decoding.
This report analyzes the Icelandic real estate market with the latest data on prices, yields, rules for foreigners, financing, taxation, risks, and prospects. It provides the concrete elements to assess the relevance of this investment for your wealth management strategy.
A Small Market… But Solid and Highly Regulated
Iceland has approximately 390,000 inhabitants, with over 65% concentrated in the capital region. This immediately means one thing: the market is relatively small, but very concentrated around Reykjavík and its metropolitan area. That’s where most real estate activity takes place, whether it’s primary residences, long-term rentals, or tourist rentals.
The country’s Gross Domestic Product is approximately 28 billion dollars, a macroeconomic indicator that reassures investors.
Above all, real estate has shown remarkable resilience. After the 2008 financial crisis, the market not only rebounded but experienced several phases of very strong growth, especially during the tourism boom from 2016 to 2019. Over the long term, average appreciation has hovered around 3 to 10% per year depending on the cycle, with a return to a dynamic of 5 to 7% since 2023. This is coupled with a legal environment considered very safe: strong rule of law, transparent land registry, low corruption, and well-protected property rights.
Therefore, investing in ICELAND real estate fits more into a long-term logic, in a stable, highly regulated market, not suited for quick speculative bets but interesting for those willing to accept a demanding regulatory environment.
Who Can Buy in Iceland? Selective Access
The first filter, even before discussing returns, is market access. Not all foreigners are treated equally.
EEA, EFTA, and Equivalents: Near-Local Access
Citizens of the European Economic Area (EEA) and the European Free Trade Association (EFTA) can, in theory, buy property without special permission, provided they are legally domiciled in the country. This implies obtaining an Icelandic identification number (kennitala) and registering with the authorities (Registers Iceland). A simple declaration must then be attached to the deed of sale when registering with the land registry.
Once conditions are met, foreign buyers are treated like Icelanders for residential or commercial real estate. However, agricultural land remains, in practice, reserved for Icelandic citizens.
Non-EEA: Mandatory Permission, Strict Criteria
For non-EEA nationals, investing in ICELAND real estate becomes more complex. The law requires prior authorization from the Minister of Justice to acquire property. This permission is only granted in two main scenarios:
– Direct use as part of an economic activity (e.g., buying a hotel, commercial premises, offices);
– Existence of a “close link” with Iceland: marriage to an Icelander, close family ties, or a lasting personal relationship with the country.
Even with permission, the acquired area is generally limited to 3.5 hectares. The buyer cannot own other property in the country if the acquisition is based solely on a personal link. For professional use, exceptions may allow a limit of up to 25 hectares.
Another key point: the sale of land to non-EEA individuals is, in practice, prohibited. A foreigner can acquire a building, but the underlying land will often be held via a long-term lease. Access to full land ownership remains strongly limited for non-EEA non-residents, especially outside urban areas.
Table – Purchase Conditions by Profile
| Buyer Profile | Domiciled in Iceland | Special Permission | Area Limits | Access to Agricultural Land |
|---|---|---|---|---|
| Icelandic Citizen | Yes | No | None specific | Yes |
| EEA / EFTA Citizen domiciled | Yes | No (declaration) | None specific | No, except exception |
| EEA / EFTA Citizen not domiciled | No | Practically necessary | According to permission | No |
| Non-EEA Citizen (personal use) | No (often) | Yes (Ministry) | 3.5 ha | No |
| Non-EEA Citizen (professional use) | Variable | Yes (Ministry) | Up to 25 ha | No |
The consequence is clear: for a non-European investor, wanting to invest in ICELAND real estate without a credible economic project or strong ties to the country is rarely a realistic strategy. For Europeans, the main challenge becomes managing domiciliation and the tax aspect, rather than raw legal access.
High Prices, Ongoing Upward Pressure
The second shock for the foreign investor is the prices. Iceland is not a “cheap” market – on the contrary, the capital region is even among the most expensive in Europe relative to local incomes.
On average, the square meter trades around €4,400 in the country. But this overall figure masks strong contrasts: the central neighborhoods of Reykjavík are well above this average, while rural areas or the Westfjords remain much more affordable.
Table – Indicative Prices per Square Meter by Area
| Area / City | Property Type | Estimated Average Price (€/m²) |
|---|---|---|
| Reykjavík center (101) | Apartment | 5,500 – 6,200 |
| Reykjavík near center (105, 107) | Apartment | 4,500 – 5,500 |
| Outer neighborhoods of Reykjavík | House | 4,000 – 4,800 |
| Kópavogur / Garðabær (capital area) | Apartment | 4,000 – 5,000 |
| Hafnarfjörður / Mosfellsbær | House | 3,500 – 4,200 |
| Akureyri center | Apartment | 3,000 – 3,800 |
| South Coast (tourist areas) | Vacation cottage | 2,800 – 3,500 |
| Eastfjords (small towns) | Houses / apartments | 2,000 – 2,800 |
| Westfjords (remote small towns) | House | 1,500 – 2,500 |
| Reykjanes (Keflavík, Grindavík) | Apartment | 2,800 – 3,500 |
In the capital, it’s not uncommon to see new apartments exceeding one million krónur per square meter, which, at the exchange rate used in recent statistics, roughly translates to over €6,600 per meter. A “modest” apartment can thus trade around 70 million ISK, or nearly €465,000.
Over a five-year period, the price of a 100 m² apartment rose from an average of €267,000 to approximately €440,000, illustrating a sharp increase. After a peak of nearly 12% year-on-year in 2024, the upward dynamic moderated, with annual increases stabilizing around 6 to 8%, confirmed by price indices.
Pressure is particularly strong on single-family homes in the capital region, whose prices have recently risen faster than apartments. This trend is due to both demand structure (families, affluent middle class) and supply constraints (scarcity of buildable land, strict zoning rules).
A Tight Rental Market, Boosted by Tourism
The other pillar of the equation for investing in ICELAND real estate is the rental market. It is universally described as tight, especially in Reykjavík, where the combination of strong population growth, the return of tourism, and an insufficient construction pace has sent rents soaring.
The annual increase in the rental index in the Icelandic capital region, significantly exceeding the inflation rate.
Table – Average Monthly Rents (Recent Contracts)
| Housing Type (Capital Region) | Average Rent (ISK/month) | Approximate Equivalent (USD) |
|---|---|---|
| Studio / 1 room | ~186,900 | ~1,330 |
| 2 rooms | ~241,600 | ~1,720 |
| 3 rooms | ~284,000 | ~2,020 |
Beyond the long term, tourism plays a major role via short-term rentals. Iceland welcomed over 2.3 million visitors before the pandemic, a figure that is rising again. In Reykjavík, data on Airbnb-type rentals shows a very seasonal market: monthly revenues can exceed $6,000 in high season for a median property, with peaks over $9,000 for the top 10% of listings, compared to barely half that in low season.
For an investor, this translates into a fairly typical risk/return profile for tourist destinations:
– Very high potential income from short-term rentals in prime areas;
– But a strong dependence on tourism, local regulations, and seasonality.
Decent Real Estate Yields, with a Bonus on Short-Term
Statistics compiled by several sources converge on an average gross yield around 5% for traditional rentals, with marked differences depending on cities and property types.
Table – Estimated Average Gross Yields
| Segment | Average Gross Yield (range) |
|---|---|
| Countrywide | 3.8% – 6.0% (average ~5.2%) |
| Reykjavík (all housing) | 3.9% – 5.5% (average ~4.9%) |
| Akureyri (residential) | 5.0% – 6.5% |
| Tourist areas (cottages, cabins) | 6.0% – 8.0% (seasonal) |
| Small hotels / guesthouses | 7.0% – 9.0% |
| Commercial real estate | 5.5% – 7.0% |
In practice, net yields – after deducting expenses, management, taxation – hover more around 3.5 to 4.5%. This remains competitive when factoring in historically supported capital appreciation.
For a two-room apartment in Reykjavík, simulations indicate a theoretical gross yield potentially exceeding 15% per year for tourist rentals like AirBnB, compared to only 4 to 5% for long-term rentals. This yield should be nuanced, however, as it’s calculated before deducting management fees (often 15 to 25% of revenue for full management), higher maintenance costs, vacant periods, and the 11% VAT applicable to tourist accommodation.
For an investor, the challenge is therefore not whether Iceland can generate an attractive gross yield – the answer is yes for certain segments – but whether the combination of rules / risks / management complexity is compatible with their objectives.
Specific but Clear Taxation
Icelandic real estate taxation combines several levels: purchase tax, municipal property tax, tax on rental income, and capital gains tax. For a foreign investor, the essential points to remember are a few figures.
Upon acquisition, the buyer pays a transfer duty (sometimes called stamp duty or property transfer tax) of around 0.8% of the property value, plus registration fees around 0.1%. Notary fees are around 0.1% and attorney fees can represent up to 1% depending on case complexity, although they often remain a flat fee in krónur (150,000 to 350,000 ISK).
The maximum total cost of purchasing and then reselling a property in France, expressed as a percentage of the property price.
During the holding period, the property tax is levied by municipalities. It can go up to 1.65% of the official property value, with differentiated rates between residential and commercial use. Reykjavík, for example, applies a reduced rate for housing and a maximum rate for commercial buildings. Local fees (waste collection, recycling centers) may be added.
Rental income is taxed at a flat rate of 22%. However, a significant tax advantage exists for landlords renting out a maximum of two dwellings under the residential lease law: only 50% of gross rent is considered taxable income. This lowers the effective tax rate on gross rent to about 11%. Note that tourist (furnished) rentals are subject to a different regime: they fall under the reduced VAT rate of 11% and require specific registration if annual revenue exceeds regulatory thresholds.
Finally, real estate capital gains are taxed at 22% of the difference between purchase and sale price, subject to rules for calculating historical cost (renovations, fees). However, exemptions exist for a primary residence held beyond a certain duration, but they do not apply to most foreign investors.
Financing: Expensive Credit, Especially for Non-Residents
The financing chapter is probably what will cool off investors most accustomed to the low rates of the eurozone. In Iceland, mortgage credit remains expensive, even though the central bank has started a cycle of reductions after keeping its key rate very high for a long time.
The variable rates for new non-inflation-indexed loans in early 2025 are around 9.5 to 10%.
For Icelandic households, debt is therefore often structured around long-term indexed loans, possibly combined with non-indexed loans. For a foreign investor, the question is more: is it even possible to obtain local credit?
The answer is nuanced:
For non-residents, local banks generally require a kennitala (ID number), proof of income in Icelandic krónur, or strong financial ties to the country. Loan-to-value (LTV) ratios are often limited to 50-70%, requiring a personal contribution of 30 to 50%. Furthermore, some public subsidies, like those from the Housing and Construction Authority (HMS), are mainly intended for residents for home ownership and not for foreign investors.
In practice, many non-Icelandic investors who choose to invest in ICELAND real estate do so either in cash or via financing in their home country (remortgage, Lombard loan, line of credit on existing assets). Icelandic interest rates, even in gradual decline, remain higher than those accessible to a well-rated investor in Canada or the eurozone.
Purchase Process: A Nordic Formality
On a practical level, buying a property in Iceland is not insurmountable, but requires following a very structured process.
The first step is to obtain a kennitala, that famous identification number essential for almost any procedure (employment, healthcare, banking, taxation… and real estate). For a non-resident, obtaining it typically takes two to three weeks, via Registers Iceland, often with the help of a lawyer or bank.
After obtaining the purchase permit (and ministerial authorization for non-EEA), the process follows the classic steps of Nordic countries: property search on portals (Fasteignir.is, Mbl.is, Vísir) or via agencies (Miklaborg, Fold, Eignamiðlun), submission of a written offer, signing of a “kaupsamningur” (sales contract), deposit payment, then finalization with a public notary (Notarius Publicus) and registration in the land registry.
Timelines, for a simple cash transaction, are around three to four weeks from offer to key handover. With financing or special permission, more time should be planned. The law imposes on the seller a duty of fair disclosure about the property’s condition, but conducting an independent inspection (structure, insulation, moisture, heating system, natural hazards) is highly recommended.
Note: the winter significantly slows down market activity. Many sellers wait for spring or summer to list, which limits visible supply from about November to February, although this lull may offer negotiation margins.
Rental Regulation: Between Social Control and Tourist Pressure
Iceland has gradually tightened its regulatory framework around rentals, especially short-term ones. The strong rise of Airbnb in the capital, combined with the housing crisis, has pushed authorities to regulate this segment more strictly to limit the conversion of residential housing into tourist accommodations.
For a rental of less than 90 days per year, the owner must obtain a municipal license, register with the Tourist Office, comply with health and safety standards, and apply the reduced VAT rate of 11%. Beyond 90 days of annual rental, the property is considered a commercial activity, subject to a regime similar to that of a guesthouse or small hotel.
Long-term rentals are governed by the residential lease law. Contracts must be formalized, with a security deposit capped at three months’ rent. A reform effective in 2024 further limited the practice of automatically indexing rents to the price index for leases of 12 months or less, aiming to better protect tenants.
For the investor, this implies: the need to assess risks and opportunities related to each investment.
– choosing the right model (long-term vs. short-term) according to local regulations;
– planning for extra time and administrative fees for furnished tourist properties;
– taking seriously the risk of future tightening, in a context of housing crisis.
Where to Invest Priority? Reykjavík… But Not Only
For many, investing in ICELAND real estate boils down to Reykjavík. That’s indeed where population, skilled jobs, urban tourism, and major facilities are concentrated. But the country offers a broader range of interesting areas, each with its own risk and return profile.
Reykjavík and the Capital Region
This is the economic, university, cultural, and administrative heart of the country. Downtown (neighborhood 101) and nearby neighborhoods (105, 107) concentrate the highest values per square meter, but also offer the best liquidity for resale, and a permanent rental market – students, young professionals, short tourist stays.
The municipalities of Kópavogur, Garðabær, Hafnarfjörður, and Mosfellsbær offer access to the same job market as the capital, with generally lower property prices than downtown. These areas may offer slightly higher yields and less pressure on purchase prices, making them interesting compromises.
Akureyri and Major Regional Cities
Akureyri, the “Capital of the North”, is the main city outside the capital region. It combines university, tourism (proximity to the Arctic Circle, whale watching), healthcare services, and regional administration. Prices are significantly more accessible – around €3,000 to €3,800/m² for a downtown apartment – with rental yields often above 5%.
Towns like Selfoss and Egilsstaðir are experiencing growth due to regional development and tourism, but their real estate market remains less liquid than Reykjavík’s for resale.
Tourist and Rural Areas
The South Coast, the Eastfjords, the North around Húsavík, or the Westfjords offer very specific opportunities, often geared towards tourism or eco-tourism: isolated cabins with spectacular views, lodges near natural sites, small guesthouses. Prices per square meter can be two to three times lower than in Reykjavík, but seasonality is very marked, and risks (weather, winter accessibility, volcanic hazards) are more present.
Many Icelandic or expatriate investors see these mainly as “lifestyle” projects: a property mixing personal use (vacations, remote work) and tourist operation for a few months.
Specific Risks: Currency, Volcano, Regulation
Investing in ICELAND real estate is not buying into a standard EU market. Three major categories of risks deserve close attention.
The Icelandic króna (ISK) is a very volatile currency, with significant fluctuations against the euro, dollar, or Canadian dollar. This volatility, heightened by historical episodes like post-2008 capital controls, can amplify or reduce the real return on an investment. Price appreciation in ISK can be canceled out by currency depreciation upon resale, and vice versa. It is therefore crucial to consider exchange rate hedging for significant flows, like buying and selling an asset.
Next, natural risks. Iceland is located on an active volcanic zone: recent events around Grindavík and the Reykjanes peninsula have reminded us. The state had to create a public entity, Þórkatla, to buy back hundreds of homes affected by eruptions. Before buying, consulting the risk maps published by the national meteorological service (Veðurstofa Íslands) is essential. Some areas combine seismic risks, potential lava flows, and winter access problems.
The housing crisis and inequalities in access to property have led to regulatory tightening (regulation of tourist rentals, limitation of lease indexation, transparency of ownership structures). The political trend favors protecting residents, making future measures targeting large investors and short-term rentals likely.
For Whom is Iceland Truly a Real Estate Market?
At this stage, a question arises: for which investor profile does investing in ICELAND real estate make the most sense?
Hard to recommend it as a first leveraged investment for a heavily indebted individual in their home country. The entry barriers (significant capital, limited local credit, volatile currency, complex regulation) make it a niche market. On the other hand, Iceland can make sense for several specific profiles:
Discover the main investor profiles interested in the real estate market in Iceland, a stable market with unique characteristics.
An individual considering moving to or working in Iceland, looking to secure housing in a context of property shortage.
An experienced investor, able to allocate cash capital to this stable market, as part of a geographic diversification strategy for their portfolio.
A hotel operator or professional in the sector seeking to acquire targeted assets (guesthouses, cottages, small hotels) in areas with high tourist appeal.
An investor attached to themes of energy transition and sustainability, attracted by Iceland’s leadership in geothermal energy and environmental policy.
For these profiles, combining moderate value increase (4 to 6% per year in the Reykjavík region according to five-year projections) and rental yield of 4 to 6%, even with some taxation and currency volatility, can constitute an interesting pillar of a long-term portfolio.
How to Approach an Investment Project Concretely
For those seriously considering this market, the approach rests on a few essential milestones, which determine the success of the operation.
First, clarify your objective: purely long-term rental use? Mixed personal/seasonal use? Purely tourist project? Or anticipating future residence? The choice of city, neighborhood, property type, and even legal structure (direct ownership, Icelandic EHF company, foreign vehicle) depends on it.
It’s crucial to study very early the regulatory conditions linked to your personal situation: check your citizenship (EEA or not), your domiciliation possibilities, your eligibility for ministerial authorization if needed, and the specific constraints of your home country (like your tax status and the application of double taxation treaties).
Third block: finances. Calculate the savings effort and profitability not only in krónur, but also in your home currency, incorporating an exchange rate fluctuation scenario. Test several hypotheses for occupancy rate, rents (high and low season), expenses (property tax, management, maintenance), and effective tax rate.
For an Icelandic property, especially in an isolated tourist area, it’s crucial to have a reliable local manager. This person must be able to handle emergencies, regular maintenance, tenant relations, and master specific local regulations, as remote management is not suitable.
Finally, don’t neglect the exit strategy. Before even buying, asking “under what conditions could I resell this property?” is a healthy reflex. Liquidity won’t be the same for an apartment in Reykjavík’s 101, a cottage on the south coast, or a house deep in the Westfjords.
Investing in ICELAND Real Estate: An Opportunity for Patient Investors
At the end of this overview, one conclusion stands out: investing in ICELAND real estate is not a “simple” investment. The country combines several rare advantages – transparent market, strong rule of law, diversified economy, strong rental demand, tourism potential, exemplary energy infrastructure – but the counterparts are numerous: high entry prices, expensive credit, differentiated regulation by nationality, unstable currency, geological risks, and a politically sensitive context around housing.
Iceland can represent a solid and unique investment for an international portfolio, but only under certain conditions. The investor must have sufficient equity, be ready to conduct thorough due diligence, surround themselves with local professionals, and have a long-term investment horizon. This market is not for those seeking easy access, abundant financing, or a lightly regulated environment.
The key, ultimately, lies less in the promise of a “Nordic El Dorado” than in the coherence between the project, the risk profile, and the ability to accept Icelandic uniqueness. It is under this condition that investing in ICELAND real estate can become a true wealth management strategy, and not just a geographical whim.
Practical case example: a French investor diversifying into Iceland
A French entrepreneur, around 50 years old, with a financial portfolio already well-structured in Europe, wanted to diversify part of his capital into residential real estate in Iceland to seek rental income in Icelandic krónur and exposure to a dynamic tourist market. Allocated budget: €400,000 to €600,000, without using credit.
After analyzing several areas (Reykjavík, Kópavogur, Akureyri), the chosen strategy was to target an apartment or a small townhouse in a growing neighborhood of Reykjavík, combining a target gross rental yield of 6 to 8% – the higher the yield, the higher the risk – and medium-term appreciation potential, with an overall ticket (acquisition + fees + potential minor renovations) of about €500,000. The mission included: neighborhood selection, connection with a local network (real estate agent, lawyer, tax specialist), choice of the most suitable structure (direct ownership or local company), and definition of a diversification plan over time, integrating Franco-Icelandic taxation.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
