Published on and written by Cyril Jarnias
Putting down roots in ICELAND, facing a fjord or in the heart of Reykjavik, is a dream for a growing number of foreigners. But beyond the landscapes of volcanoes, glaciers, and hot springs, the Icelandic real estate market is governed by very precise laws, specific rules for non-residents, and a context of sharply rising prices. Understanding this framework is essential before signing a kaupsamningur, the Icelandic sales contract.
This article details the purchase conditions for foreigners, the administrative steps to follow, the cost of the transaction, financing options, recommended investment areas, and pitfalls to avoid.
A Tight Market in a Very Strong Economy
Before even discussing the law, one must look at the playing field: the Icelandic real estate market. The country has just under 400,000 inhabitants, but it is experiencing unusual pressure on housing, due to population growth, mass tourism, and volcanic episodes that have displaced entire communities, as in Grindavík.
Recent figures clearly show a dynamic and expensive market. The national residential price index rose by nearly 8% year-on-year in early 2025, although the pace is moderating with the gradual decline in policy rates. In the capital region, single-family homes still climbed by about 9% in one year and apartments by about 6%.
Price Levels and Recent Trends
Orders of magnitude are essential for a foreign investor. In the Reykjavik area, average prices far exceed levels seen five years ago: a 100 m² apartment that cost around €267,000 a few years ago now sells for about €440,000.
No specific key figure was provided in the content to be highlighted.
| Indicator (Residential Housing) | Approximate Value | Source / Indicative Period |
|---|---|---|
| Annual increase in national index (February 2025) | +7.94% | Icelandic Real Estate Data |
| Real increase (inflation-adjusted) | +3.58% | Ibid. |
| Average price in the capital region | 87,043,296 ISK (~620,000 USD) | January 2025 |
| Single-family home, capital | 145,296,331 ISK (~1.03 M USD) | January 2025 |
| Apartment, capital | 75,977,558 ISK (~541,000 USD) | January 2025 |
| Average price per m² in Reykjavik (all housing) | ~529,372 ISK/m² (~4,000 USD/m²) | Recent estimate |
| Price per m² in central Reykjavik (new) | >1,000,000 ISK/m² (~7,100 USD/m²) | 2023–2024 |
| Price per m² in central Reykjavik (old) | ~900,000 ISK/m² (~6,400 USD/m²) | 2023–2024 |
| Average price growth (all housing) | ~2.5% per quarter | Aggregated data |
This surge is explained by strong demand and limited supply: in 2024, just over 13,000 residential transactions were recorded, up more than 40% year-on-year, while only about 3,500 new homes were delivered, with a prospect of slowing construction in the coming years. Developers cite planning procedures deemed unpredictable, a limited supply of buildable land, and high municipal taxes.
Rental Yields and the Rental Market
For those buying to invest, the gross rental yield is around 5% nationally, with a range of about 3.8% to 6% depending on the type of property and location. In Reykjavik, gross yields are rather between 3.9% and 5.5%, around 4.9% on average.
The average rent for a new residential lease in Iceland in early 2025 was about 263,000 ISK per month.
Added to these rent levels is a particularly high cost of living: ICELAND imports a lot, wages are high (nearly 758,000 ISK gross monthly on average in 2025, or about 6,000 USD), and taxation is significant. However, this environment is offset by a very strong economy, a AAA-rated state, and an almost entirely renewable energy grid.
Who Can Buy? Eligibility Rules for Foreigners
The first question for a foreigner remains the most basic: do they have the right to buy property in ICELAND, and under what conditions?
The general framework is set by Law No. 19/1966 on the ownership and use of real estate, amended notably in 2022, and by a set of regulations detailing the rights of nationals of the European Economic Area (EEA) and other countries.
Key Distinction: EEA / Iceland / Rest of the World
Icelandic law establishes a clear hierarchy.
Icelandic citizens, first, can naturally acquire real estate without particular restrictions. This freedom also applies, to a large extent, to foreigners who are legally domiciled in the country: being “domiciled” means having a kennitala (civil identification number) and being registered with Registers Iceland.
Citizens of the EEA, EFTA, and the Faroe Islands receive treatment similar to Icelanders for the purchase of real estate. To buy without special permission, they must be legally domiciled in Iceland and exercise a right related to free movement (work, establishment, provision of services, or movement of capital). They must also file a standard declaration when registering the deed, attesting that they meet the conditions of Regulation No. 702/2002.
The situation is different for nationals of countries outside the EEA. These individuals, if not domiciled in ICELAND, almost always need to obtain permission from the Minister of Justice before they can be recognized as owners in the land registry. The United Kingdom, since leaving the European Union, falls into this category: Britons who acquired property before the end of 2020 retain their rights, but any subsequent purchase is subject to this permission.
Specific Cases: Non-Residents and Special Ties to the Country
For a foreigner outside the EEA not residing in ICELAND, the law provides two main pathways to obtain this permission:
– using the property directly for professional or commercial activity;
– the existence of a “close link” with the country.
To acquire agricultural land, an investor must prove its necessity for their business (offices, industrial site, tourist accommodation…). The Ministry of Justice may grant an exception with a cap of 25 hectares, provided that this area is proportionate to the needs of the professional project.
In the second, more personal case, it involves situations such as marriage to an Icelandic citizen, close family ties, or frequent and long stays that have created strong attachments. Permission is then granted for a single property, with a maximum area of 3.5 hectares, and the purchaser cannot own any other property in the country under this regime.
Certain limitations are strictly non-negotiable for real estate acquisitions by non-residents in Iceland: foreign states and public entities cannot obtain permissions for ordinary acquisitions (except for embassy buildings), foreigners cannot buy agricultural land, and the sale of undeveloped land to non-residents outside the European Economic Area (EEA) is effectively prohibited. However, land use may be granted via a long-term lease.
Case of Legal Entities
Companies and other legal entities are not exempt from these rules. However, some structures can purchase without permission if they are sufficiently “Icelandic” in their governance and shareholding.
Thus, a partnership where all unlimited liability partners are Icelandic citizens or domiciled in ICELAND for at least five years is exempt from permission. Similarly, a limited liability company or a foundation may be exempt if it is domiciled in ICELAND, if all its directors are Icelandic or domiciled for at least five years, and if at least 80% of the capital as well as the majority of voting rights belong to Icelandic citizens.
In all other cases, an application to the Minister of Justice is mandatory, with full transparency on the beneficial owners, in accordance with Icelandic anti-money laundering rules.
Step 1: Clarify Your Residence Status and Obtain a Kennitala
For a foreigner wishing to buy, the first concrete step is almost always administrative: securing residence status and obtaining the famous kennitala, essential for any transaction.
Residence, Residence Permit, and Legal Domicile
Nordic nationals (Denmark, Norway, Sweden, Finland) benefit from particularly flexible freedom of movement and settlement. Citizens of the EEA and Switzerland can stay for up to three months without formalities, but must apply for a residence permit beyond that, via the Icelandic Directorate of Immigration (Útlendingastofnun), before or shortly after arrival.
Non-EEA nationals must obtain a residence permit before entering Iceland for a long stay. The first permit is generally valid for one year, with processing times that can reach six months. Obtaining a permanent residence permit requires meeting several criteria, including a minimum volume of Icelandic language courses.
In all cases, to be recognized as domiciled, one must:
– have a kennitala (personal identification number);
– declare a permanent residential address with Registers Iceland.
A foreigner wishing to buy a home to live in will generally need to start by renting it. This temporary rental is necessary while regularizing their administrative status and obtaining the required documents.
Why the Kennitala is Essential
This number follows every person or entity in ICELAND. It is required for:
– signing an employment contract;
– paying taxes;
– enrolling in the healthcare system;
– opening a bank account;
– obtaining a mortgage loan;
– and, naturally, registering a deed of ownership.
Without a kennitala, a purchase can hardly be finalized, even though the law allows certain non-residents to acquire rights subject to ministerial permission.
Step 2: Request Permission from the Minister of Justice (if necessary)
For non-domiciled, non-EEA nationals, the application to the Ministry of Justice is a mandatory step. It occurs in practice after targeting a specific property, as the permission is always attached to a given property.
Application Contents and Procedure
The application form is available online and must be submitted by email or mail. It must be accompanied by the original purchase contract or transfer deed (an unregistered kaupsamningur). If documents are not in Icelandic or English, a translation by a certified translator is required.
The application must detail:
A complete application must include: precise identification of the property (cadastral number, address), its area and intended use, a declaration of other properties owned in Iceland, the legal basis for the application (professional activity, close link, etc.), and, for an economic activity requiring more than 3.5 hectares, a detailed justification of that area.
The ministry may request additional documents, or even attestations from people who know the applicant if they invoke a “close link”. An insufficiently documented application may be rejected, but the applicant has, in principle, the possibility to complete their file.
The contract only takes effect once signed by the minister on the original: without this signature, the transfer of ownership cannot be registered in the land registry.
Step 3: Financial Preparation – Down Payments, Loans, and Types of Mortgages
The Icelandic financial context often surprises foreigners used to low rates. The central bank’s policy rates began to decline from late 2024, but credit remains expensive compared to many European countries.
Credit Accessibility for Foreigners
The major commercial banks (Íslandsbanki, Arion Bank, Landsbankinn) and the Housing and Construction Authority (HMS, formerly HFF) offer mortgage loans, including to foreigners, but eligibility depends heavily on residence status, income stability, and credit history.
In practice, for a foreign buyer:
– a down payment of 20% to 30% of the purchase price is common;
– banks often finance up to 80% of the price for a primary residence, with specific caps for high amounts;
– some institutions limit themselves to a 50–70% loan-to-value (LTV) ratio for non-residents or people not well integrated into the system.
First-time buyers, including Icelanders but also foreign residents, can sometimes access advantageous schemes: financing up to 85–90% of the price, exemption from certain processing fees, or even specific complementary loans.
Types of Loans Available
The Icelandic mortgage loan market is structured around three main types:
In real estate financing, three main loan structures exist. Non-indexed loans feature higher monthly payments, but the debt is paid down faster and is not adjusted for inflation. Indexed loans offer lower initial repayments, but the outstanding principal is revalued upwards with inflation, effectively lengthening the term and increasing the total cost. Hybrid loans combine an indexed portion and a non-indexed portion, allowing the borrower to adjust their exposure to inflation risk.
Rates can be variable or fixed for periods of three to five years. In early 2025, the best offers on non-indexed loans showed variable rates around 9.5–9.75% and fixed rates around 8–8.3%. Indexed loans had lower nominal rates (about 4–5%), but one must factor in the effect of indexation to understand the real cost.
The central bank imposes a debt service ratio cap: loan payments should generally not exceed 35% of disposable income (40% for a first-time buyer). This calculation uses standardized minimum interest rates and maximum terms, which can be up to 40 years for some non-indexed loans and around 25 to 30 years for indexed loans.
Special Conditions and Optimization Tools
Several instruments can improve the financial structure, depending on the situation:
– currency-indexed loans (FX-indexed mortgages) for borrowers with stable income in a strong currency, with an LTV ratio generally capped at 70% and specific fees;
– “green” loans with reduced rates and fee discounts if the property is energy-performance certified;
– using private pension savings for the down payment or to repay the loan for a first home, often with favorable tax treatment, at the cost of delays that can reach eight weeks to release the funds;
– the possibility to temporarily suspend repayments during parental leave, under certain conditions, by submitting the schedule from the Maternity/Paternity Leave Fund.
In return, early repayments on fixed-rate loans may incur penalties (typically limited to 1% of the amount repaid beyond 1 million ISK per year).
Step 4: Searching for a Property, Making an Offer, and Securing the Contract
Once the legal status is clarified and the budget defined, the more familiar phase of property search begins. In ICELAND, it happens largely through real estate agencies and online portals.
Where to Look?
Several platforms concentrate most listings:
– mbl.is, which hosts one of the country’s largest real estate sections;
– fasteignir.is and fasteignaleitin, dedicated search engines;
– the “fasteignir” sections of major newspapers like Morgunblaðið.
Many agencies (Lind fasteignasala, Heimili, Ace, RE/MAX Iceland, etc.) work with a foreign clientele and offer services in English. In a small country where word-of-mouth remains powerful, local networks and expatriate groups on social media can also reveal off-market opportunities.
Role of the Broker and Viewings
Real estate agents in ICELAND are regulated: they must complete specialized training, pass an exam under the responsibility of the Ministry of Justice, have no criminal record, and periodically renew their license with continuing education. Their commission, on the order of 1.5% to 2.5% of the price, is generally paid by the seller.
For a foreigner, it is valuable to rely on a real estate agent who is fluent in English and knows the local market and the specific rules for non-residents thoroughly. This agent checks essential points like the absence of charges or mortgages on the property, its compliance with zoning rules, and its status regarding current environmental standards.
It is highly advisable to visit properties on site, especially outside the capital, to assess accessibility in winter, insulation quality, availability of services, etc.
The Offer and the Kaupsamningur
When a buyer wishes to make a move, they formulate a price offer, often through the agent. In Iceland, this offer, once accepted, already has binding value. It is therefore common to include conditional clauses: obtaining financing, satisfactory inspection, obtaining ministerial permission for a non-EEA buyer, etc.
The percentage of the purchase price paid as a deposit into an escrow account after drafting the formal sales contract.
A public notary (Notarius Publicus) intervenes at the time of final signing to ensure that legal conditions are met, especially if permission from the Ministry of Justice is required.
Prior Checks
The Icelandic property registration system is known for being transparent, which facilitates due diligence. Before making a final commitment, the buyer (with their lawyer or agent) must check:
– the title deed at the land registry;
– the absence of liens, mortgages, burdensome easements, or ongoing disputes;
– the property’s use compliance with the zoning plan (e.g., you cannot freely convert a residence into tourist rental without permits);
– the condition of the property, via a technical inspection, especially for single-family homes exposed to the elements.
If hidden defects appear after signing, Icelandic law allows for blocking part of the price or taking action for a price reduction, but it is obviously simpler to identify them beforehand.
Step 5: Registration, Acquisition Taxes, and Additional Costs
Once the kaupsamningur is signed and, where applicable, the ministerial permission is granted, it remains to officially recognize the transfer of ownership.
Registration at the Land Registry
The signed documents are submitted to the district magistrate’s office (Sýslumaður), which handles registration in the land registry. It is at this point that transfer taxes and registration fees apply.
The main acquisition costs can be summarized as follows.
| Type of Cost (on Purchase) | Indicative Rate / Amount | Paid by… |
|---|---|---|
| Transfer Tax / Stamp Duty | 0.8% to 1.6% of the official value | Buyer |
| Registration Fees | ~0.1% of the value | Buyer |
| Notary Fees | ~0.1% of the value | Buyer |
| Legal Fees | 0% to 1% of the value | Buyer |
| Agency Commission | 1.5% to 2.5% of the sale price | Seller (most often) |
| Loan Processing Fees, Credit Assessment, etc. | Variable flat fees | Borrower |
Overall, the total cost borne by the buyer, excluding financing, is around 0.9% to 2.7% of the price, while the seller assumes 1.5% to 2.5% in commission. The “round-trip cost” (purchase then resale) is between 2.4% and 5.2%.
Recurring Taxation: Property Tax, Rental Income, and Capital Gains
Once an owner, the foreigner is subject to the same local taxation as an Icelander.
In Reykjavik, the property tax rate for a commercial building can reach 1.6% of the built value.
Reference values are revised annually by the Housing and Construction Authority (HMS) and can be contested within three months.
Regarding rental income, the basic regime is as follows:
Rents are taxed as capital income at a rate of 22%. However, an individual owner benefits from a 50% exemption on gross income for a maximum of two rented properties under the Tenancy Act, which lowers the effective tax rate to 11% for these properties.
Non-residents are taxed in ICELAND on their Icelandic-source income, including rents.
For capital gains, the general rule is taxation at 22% of the gain realized upon resale. However, the sale of a primary residence may be exempt if the property was held for more than two years and its size remains within certain limits. If the holding period is shorter, there are possibilities for tax deferral if reinvesting in another residence.
Where to Buy in ICELAND? Overview of the Main Markets
The choice of location has a considerable impact on the budget, market liquidity, and strategy (primary residence, long-term rental, tourist rental).
Reykjavik and Its Region: Economic Heart and Most Expensive Market
The capital region accounts for nearly 60% of residential transactions. Reykjavik offers a mix of historic neighborhoods (around Laugavegur and the Old Harbor), quiet residential areas (Hlíðar, Seltjarnarnes), and urban renewal zones.
Prices here are the highest in the country: most homes exceed 60 million ISK in value, and the average of recent purchases in the region is well above 80 million ISK. Gross rental yield here is solid but less generous than in the provinces, offset by very strong demand and great market depth.
Neighboring municipalities of the Icelandic capital often offer cheaper housing. Kópavogur and Hafnarfjörður are economically interesting options. Hafnarfjörður is a lively industrial port, famous for its annual Viking festival. Farther north, Mosfellsbær generally has the lowest prices.
Regional Towns: Akureyri, Selfoss, Húsavík, Egilsstaðir
Outside the capital, Akureyri is the country’s second city and an important hub for the north, with a good level of services, a university, cultural activities, and easy access to mountains and skiing. Prices are lower than in Reykjavik, with an active but more limited rental market.
Selfoss, in the south, benefits from its relative proximity to Reykjavik while remaining in a more rural environment. Húsavík, in the north, has become a nature tourism destination, notably for whale watching, which stimulates investment in tourist accommodations.
Egilsstaðir is the most expensive town in eastern Iceland, due to its comprehensive infrastructure (hospital, secondary school, airport). Although its real estate market is more limited, it attracts some investors for long-term rental projects, who see it as a strategic regional center.
Rural Areas and Westfjords: Low Prices, but Strong Constraints
The Westfjords region is regularly cited as the cheapest in the country. Municipalities there have even, in the past, given away land for free to attract new residents. The landscapes are spectacular, but the isolation, climatic conditions, and weakness of the rental market impose a long-term strategy, often more residential than purely speculative.
It is also important to keep in mind that some areas, notably national parks like Þingvellir, Vatnajökull, and Snæfellsjökull, are completely closed to construction for environmental protection reasons. In other sensitive regions, planning authorities reject a significant portion of rural real estate projects to protect ecosystems and landscapes.
Buying to Rent: Potential and Regulation
The tourism boom, with over two million annual visitors, has strongly increased demand for short-term rentals. Many foreign investors saw well-located apartments in Reykjavik or rural houses as an Airbnb-type opportunity.
Yields and Attractiveness
In the long-term rental segment, gross yields around 5% remain attractive in a country with very low political risk and a currency relatively stable in the long term. Net, after tax, management, maintenance, and charges, returns often range between 3.5% and 4.5%.
The total return (capital gain and rents) of the real estate market was recently estimated at 8 to 10% per year, supported by strong price increases. However, the authorities, including the central bank, are implementing measures to cool the market, such as a restrictive monetary policy and strengthened regulation of tourist rentals.
Short-Term Rental Rules
To protect the housing stock and avoid excesses, the Icelandic government has implemented limits on short-term rentals. Beyond a certain number of rental days per year, the owner must obtain a specific permit and comply with safety and zoning standards.
Projects to convert residential properties into guesthouses or commercial tourist accommodations may require special permits and are sometimes refused for zoning or neighbor protection reasons. It is therefore crucial, before buying with this intention, to check with the municipality and a lawyer that the project is compatible with zoning and local regulations.
Environmental Constraints and Projects in Rural Areas
ICELAND is extremely attached to the preservation of its landscapes and natural resources. This translates into environmental standards often stricter than European standards, and rigorous control of development projects outside urban areas.
A tourism project in Mývatn was authorized on the condition of carrying out wetland restoration work. This case illustrates how the authorities, who reject about 30% of rural real estate projects, sometimes impose compensation when projects threaten fragile habitats, wetlands, or iconic landscapes.
For a foreigner considering a country house, a rural cottage, or a more ambitious project, it is therefore essential to:
– check the zoning status in the local development plan;
– inquire about restrictions regarding access, construction, and protection;
– anticipate the delays, costs, and risks of refusal related to environmental impact assessments.
Living in ICELAND vs. Investing Remotely
Buying property in ICELAND does not automatically grant the right to a residence permit, let alone citizenship. Foreigners wishing to settle permanently must go through the standard immigration channels (work, studies, family reunification, etc.). There is no official “golden visa” program tied to real estate investment to date.
For a non-resident investor, it is essential to structure the remote management of their property. This involves appointing a local representative or property management agency, ensuring rigorous tax monitoring, and understanding the application of tax treaties between Iceland and their country of origin.
Conversely, for someone wanting to relocate, it is often recommended to start with a medium-term rental, to test daily life (dark winters, changing climate, cost of living) before committing to a major purchase.
Summary: A Demanding, but Transparent and Predictable Market
ICELAND offers foreigners a unique environment for real estate investment: a very strong rule of law, an advanced economy, almost entirely renewable energy, transparent institutions, and a dynamic residential market. In return, the barriers to entry are real: complex legal procedures for non-EEA individuals, high prices, requirement for substantial down payments, interest rates above the European average, strict regulation of rural projects and tourist rentals.
To navigate this process correctly, several approaches are essential:
For a successful real estate investment in Iceland, it is crucial to: clarify your administrative status (EEA, domicile, residence permit) and anticipate necessary permission requests; obtain a kennitala (identification number) and open a local bank account before any commitment; surround yourself with experienced professionals (lawyer and real estate agent) specializing in assisting foreign buyers; build a prudent financial structure considering interest rates, indexation, and debt ratio caps; integrate all costs (transfer taxes, fees, taxes, taxation on rents and capital gains) into the profitability calculation; and accurately assess risks related to location, especially in rural or sensitive regions.
By following these steps and relying on the transparency of the Icelandic system, a foreigner can buy in ICELAND under good conditions, whether to live there year-round, spend summers there, or build a rental portfolio exposed to one of the most unique and resilient economies in the Nordic world.
A French business owner around 50 years old, with an already well-structured portfolio in Europe, wanted to diversify part of his capital into residential real estate in Iceland to seek rental yield and exposure to the Icelandic króna. Allocated budget: 400,000 to 600,000 euros, without using credit. After analyzing several markets (Reykjavík, Kópavogur, Hafnarfjörður), the chosen strategy was to target an apartment or small house in a dynamic residential neighborhood, combining a target gross rental yield of about 6–7% – the higher the yield, the higher the risk – and appreciation potential linked to local market tension, for an overall ticket (acquisition + fees + light renovations) close to 500,000 euros.
The mission included: market and neighborhood selection, connection with a local network (real estate agent, lawyer, tax specialist), consideration of Icelandic regulatory specifics on rental, choice of investment structure (direct ownership or local company), and definition of an international diversification plan over time.
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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.
