How to Buy Investment Property in Iceland as a Foreigner
One of the first questions many people ask when considering buying real estate in Iceland is whether foreign ownership is even allowed.
YES - Foreigners are allowed to own property in Iceland, but there are certain conditions that must be met. If you are a citizen of a European Economic Area (EEA) country, you can buy property in Iceland without restrictions. However, if you are from outside the EEA, you must obtain special permission from the Ministry of Justice. This permission is typically granted if the property is intended for direct use in business operations or if the individual has a close connection to Iceland, such as through marriage to an Icelandic citizen. Additionally, the property must not exceed 3.5 hectares, and the applicant may not own other properties in Iceland.
Investing in Iceland's Real Estate Market
Iceland has a strong and stable real estate market, driven by its high quality of life, strong economy, and growing tourism industry. The capital city, Reykjavik, is the most sought-after location for property investment, offering a mix of modern apartments, historic homes, and commercial properties. Other areas, such as Akureyri and coastal towns, also provide attractive investment opportunities, particularly for those interested in vacation rentals or second homes.
Tourism has played a significant role in driving demand for short-term rental properties in Iceland. With millions of visitors each year, cities like Reykjavik have seen an increase in demand for Airbnb-style accommodations. However, the government has introduced regulations to limit the number of days a property can be rented without a special permit, making it essential for investors to understand local laws before entering the market.
Additionally, Iceland's real estate sector is supported by a strong and transparent legal system, ensuring secure transactions. Property values have shown steady appreciation over time, and while the cost of living in Iceland is high, rental yields can be strong, particularly in areas with high tourism traffic.
Rental Yields
Gross rental yields in Iceland for long-term tenants hover around 5.00%. The real NET yields are likely somewhere around 3.50% - 4.50%.
- Reykjavik dwellings earn a rental yield between 3.87% to 5.48%, with an average of 4.88%
- Iceland's average for all dwellings yields between 3.83% to 6.01%, with an average of 5.20%.
Due to government regulations on short-term rentals, investors must ensure they comply with licensing requirements. Properties designated as commercial guesthouses or vacation rentals may require special permits, impacting the overall investment strategy.
Popular investment destinations in Iceland (2025):
Reykjavik - The capital and economic center of Iceland, Reykjavik, offers diverse investment opportunities, including residential apartments, commercial spaces, and short-term rental properties. Areas like Laugavegur, the Old Harbour, and Hlíðar are particularly attractive due to their central locations and high demand from both residents and tourists.
Akureyri - As Iceland's second-largest city, Akureyri is growing in popularity as a real estate investment destination. With its vibrant cultural scene, beautiful landscapes, and strong local economy, it presents opportunities for investors seeking long-term rental income or vacation properties.
Selfoss - Located in southern Iceland, Selfoss is a developing area with increasing demand for housing. It is a strategic location for those looking to invest in residential properties outside of Reykjavik while still being within commuting distance of the capital.
Húsavík - Known for its whale-watching tourism, Húsavík offers potential for vacation rentals and hospitality investments. With tourism on the rise, properties catering to short-term visitors can provide strong returns.
Westfjords - A more remote and scenic region, the Westfjords offer unique investment opportunities for those interested in eco-tourism and sustainable property development. Although less developed, the area's natural beauty and growing appeal among adventure travelers make it an interesting niche market.
Finding Properties for Sale
Here are the most popular property portals in Iceland:
If you're serious about buying or investing in Iceland, be sure to contact local brokers and visit the properties in person. This will give you a better understanding of the market and help you decide whether to move forward with a purchase or determine that it's not the right fit for you.
Due Diligence and Sales Contract
The due diligence process involves verifying the legal status of the property, checking for outstanding debts or liens, and ensuring compliance with local zoning regulations. The Icelandic property registration system is highly transparent, making it easy to obtain necessary information about a property before purchase.
The property purchase process in Iceland typically involves signing a purchase agreement, known as a kaupsamningur. This contract outlines key details, including the purchase price, payment terms, and conditions of sale. A Notarius Publicus (public notary) oversees the final transaction to ensure all legal requirements are met, and the property is officially registered with the Icelandic Land Registry.
Financing for Non-Residents
Foreigners can obtain mortgage loans in Iceland, but options may be limited depending on the applicant's residency status. Most Icelandic banks require buyers to provide proof of income, credit history, and legal residency in Iceland. Loan-to-value (LTV) ratios for foreign buyers typically range between 50% and 70%, meaning investors must provide a significant down payment.
Interest rates in Iceland tend to be higher than in many other European countries, so investors should carefully evaluate financing options and consult with local financial advisors before making a purchase.
Property Buying Costs and Taxes in Iceland
| Buying and Selling Costs | ||
| % from Final Price | Who Pays? | |
| Property Transfer Tax | 0.80% - 1.60% | buyer |
| Notary Fees | 0.10% | buyer |
| Legal Fees | 0.00% - 1.00% | buyer |
| Real Estate Agent fee | 1.50% - 2.50% | seller |
| Costs paid by buyer | 0.90% - 2.70% | |
| Costs paid by seller | 1.50% - 2.50% | |
| Roundtrip Transaction Cost | 2.40% - 5.20% | |
| Source: Global Property Guide, PWC. Last revised: April, 2025 | ||
Further reading: Guide to Property Taxes in Iceland.