Rental housing still in demand

According to the Icelandic Property Registry, which published its newest figures this morning, a total of 898 of rental agreements were registered last month, which similar to the number in January 2009. Demand for rental housing has been brisk in recent months, with some 44% more rental agreements registered in 2009 than in 2008. The number of registered rental agreements doubled between 2007 and 2009.

The transformation of the Icelandic real estate market is hardly surprising given the sharp reversal in the economy and the deteriorating situation of households, with growing unemployment, shrinking purchasing power and falling housing prices. Demand for rental accommodation has soared, despite the departure of a major portion of the foreign nationals immigrating to Iceland during the economic upswing who were conspicuous on the rental market prior to the banks' collapse. Clearly, a larger number of people now choose or are forced to rent rather than buy, in part due to tighter credit. Another factor in the increased activity is the sizeable number of housing units originally intended for sale which have found their way onto the rental market, boosting the supply of available rental properties.  

Rental income taxes are quite low in Iceland

Rental Income: Non-residents earning rental income are taxed at a flat rate of 10%, without any deductions.

Capital Gains: Capital gains are taxed either as business income at 24.10% for assessment year 2010 (tax year 2009), or investment income at 10%.

Inheritance: Inheritance, tax is imposed on the share of the beneficiary at 5%, with an exemption for the first ISK1,000,000 (€6,385) of the share. Residents are taxed on their worldwide income.

Very low transaction costs in Iceland

Round-trip transaction costs are very minimal from 1.92% - 2.52%. The buyer shoulders all costs when buying property, which include real estate agent's fee, stamp duty, and registration fee.