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Danish house prices: Property price statistics confirmed continued rise

Negative bank interest rates played a big role in Danish house prices

Denmark has continued to see prices increase through 2018, a trend caused mainly by the negative bank interest rates.

In the year to February 2018, prices rose by 7.88% when compared to the same period of the previous year which saw increases of 6.87%, according to Statistics Denmark.

Apartments had the biggest increase of 8.5%, holiday home rose by 6.4% and detached houses at 5.3% year-on-year.

Prices rose mostly in areas around Copenhagen and Zealand at 10.4% and 10.3% respectively; with Southern Denmark following closely at 6.2%. Central Denmark and North Zutland had the smallest increases at 4.1% and 2.9%, respectively.

Through 2017 demand for housing remained strong and this continued into 2018, but buying decreased. There were few properties for sale and slow construction of new properties, causing sale times to be short. A tightening in lending conditions in 2018 also caused a slowdown in buying.

New figures show that the Copenhagen property market is turning in favor of buyers in 2019. By the end of 2018, availability of apartments increased by 20.6% with some areas around the capital reaching 30%. Buyers can use this to their advantage to negotiate prices with the sellers.  Toward the end of 2018, prices dropped for three consecutive months.

The increase in availability of properties is also due to the completion of new development projects.

Contributing factors

Tighter lending standards have moderated the housing market in Denmark.  Construction permits have fallen sharply by 35.2%, year-on-year in2017, after annual growths of 15.8% in 2016, 39.7% in 2015 and 41.1% in 2014.

The total year-on-year mortgage outstanding rose by 2.4% in Q1 2018, to DKK2.7 trillion (€ 363 billion), according to the Association of Danish Mortgage Bank.

The tighter lending regulations became effective on January 1, 2018, in an effort to reduce the risks of the lending portfolios of banks. Banks will have to offer loans with fixed interest rates and loans will have to be repaid in monthly installments. Restrictions include that borrowers cannot lend more than 60% of the property value. These measures will help reduce the risk of a price bubble that can be set into motion by the negative interest rates of the recent years. The IMF had been urging the Danish government to take these measures for a number of years previously.

Rental yields

The average yields in Denmark for 2017 were the most recent that could be found, and were hovering at just above 5%. This means that they have been steady for many years as the 2012 – 2014 yields ranged from 4.84% to 5.31%, according to StatBank Denmark. The yields are moderate and the bigger yields, as usual, are for smaller apartments.

Rental laws are extremely pro-tenant in Denmark and the country has five different types of rent control. These depend on the age of the building in a system that is very complicated. The good news is that housing built after 1991 is exempt from rent control

Many legal disputes arise from the complicated maximum rental applicable to some tenancies, which are difficult to calculate. These disputes must be resolved by the judicial system.

In another development, spiraling rents and lack of cheaper accommodation has resulted in an increased rate of homeless people, especially among 18-20 year olds. This is despite the implementation of social funding projects.

Purchasing costs

Non-residents may have a difficult time purchasing property in Denmark, despite the country’s association with liberalism.

Non-residents only qualify if they have resided in Denmark for at least five years, are EU nationals working in Denmark, or if they have a valid residence or business permit. There are extra restrictions for foreigners wishing to buy coastal homes.

Rental income is subject to two taxes: state income tax, from 8.08% to 15% and a municipal tax of 24%. Deductions can be calculated in one of two ways: itemized deductions or standard deduction s for income-generating expenses.

Capital gains tax for non tax payers in Denmark is set at 24%.

Immediate family pays an inheritance tax of 36.25%, but the spouse pays no inheritance tax.

Residents of Denmark are taxed progressively at up to 55.5% of earnings. The tax includes, state tax, AM tax, municipal tax and church tax.

Buyers’ transaction costs are the lowest in Europe and will amount to1.23% to 3.23% of the property value. The real estate agents commission is paid by the seller and ranges from 0.5% to 2% of the selling price.

Conclusion

According to statistics provided by the European Union, Denmark had its highest growth increase since 2006, of 2.2% in 2017. Growth slowed down to 0.8% in 2018, but is projected to grow at 1.6% for 2019. The growth is fueled by robust domestic demand.

Denmark was one of the first countries to go into a recession in 2008, but austerity measures were adopted to improve government finances. In 2014, Denmark achieved a public budget surplus of 1.1%, after several deficit years.

Denmark’s debt has declined to about 36.4% of GDP in 2017, from 37.9% in the previous year. It is expected to fall to 32.3% in 2019, placing it as one of the lowest in the EU.

Inflation levels have remained very low in Denmark for a number of years and it was at 0.8% in 2018, however, it is expected to accelerate to 1.4% in 2019.

Unemployment rates averaged 4.8% from 2007 to 2017, but fell to 4.2% in March 2018.

With the banking restriction on loan qualifications affecting Copenhagen and the municipalities around it, many prospective homeowners are likely to seek housing in other municipalities that are not affected.

Opinions differ, but many feel that these measures will lead to a downward spiral of housing prices. New tax reforms are also been considered and many are afraid that the market will see the opposite of a bubble; a complete deflation.

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Rita Monteiro

Rita – After graduating from NYU with a master degree in history, She was also a columnist for many local newspapers. Rita mostly covers business and Technology topics, but at times loves to write about reviews as well.
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