There was a 2.84% drop in the price of detached and terrace houses in Denmark to DKK10,819 (US$1,903) per square metre (sq. m.) in 2012 (-4.92% inflation adjusted), according to the Association of Danish Mortgage Banks (ADMB). But Copenhagen’s property prices rose by 1.1% to DKK22,540 (US$3,965) per sq. m. over the same period (-1.1% inflation adjusted).
On a quarterly basis, detached/terraced house prices in the country fell by 2.46% (-2.49% inflation-adjusted) in Q4 2012.
Property prices have been falling in all regions. In 2012:
- Capital region average detached/terraced houses prices fell by 1.1% to DKK17,896 (US$3,148) per sq. m. (-3.2% inflation-adjusted)
- Zealand region house prices dropped by 6.4% to DKK9,222 (US$1,622) per sq. m. (-8.4% inflation-adjusted)
- Southern Denmark house prices fell by 3.6% to DKK8,637 (US$1,519) per sq. m. (-5.6% inflation-adjusted)
- Central Denmark region house prices dropped by 2.7% to DKK10,162 (US$1,788) per sq. m. (-4.7% inflation-adjusted)
- North Zutland house prices fell 1.5% to DKK7,824 (US$1,376) per sq. m. (-3.6% inflation-adjusted)
Holiday home prices dropped 6.3% to DKK13,724 (US$2,414) per sq. m. in 2012 (-8.3% inflation-adjusted).
The residential properties doing best are apartments! Maybe people are adjusting expectations downwards. The average transaction price of owner-occupied flats rose in 2012 by 3.9%, to DKK17,968 (US$3,161) per sq. m. (1.7% inflation-adjusted).
During the country’s housing boom (from Q1 2003 to Q2 2007), residential property prices rose by 66.3%, according to the ADMB (56% inflation-adjusted). Property prices dropped about 15.4% (-19.3% inflation-adjusted) from Q2 2007 to Q3 2009 due to the global financial meltdown. This dragged many regional lenders into bankruptcy and pushed the economy into recession. After a short-lived recovery from Q3 2009 to Q3 2010 (with property prices rising by 4% or 1.6% when adjusted for inflation), property prices are now falling again, mainly due to the adverse impact of the eurozone debt crisis.
In 2012, the total number of terraced/detached houses sold fell by 1.4% to 6,041 units. The average days on market of terraced/detached houses increased to 223 days in Q4 2012, up from 209 days in Q4 2011.
The Danes are the world’s most indebted people
Danes, with personal debt equal to about 267.31% of income, are the most personally indebted people in the world, based on figures from Eurostat. Yet on some dimensions, the Danish mortgage market is healthy. Mortgage arrears fell to 0.31% in Q3 2012, the lowest since Q3 2008. Likewise, the total number of repossessed dwellings dropped 5.8% to 2,461 in 2012. Yet total mortgages outstanding in the first quarter of 2013 rose 1.7% to DKK2.46 trillion (US$433 billion) from last year, according to the ADMB.
However, foreclosures and loans in arrears are expected to balloon this year, as borrowers of interest-only mortgages will need to start amortizing the whole amount.
In 2003, banks started to give borrowers the option of deferring amortization for as long as a decade. This type of mortgage became very popular and has since grown to about 56% of all outstanding housing loans in the country, according to the ADMB. Now, more than 100,000 borrowers will need to renegotiate their repayment terms if they are to meet their loan obligations, according to the University of Southern Denmark. To prevent a wave of foreclosures, the mortgage industry is now negotiating with the government to soften repayment terms on interest-only mortgage loans.
“The housing market is still having a rough time,” Steen Bocian said. “Even though the pace of declines slowed last year, it’s too early to talk about a turn-around.”
With the Danish economy expected to grow by about 0.5% to 1% this year, house prices may also start to rise, though at a slower rate than inflation, said Steen Bocian of Danske Bank A/S. Bocian expects house prices to increase by 1% in 2013 and by 0.4% in 2014.
The economy contracted by 0.5% in 2012, the country’s worst economic performance in three years.
Analysis of Denmark Residential Property Market »
The result is that rental yields on apartments in Copenhagen have hardly moved over the past year. Apartments of 120 square metres (sq. m.) yield 5.18%. Apartments of 50 sq. m. yield 6.54%.
These are quite attractive yields for a European city.
Capital Gains: Capital gains from sale of immovable property in Denmark earned by nonresident owners are taxed at a special rate of 24%, because they do not pay any county income tax.
Inheritance: Inheritance of the immediate family (children, grandchildren, parents) is subject to total estate tax at a flat rate of 36.25%. No tax is levied on the spouse’s inheritance.
Residents: Income earned by residents is taxed at various progressive rates, up to around 52%. Tax on income consists of state tax, AM tax municipal tax, and church tax.
Rent Control: There are five different forms of rent control in Denmark depending upon the age of the building and the system is very complex. However, rents on dwellings constructed after 1991 are exempt from rent control.
Legal Disputes: The system is confusing. “It is not possible for lay people to properly calculate the maximum rent applicable to a particular tenancy,’ notes the EUI report on Danish Landlord and Tenant law. “This is the cause of many legal disputes, which must be resolved by the judicial system.”
Denmark joined the European Economic Community (now the EU) in 1973, however, it has decided not to adopt the euro. Even so, the Danish krone is pegged to the euro at €1=DKK7.46038 with a 2.25% band.
In 2008, Denmark became one of the first countries in Europe to formally go into recession. The economy contracted by 0.8% in 2008 and by 5.7% in 2009. Boosted by government spending and the recovery of the global economy, Denmark’s GDP grew by around 1.6% in 2010 and by another 1.1% in 2011.
However, the economy contracted again by 0.5% in 2012, the worst economic performance in three years, according to Statistics Denmark. This is amidst high level of household indebtedness and a depressed housing market.
The Danish economy is expected to grow by about 0.5% to 1% in 2013, based on government estimates. Private consumption is projected to increase by 0.7% this year after growing by 0.5% in 2012 while spending on homes is expected to fall by 0.6% in 2013 after dropping by 9.8% last year, according to Danmarks Nationalbank, the country’s central bank.
Denmark’s budget deficit rose to 4.2% of GDP in 2012 from about 3.9% in 2011, mainly due to increased government spending aimed at addressing lower-than-expected economic growth.
At the height of the global crisis, the fiscal stimulus combined with bank bailouts pushed the budget deficit from a surplus of 3.4% of GDP in 2008 to a deficit of 2.7% of GDP in 2009 and 5.5% in 2010.
Unemployment is quite low, and is now falling
It is not all bad news. Denmark’s seasonally-adjusted unemployment rate dropped to 5.8% in March 2013, from 5.9% in February and 6% in January 2013, according to Statistics Denmark. The latest figure is the lowest since December 2009. The total number of unemployed persons fell by 2,300 to about 154,900 in March 2013.
In March 2013, the annual headline inflation was just 0.9%, the lowest level since September 2009, according to Statistics Denmark. From 2010 to 2012, the average annual inflation rate in the country stood at 2.5%.
Denmark’s central bank Danmarks Nationalbank slashed its key lending rate by 10 basis points to 0.2% in May 2013, in line with the ECB’s key rate cut to a record low 0.5%. The country’s central bank usually follows the moves of the ECB to keep its currency (the Danish Krone) stable. The Danish Krone was pegged to the euro at €1=DKK7.46038 with a 2.25% band.