Denmark: Overview
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Denmark is not for rental investments
Several factors make Denmark undesirable for rental investments including extremely pro-tenant laws, a huge social rental market, high taxes, low rental yields and foreign ownership restrictions.
Denmark is unusual within the European Union in that nonresidents can only acquire Danish property if: they have previously resided in Denmark for five years; they are EU nationals working in Denmark; or they are non-EU nationals with a valid residence or business permit in Denmark.
In terms of property prices, residential prices peaked in the 2nd quarter of 2006 and are now falling. The house price index in the fourth quarter was 6.7% lower than in the second quarter of 2006. The price of owner-occupied flats in Copenhagen experienced a sharper fall, 12% from Q2 to Q4 2006.
RENTAL YIELDS
Poor yields are low at 4.5% in Copenhagen
A 120-sq. m apartment in Copenhagen generates a yield of 4.61% at a selling price of €4,620 per sq. m. At the average, yields in Denmark is not much higher at 4.63%.
Apartment prices in Copenhagen, and nearby suburbs, are among the more expensive in the world. These range from €180,00 to almost €1M, with an average of €4,664 per sq. m.
TAXES AND COSTS
Taxes are generally high in Denmark
Rental Income: Buying through a company has tax advantages. In Denmark, corporate income is taxed at a flat rate of 28%. Business-related expenses, depreciation costs, and interest payments are deductible.
Capital Gains: Capital gains from sale of immovable property in Denmark are taxed at a rate of 28% for companies, while non-resident owners are taxed at a special rate of 32%, because they do not pay any county income tax.
Inheritance: Inheritance tax is imposed at a flat rate of 15% on the estate if the successor is immediate family (children, grandchildren, parents, grandparents), but no tax is levied on the spouse’s inheritance.
Residents: A resident is taxed on his worldwide income, levied marginally on an aggregate scale.
BUYING GUIDE
Transaction costs are very low in Denmark
Roundtrip transaction costs in Denmark are among the lowest in Europe, at 1.3% to 3% of the property value. The greater part of the costs is accounted for by the real estate agent’s commission at 0.5% - 2%, usually paid by the seller.
LANDLORD AND TENANT
Strongly pro-tenant laws in Denmark
Danish rental laws and practices are extremely pro-tenant.
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.”
ECONOMIC GROWTH
Strong economy and wage growth
Denmark is the smallest and most southern of the Scandinavian countries with a population of 5.4 million. Its modern market economy generates high living standards with a GDP per capita of US$50,808 in 2006, one of the highest in the world. The country offers an interesting mix of lively cities and rural countryside.
Denmark joined the European Economic Community (now the EU) in 1973, however, it has decided not to adopt the euro. Even so, the Danish krone is pegged to the euro (€1 = DKK7.45092).
Denmark’s economy grew by an average of 3.3% per year from 1995 to 2000. Annual GDP growth slowed to 0.95% between 2001 and 2004 when exports were affected by the international recession. But GDP growth has now recovered to 3.4% in 2005 and 3.2% in 2006.
Real wage growth in 2006 was 3.4%, at par with the average growth rate of 3.3% per annum from 1995 to 2005. Real wages are expected to increase by 3.9% in 2007.
Unemployment rate was 3.9% in 2006, down from 9.6% in 1993, and is expected to fall further to 3.4% in 2007.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Bubble fears prompt foreign ownership limits in China
America & Caribbean
The slowdown of the U.S. housing market
Middle East and Africa
Bahrain is open to foreigners and sizzling hot
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): €4,620 For a 120 sq. m. property, usually an apartment. | Rental Yield: 4.61% For a 120 sq. m. property, usually an apartment. |
| Rent/month: €2,130 For a 120 sq. m. property. | Income Tax: n.a. Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
2.1%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 42.3% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Strongly Pro-Tenant Rating is based on a detailed study of each country’s law and practice. | |
MAY 2007
- Global residential markets remain strong despite US housing downturn - Finfacts Ireland
- House demolition sparks squatter riots - Copenhagen Post
- Danish 4Q house prices show largest drop since 1992 - fxstreet.com
- Bank sees no house price collapse - Copenhagen Post
DECEMBER 2006
- National bank raises interest rate - The Copenhagen Post
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