Danish house price rises continue, unabated!
June 30, 2017
- The average price of owner-occupied flats stood at DKK24,550 (EUR3,300) per square metre (sq. m).
- Detached/terraced houses were priced at an average of DKK12,482 (EUR1,678) per sq. m.
- Holiday homes were priced at an average of DKK13,848 (EUR1,861) per sq. m.
By region, during 2016:
- In the Capital region, i.e. Copenhagen and its hinterland, the average price of owner-occupied flats rose by 9% y-o-y to DKK30,858 (EUR4,148) per sq. m.
- In Zealand region, house prices rose by 1o% y-o-y to an average of DKK14,884 (EUR2,001) per sq. m.
- In Southern Denmark, house prices increased modestly by 3.9% to an average of DKK14,093 (EUR1,894) per sq. m.
- In Central Denmark, house prices increased 6.8% y-o-y to DKK20,870 (EUR2,805) per sq. m.
- In North Zutland, house prices rose by 6.9% y-o-y to an average of DKK16,573 (EUR2,228) per sq. m.
The International Monetary Fund (IMF) recently urged the Danish government to reverse its negative interest rates mandate and introduce new policies, such as zoning rules and relaxing rental market regulations, to avoid a disastrous housing bubble.
“We strongly encourage the authorities to take early action to lean against the wind on house price increases,” said David Hofman of the IMF.
However a recent study by Simon JuulHviid of DanmarksNationalBank, Denmark’s central bank, concludes that the house price increases in Copenhagen from 2012 to 2016 were mainly driven by fundamental economic factors and not by speculative behavior.
Danish house prices are expected to continue rising this year.
“We expect the housing market will continue to grow overall, with house prices rising 3.5% this year and next,” said Danske Bank in its recent report. “We have also noted a recent increase in housing market activity, with the number of apartment and house sales rising and more property showings indicating a solid appetite for home buying going into the spring.”
Despite Denmark’s association with liberalism, it is not easy to acquire property here.
Nonresidents may not purchase real property here unless the person:
- Has previously resided in Denmark for at least five years;
- Is an EU national working in Denmark; or,
- If a non-EU national, has a valid residence or business permit.
There are some special restrictions on foreign ownership in some areas, especially when buying summer holiday homes. This is particularly prevalent in coastal areas. These are popularly known as the ‘anti-German rules’; because they are designed to prevent coastal areas from being overrun by German second home owners.
However, the purchase of “all-year-round” properties, which are not located in popular areas along the coast, is possible as long as you satisfy the aforementioned requirements.
The Danish economy grew by a meagre 1.1% in 2016, after growing 1.6% in 2015, 1.7% in 2014, 0.9% in 2013, 0.2% in 2012 and 1.3% in 2011, according to the IMF. The economy is expected to expand by 1.7% this year and by another 1.8% in 2018, according to the European Commission.
Copenhagen’s rental yields range from 4.84% to 5.31%
Residential property prices in Denmark have been stable during the past three years (2012-2014), according to StatBank Denmark. In Copenhagen, our research suggests that the price of apartments has remained stable, with maybe some upward price movement for the smallest apartments. Meanwhile, in Copenhagen, rents have also been stable.
The result is that rental yields on apartments in Copenhagen have hardly moved over the past two years. Apartments of 120 square metres (sq. m.) yield 4.84%. Apartments of 50 sq. m. yield 5.27%.
These are moderate yields.
Taxes are moderate in Denmark
Rental Income: Rental income subject to state income tax, from 8.08% to 15%, and municipal income tax at a flat rate of 24%. Landlords have two options when computing for taxable income: (a) itemized deductions, and (b) standard deduction to account for income-generating expenses.
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 55.60%. Tax on income consists of state tax, AM tax, municipal tax, and church tax.
Transaction costs are very low in Denmark
Roundtrip transaction costs in Denmark are among the lowest in Europe, at 1.23% to 3.23% of the property value. The greater part of the costs is accounted for by the real estate agent’s commission at 0.5% to 2%, usually paid by the seller.
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.”
Meager economic growthIn 2008, Denmark was one of the first countries in Europe to go into recession. The economy contracted by 0.5% in 2008 and by 4.9% in 2009.
Boosted by government spending and the global recovery, Denmark’s GDP growth recovered. But the previous prime minister HelleThorning-Schmidt, a Social Democrat,adopted austerity measures that improved government finances, and the country recorded a public budget surplus of 1.4% of GDP in 2014, after deficits of 1% in 2013, 3.5% in 2012, 2.1% in 2011, 2.7% in 2010 and 2.8% in 2009.
Mrs Thorning-Schmidt’s measures, which successfully improved the country’s finances, were however unpopular, resulting in her party’s defeat in 2015 and her resignation. In June 2015, Lars Lokke Rasmussen leader of the centre-right liberal party, Venstre, returned for his second innings as Denmark’s PM, and ironically adopted inflationary policies. Spending increases over the past two years in an effort to prop up the economy haveresulted in a budget deficit of 1.3% of GDP in 2015 and 0.9% of GDP in 2016.Denmark’s budget deficit is projected at 1.3% of GDP this year.
The economy is expected to expand by 1.7% this year and by another 1.8% in 2018, according to the European Commission.
In April 2017, the nationwide inflation stood at 1.1%, the highest in the past four years. Inflation slowed sharply to almost zero last year, from 0.2% in 2015, 0.4% in 2014, 0.8% in 2013 and an average of 2.2% from 2000 to 2012. Inflation is expected to hit 1.4% this year and 1.7% in 2018, according to the European Commission.
Denmark’s unemployment was 4.7% in March 2017, down from 4.8% in the previous month but up from 4.5% a year earlier, according to Statistics Denmark. Over the same period, unemployment for both men and women stood at 4.7%. Overall unemployment had averaged 4.9% from 2007 to 2016.
There were about 116,276 unemployed persons (seasonally-adjusted) in the country in March 2017, up by 3.5% from 112,398 persons in the same period last year, based on figures from Statistics Denmark.
Gross public debt stood at 37.8% of GDP in 2016, down from 39.6% of GDP in 2015, and 44.8% of GDP in 2014. The country’s public debt is projected to decline to further to 36.7% of GDP this year, according to the European Commission.