Property Futures

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Property Prospects in Denmark in 2013 Look Dismal

Article: There is no good reason to consider property investment in Denmark in 2013.

The mortgage industry in Denmark is working with the government in the hopes of preventing a wave of foreclosures on interest-only mortgages, especially because some borrowers will not be able to afford these mortgages once amortisation requirements come into effect this year.  Borrowers are also struggling with declining house prices that are now at 2005 levels.

Danish property investment market analysis

Danish real estate investment market analysis

There’s a housing and mortgage crisis in Denmark, dating back to the 2008 Global Recession.

  • 80% of homeowners below the age of 35 are in negative home-equity territory and the problem could threaten the growth of the entire economy.
  • Home prices are declining year on year at almost 3%.
  • It is estimated that more than 100,000 families would need to receive special terms to put them in a position to meet their mortgage obligations.

The mortgage crisis

The mortgage industry in Denmark, worth USD $590 billion (twice the size of the economy) started providing interest-only mortgages in 2003, and these now account for 56% of all outstanding loans.

  • Danish banks are not allowed to provide mortgages in excess of a loan-to-value ratio of 80% and any shortfall has to be met by the banks themselves (jeopardizing their credit ratings).
  • Borrowers are also looking at very substantial increases in loan repayments at a time when unemployment is at an all-time high.
  • The possibility of higher interest rates also threatens the recovery of the market.

The current state of the property market in Denmark

The worst contraction in the Danish economy since the height of the global economic crisis has caused property values to decline the levers of 2005.

  • House prices declined 2% in the quarter to December 2012 from the previous year and 2.5% from the preceding quarter.
  • Property prices have now dropped more than 20% since the peak and this has bankrupted more than 12 mortgage lenders.
  • GDP shrank by 0.6% in 2012, the biggest decline in 3 years, and the housing market continues to be heavily influenced by these economic problems.

Experts believe that the market may have a psychological problem given that property prices are declining and financing is available for buyers.

The bright spot in the market, however, is that, while house prices have declined, apartment prices are showing signs of recovery.

  • Apartment prices rose nearly 4% from the previous year and 1.4% from the preceding quarter.

Types of popular housing in Denmark

Buying property in Denmark is not straightforward because you can never be sure of availability, and prices depend on the type of property and the location.

  • For instance, most property in Copenhagen consists of flats and blocks of appointments.
  • Apartments on the ground floor are the cheapest and apartments on the higher floors tend to be pricier.
  • Surprisingly, apartments on the top floor tend to be the most popular even though a lot of the older apartment blocks are not equipped with lifts.
  • If you are looking for a house rather than an apartment, you should consider looking at the suburban areas away from the city center.
  • The types of houses available range from terraced housing to detached houses with their own grounds.

The bottom line

Some people believe that the housing market has bottomed out but, in my opinion, there is little evidence for this.  I personally believe that Denmark will continue to be one of the worst property markets in Europe in 2013.


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