The Danish property market - the knot is untied, creating great opportunities for international investors
By Per Hansen
Admitted: the Danish property market has never been at the centre of interest for international property investors. Nevertheless, it is and has for many years been an attractive option. For decades, Denmark has had a strong economy with political stability, fair growth, low inflation, low interest rates and a high employment rate. But even so, when the financial crisis hit Denmark in 2008, it did so with considerable weight and sent the property market into a limbo which still lingers.
The creation of a price bubble
During the early 2000's, property prices, the construction industry and property markets boomed and property prices rose at an increasing speed, due to the ever lower interest rates and a generally booming economy. As in many other countries, not only the traditional property investors and the construction companies thrived on this boom, but so did a lot of newcomers including the adventurers who are always attracted to any booming industry.
The Danish banks were profiting highly from this and by the mid 2000's a number of smaller and local banks decided to expand their activities into the property market. To get into the market, many of them financed adventurous newcomers - initially with great success. In that market, no one could really fail.
The banks, exhilarated by their instant success in the property market, granted senior and junior loans well in excess of what the yields could justify, counting on an ever rising price spiral. Prudent investors insisting on matching their investments with the yields were forced out of the market, giving way to the adventurers and their ping-pong deals where the same properties were traded in closed circles at ever increasing prices, all being not only financed but even cheered on by the banks.
The bubble bursts
When the financial crisis hit Denmark, it hit the property market particularly hard, leaving the banks with a vast amount of loans only partially secured in the properties that they financed. This was obviously not only a problem for the customers but also for the banks themselves, who had to write down the book values of their loans creating their own solvency issues.
To avoid such write downs, the banks ventured into a "lying low" strategy and made various attempts to "park" their loans and property securities Their intention was to ride out the storm by sitting tight on the properties waiting for better times. But along came the Regulator to inspect their books and to demands write downs.
The knot is untied
The Regulator's demands will force the banks and Finansiel Stabilitet to bring their property portfolios to the market as their "lying low" policy has failed. For the international investor this creates great opportunities. Not only have the property prices dwindled, but the difficulties in the country's financial sector has led to a shortage of financing keeping many Danish investors out of the market. This creates great opportunities for the international investor who has access to financing from banks in its home.
The Danish economy remains among the strongest in Europe and with the Danish Kroner still tied to the euro, the Danish property market provides a low risk, medium yield opportunity to the prudent property investor.
Hansen Sonderby Advokatfirma, Randers SO, Denmark, T: +45 70 300 500
hansen|sonderby is a boutique law-firm in Denmark with offices in Copenhagen and Randers. Currently, the firm employs 11 lawyers all of whom are highly qualified in various fields of the law. Three of them specialize in Real Estate matters, offering a wide range of services within the field. Per Hansen is a partner in the firm and heads the three lawyer Real Estate department. He has more than 25 years of experience with Real Estate matters in Denmark and other countries. Per Hansen is Global Vice Chairperson of the GGI Real Estate Practice Group.