The Danish Economy

The Danish economy is thriving and has entered a period with a moderate booming economy after 6 years with healthy growth, which will likely be sustainable and resilient against impacts in the coming years according to leading economic councils in Denmark.

This is evident as Denmark enjoys historically high employment rates, low interest rates, a solid mortgage system and a very stable political climate. Furthermore, Denmark’s national debt to foreign states has never been lower and is probably one of the reasons why Denmark continuously enjoys triple A ratings from leading rating agencies, e.g. S&P and Moody’s.

This is, as we see it, a quality stamp for the Danish society, and we’re not the only ones, as foreign investors tend to see Danish government bonds as a safe haven, even though they pay negative interest rates.

This is reflected in a solid and prosperous real estate market, which experienced record level transaction volumes in 2017 primarily driven by international investors with an eye on the flourishing real estate market in Copenhagen. The transaction volume for 2018 was approximately 10% lower, which was mainly due to significantly fewer transactions above 65 million euros, but after years of high demand the supply is currently limited, and we are seeing signs of investors’ increasing attention outside the biggest cities.

In 2019, we are, therefore, expecting investors to shift the demand for smaller-sized transactions within the top 30 largest cities, where the yield is higher – especially within residential project development, where many cities have planned high growth in coming years to satisfy the need for new units after many years with limited project development.

Why Invest in Danish Real Estate?

  • Low transaction costs
  • High degree of market transparency and stability
  • Low financing rates through Danish mortgage credit institutions
  • Solid key economic indicators
  • AAA/A-1+ credit rating and stable outlook*

*S&P as of February 2019

Low Transaction Costs

As buyer:

  • Deed registration: 0.6% of purchase price + € 190
  • Mortgage: 1.5% of the mortgage’s principal +€ 190
  • Costs for own advisor, lawyer, agent etc. are typically very low

As seller:

  • Agent, lawyer etc. varies, but typically between
  • 1 – 4% of purchase price depending on deal size
  • Denmark is known to have some of the lowest roundtrip property transactions costs

Low financing rates

  • Low origination costs
  • Low APR compared to the majority of European markets
  • Highly transparent, stable and liquid mortgage bond market
  • Flexible loans on conditions close to funding conditions of capital market players
  • Low financing rate: Bond yield plus a small markup (margin) for the mortgage bank
  • Debt/value ratio: Financing through the mortgage institutions, normally up to 60% of valuation
  • Loan maturity: Min. 1 year (yearly refinancing), max. 20 years
  • Payment structure: Floating or fixed rates, with or without quarterly principal repayments
  • Each new loan is in principle funded by the issuance of new mortgage bonds of equal size and identical cash flow and maturity characteristics, called the Balance Principle. Proceeds from the sale of the bonds are passed on to the borrower and similarly, interest and principal payments are passed directly to investors holding mortgage bonds
  • The Danish mortgage institutions have existed since 1850 and are considered very strong and very low risk financial instruments
  • In terms of volume outstanding, Denmark has the second largest share of the mortgage bond market in Europe
  • There has never been an incidence of default on a Danish mortgage bond

High Degree of Transparency

  • Denmark is among the most transparent markets in Europe and worldwide. The transparent Danish market provides the investor with a secure and low risk environment for foreign direct investment
  • Investments in Denmark are conducted in a market which benefits from a highly transparent and stable legal and regulatory framework coupled with a simple transaction process

Lease Structure

  • Rent adjustment, normally adjusted yearly with the rate of inflation or a fixed minimum rate
  • Rent review every fourth year. Terms are flexible
  • It is possible to agree on a threshold for the rent. Eg. the rent cannot drop further than the rent in force at the start of the tenancy
  • The landlord and the tenant can freely agree on the rent amount as long as the rent is not unreasonable or contrary to sound business practices
  • Lease length: There are no statutory restrictions on the duration of a commercial lease agreement. It is normal to have interminable leases in place

Learn more about the biggest cities in Denmark

Publications

Every quarter we publish a Market Update report, and every year we publish Expectations/outlook for the upcoming year.