Copenhagen's hot property market girds for 'perfect storm'

[COPENHAGEN] After almost six years of negative interest rates, Copenhageners are enjoying a property boom that's making them richer than ever before.

Fresh data provided by Boligsiden.dk show apartment prices in the Danish capital rose about 10 per cent in February from a year earlier. The mortgage unit of Danske Bank A/S, Denmark's biggest lender, says it's worth noting that values are rising despite a tightening in lending rules and the first rises in mortgage rates. Danes also face higher apartment taxes from 2021.

Christian Heinig, the chief economist at the Danske unit, Realkredit Danmark, says it's a dynamic that could end up creating "a perfect storm." But he also says there's a lot of noise in the data and, for now, it seems Danes are taking advantage of record-low borrowing costs to switch to safer loans and cut their debt. About 80 per cent of home buyers are moving into longer-term mortgages, according to Heinig.

The question is, which forces will win the day. Demographic forecasts show that 10,000 people will move to the Danish capital annually in the coming years, as a combination of high-paid jobs, gourmet restaurants and efficient public transport boost the allure of the city. (Copenhagen is frequently singled out as one of the most livable places in the world.) But that demand is triggering a surge in supply, with construction of new homes happening at a faster pace than even before the financial crisis.

Denmark's biggest mortgage lender, Nykredit, says Copenhagen apartment prices have probably peaked.

"Prices for apartments have in the meantime reached a level at which fewer and fewer people can, or want to, jump on the train," Mira Lie Nielsen, chief analyst at Nykredit, said in a client note. "And that's naturally going to be a damper for demand."

BLOOMBERG