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[COPENHAGEN] Copenhagen apartments may be the cheapest in Scandinavia but they are fast becoming the riskiest, according to Denmark's biggest bank.
Homebuyers are now seeking to circumvent banking industry guidelines to borrow more than 3 1/2-times their annual income as surging property prices crave bigger and bigger loans, according to Danske Bank A/S.
"That's an obvious thing to do for many wanting to buy an apartment in Copenhagen - not very many families have a household income of 2 million kroner (US$300,000)," Steen Bocian, Danske Bank chief economist, said in an interview. "Risks are rising faster in the Copenhagen apartment market than anywhere else in the Nordic region." Apartment prices in the Danish capital hit a record in the first quarter after rising 54 per cent from a low six years ago. But salaries only increased about 10 per cent.
Copenhagen flats, which cost on average 35,000 kroner per square meter, still trail Oslo and particularly central Stockholm where the average apartment cost more than 82,000 kronor (US$9,700) a square meter, according to broker data.
But risks are rising faster. The boom is pricing more people out of the market because Denmark has fewer wealthy people, Mr Bocian said.
The top 10 per cent income earners generate about five times the income of the poorest 10 per cent making Denmark the nation in the world with the highest income equality, according to the OECD. In Sweden and Norway, they make more than six times the income of the poorest.
At the same time Danish households have the highest gross debt in the world amounting to almost three time household income, according to Statistics Denmark.
Danish 30-year mortgage rates jumped to 3 per cent in the second quarter, rising from a record low of 2 per cent at the start of the year. Apartment prices rose 4.9 per cent in first quarter, boosted by record low rates and improving economic prospects. The rally is set to continue over the next 12 months, Aabenraa-based Sydbank A/S estimates.
The combination of 2 per cent economic growth next year and rates remaining at a very low levels is generating a "bubble cocktail" in Copenhagen, Sydbank economist Peter Bojsen Jakobsen said.
"Copenhageners are pushed into taking much larger financial risks," Danske Bank's Bocian said. "Still there are plenty of opportunities to find affordable housing outside the city if you can't afford living there."