Copenhagen's Hot Property Market Girds for `Perfect Storm' Risk

(Bloomberg) -- 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 percent 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 that all in all, it’s a dynamic that could end up creating “a perfect storm.”

Danish Economy Grows at Fastest Pace in More Than a Decade

But Heinig 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 percent 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.)

Happiest People on Earth Are Set to Spend Most in Over a Decade

But that demand is triggering an even bigger construction boom than the one that fed the pre-crisis bubble, and spurring an overall surge in supply. According to the Danish mortgage unit of Nordea, the Nordic region’s largest bank, the supply of new homes in Copenhagen rose 20 percent in the past year alone.

Denmark’s biggest mortgage lender, Nykredit, says apartment prices in the capital 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.”

To contact the reporter on this story: Nick Rigillo in Copenhagen at nrigillo@bloomberg.net.

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Christian Wienberg

©2018 Bloomberg L.P.