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PROPERTY

What prospective homebuyers in Denmark can expect in 2024

The Danish property market is set for a significant shakeup in 2024 as new property tax rules come into effect. How will these changes affect first-time home buyers?

Published: 6 December 2023 12:19 CET
Updated: 19 December 2023 09:54 CET
What prospective homebuyers in Denmark can expect in 2024
Illustration photo. What do we know so far about the Danish property market in 2024? Photo: Thomas Lekfeldt/Ritzau Scanpix

The upcoming changes to Danish property tax rules means that from next year, property tax will be based on new appraisals of land and real estate values..

The basis for property taxation in Denmark relies on public real estate appraisals. Recent appraisals have generally shown higher property valuations than those from 2011 and 2012, mainly due to rising housing prices in the past few years. As a result, new rates will be applied once the new valuations come into effect.

According to the Danish tax authorities, most homeowners will see lower taxes as a result of the new rules. However, to shield all homeowners from higher property taxes due to increased valuations a subsidy will be applied to properties which see their calculated rates go up.

Existing homeowners will thus not experience higher property taxes in 2024 compared to what they would have paid under the current rules.

However, this tax subsidy doesn’t apply to new homeowners from January 1st, 2024, putting pressure on first-time buyers – and prompting a surge in housing sales in the run-up to the new tax framework.

The allure of a “tax discount”

The upcoming changes have already had visible repercussions in Denmark’s housing market.

According to an analysis by Finans and Nykredit, apartment prices in major cities would need to decrease by around 5-10 percent after the New Year for new buyers to maintain their total costs (mortgage plus tax) at a level similar to the existing rules.

READ MORE: Why this might not be the best time to buy property in Denmark

Furthermore, apartments are more likely to see tax increases under the new rules due to the valuation appraisal system, which had previously subjected them to lower property taxes compared to houses.

Some prospective buyers, especially those looking for apartments in major cities like Copenhagen, Aarhus, and Odense, are trying to enter the housing market before the end of the year in an attempt to get a “tax discount.”

In a November press release, Boligsiden’s housing economist and communications director, Birgit Daetz, highlighted how the impending property tax change had prompted a surge in housing sales.

Daetz explained, “If you buy and take over an owner-occupied flat before the end of the year, you can get a tax discount, which means that property taxes will not increase more than if the current rules continued. And that tax discount is maintained until the day you sell and move from the apartment.”

The anticipation of this tax benefit had already driven property prices upward by mid-November. For instance, according to Boligsiden, a 59-square-meter, two-room apartment in Nørrebro had appreciated by 100,000 kroner since July and 250,000 kroner since April.

However, those who buy during this period may end up losing more when property values drop after the tax discount disappears.

Rising mortgage interest rates

In addition to the property tax changes, Danish homeowners with certain types of mortgages will face higher payments starting January 1st, 2024.

Denmark’s mortgage model involves banks financing loans through covered bonds. This system means that borrowers in the country know precisely which covered bond was issued to fund their loan.

READ MORE: How much more will mortgages in Denmark cost next year?

Mortgage bond auctions by Totalkredit and Realkredit have set significantly higher interest rates for one-year, three-year, and five-year fixed mortgages.

For example, the interest rate for a one-year fixed mortgage will be 3.88 percent, while three-year and five-year rates will be 3.39 and 3.37 percent, respectively. These rates are the highest since the international financial crisis in 2009.

As a result of these rate increases, homeowners in Denmark with existing three-year or five-year mortgages will see significant jumps in their monthly payments.

Those who switch to one-year fixed loans may initially save on interest but could face higher costs in the long term.

Danish analysts suggest that rates may have already peaked, and they anticipate payments remaining stable or even decreasing by 2025.

First-time buyers in a bind

In July 2023, the situation for first-time home buyers in Denmark, particularly in the broader Copenhagen area, was notably challenging.

The decline in housing prices, which reached nearly 15 percent in Copenhagen, was not sufficient to offset the increased costs brought about by higher interest rates.

This scenario placed first-time buyers in a difficult position despite significant wage increases in Denmark that triggered optimism early on in the year.

Lie Nielsen, Nykredit’s chief analyst, told The Local at the time that the property market in the capital was particularly challenging.

On one hand, Nielsen suggested that the conditions for first-time buyers might not change substantially in the short term. On the other, the analyst advised that if people could afford to buy and find the right place, they should proceed with the purchase.

As of December 2023, it’s important to reevaluate this advice in the current context. Market conditions and interest rates have shifted to an extent in the past several months.

Unfortunately, they haven’t substantially altered the landscape for first-time buyers.

The temporary demand spike and rising prices, especially in Copenhagen’s real estate market (and the market in several other major Danish cities), mean that first-time buyers remain in a sticky situation, further exacerbated by high interest rates and anticipated tax changes.

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RENTING

INTERVIEW: ‘Landlords who charge excess rent in Denmark target expats’

Alex Dagil, the serial entrepreneur behind the company Rent Hero has helped over a thousand foreigners in Denmark challenge excess rents. He explained to The Local why expats are targeted and why he won't take on every case.

Published: 21 May 2024 15:53 CEST
INTERVIEW: 'Landlords who charge excess rent in Denmark target expats'

Denmark’s system of rent control is complicated, with at least four different sets of rules determining what counts as a fair rent, depending on the age, location and size of the apartment, and on what actions current and former landlords have taken to win the right to levy higher rents. 

But rent is still controlled, meaning anyone who suspects they are being overcharged can submit a complaint to their local rental board (see list here), themselves.

You can also ask Lejernes Landsorganisation (LLO, the Danish Tenants Organisation) and Dankse Lejere (Danish Tenants), two tenants unions who help members win fair rent cases. Then there are the private companies offering help reducing rents, often on a no-win, no-free basis, such as Fair Husleje and Digura. Rent Hero is alone in specialising in helping foreigners. 

READ ALSO: The four ways your rent can be regulated in Denmark

“We saw that expats were being overcharged and that they were not really any companies that tried to specifically cater to the needs of expats,” Dagil told The Local about his decision to launch the company five years ago. 

This was surprising, he said, as foreigners were and still are disproportionately affected by unscrupulous landlords.  

“Landlords who want to rent out housing at above the fair price target expats because they don’t know the rules,” he explained. “And then even if they lose a case, they limit their loss because an expat might stay in an apartment for two to three years, but if you rented out to a Dane, they might be stuck there for ten years.”

This can make a big difference to the financial impact of having excess rents corrected, he pointed out. 

If it’s decided rent should be reduced by 5,000 kroner a month, which is quite common, the landlord faces an annual loss of 60,000 kroner. If the Danish tenant remains in place for 10 years, that’s a 600,000 kroner loss. If an expat manages to get their rent reduced, they might only stay three years, limiting the loss to 180,000 kroner. 

This is why some landlords advertise apartments as available to expats only, or use expats only rental portals like Apartment in Copenhagen. 

“Those apartments are never available for Danes for the specific reasons which I mentioned before: The rent is super-overpriced, so they’re worried that it could be rented out to a Dane they would stay there for longer and and the likelihood of them being aware of rent control is probably also higher.” 

Some foreigners are of course naive, but others are simply in a hurry to get an address that can provide them with a CPR number, which can into turn allow them to get a bank account, and so start work. 

“They have a job, which they would very much like to start and they need to have a place to register their CPR, so they can get started with their life in Denmark. So they’re much more desperate in a housing market where everybody wants affordable housing,” Dagil explained.

The landlords offering these expat-targeted apartments will often claim that they’re providing a service that makes it easier for expats to settle. 

“They say ‘we’re offering this great product for expats’. Well, that’s fine. You’re doing a product targeted at expats. But there’s no place in the rental law for creative products targeted towards the needs of expats, because rent control is rent control. And they don’t see it that way,” Dagil said.

Rent Hero estimates that expats are charged on average 30 percent more in rent than Danes are for a comparable apartment, but for some expats, that’s a price worth paying. Dagil told The Local he found many expats are unwilling to challenge excess rents, even if they fully understand how much extra they are paying. 

“The primary issue that expats have is that they’re worried that if they start a case they’ll get evicted. What happens with their deposit, if they start a case? Those are the two primary issues. It’s never isolated. People don’t look at rent in isolation. They’re worried about, what if the landlord retaliates? What if they do x? What if I need to have my dishwasher switched? What happens then? It’s not necessarily the lack of information, which is the biggest thing holding people back.” 

Dagil said Rent Hero’s interests are more aligned with those of tenants than the big rental unions, as the rental unions generally want to take all cases to the rental board to challenge the rent, partly to set a precedent keeping rent under control for all tenants, even if it might not be in the interests of the individual tenant. 

Big landlords in Denmark increasingly appeal all decisions against them from rental boards to the higher housing court, largely because a new rule requires them to inform all tenants in a building if they accept a rental board’s decision, meaning they risk other tenants also seeking reduced rent. 

Often, Dagil said, this can mean tenants risk spending more on legal costs than they can get back in rent. 

“There’s a lot of cases we simply do not take – even though the client might win it at the rent board,” he explained. “If the tenant doesn’t have legal insurance, they will have to pay for that cost themselves. If you’re dealing with a case that might save 1000 kroner a year in rent, and you’re left with a potential court case that costs you 50,000 to 70,000 kroner to pursue, no one in their right mind would pursue these cases.”

Dagil argues that the two tenant unions will tend to push members to pursue such cases, whereas Rent Hero is more likely to seek a settlement with the landlord, that might not reduce rent to such a large extent but which will avoid the courts. Rent Hero, he says, will only advise clients to go to the courts if the amount they are being overcharged is sufficiently large, if the landlord is a relatively small landlord who tends not to appeal cases, or if the tenant has legal insurance. 

An article in Vi Lejere, a website run by the Danish Tenants’ Organisation, accuses Rent Hero on the other hand of levying “huge fees”, with one tenant ending up having to pay the company fully half of the excess rent they had recouped.  

Dagil does admit that Rent Hero is “maybe a bit more expensive”, than the other rent reduction companies. “But it’s very easy to get hold of us usually, and we’re also super-specialised,” he said. 

The tenants’ organisations are likely to push people to take their case to the rent board regardless, even though they only have a win rate of about 50 percent, whereas Rent Hero, with its no-win, no-pay structure has to focus on cases with a high chance of a quick win.  

“If they don’t have the conversation beforehand about legal insurance, it’s probable you will end up worse than you were before. And I think that what I try to strive towards is to be as honest as possible.” 

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