We recently covered the fully recovered property market in The Republic of Ireland where rental property yields are extremely healthy and attractive. In this new article we shall move to the mainland of Northern Europe and find another interesting jurisdiction with a good property market. Denmark.
Denmark has somehow become an interesting property market for small to medium size investments as a very safe jurisdiction with fair taxes and little bureaucracy. In other words, it could well be described as a small gem in the Northern European markets, ideal to make small to medium size investments. Prices are most reasonable in our targeted market of charming Copenhagen.
Denmark has property prices that start at €3500 per m2 and go up to €4300 per m2. The average price figure in Copenhagen is at present just over €4200 – similar to Gibraltar prime property, or other close by jurisdictions such as Marbella. This is, in general terms, most reasonable if comparing Danish prices to other Northern European jurisdictions like Norway (€8200/m2), Sweden (€7000/m2), Holland (€6900/m2) or Finland €6500/m2). These properties in Copenhagen would normally yield about 5% per year as far as rental return figures are concerned.
The average price figure in Copenhagen is at present just over €4200 – similar to Gibraltar.
What about the requirements to purchase residential property in Denmark?
The bureaucracy is simple and clear, provided you hire the right business consultant, lawyer or estate agent. There is an extremely important factor to consider for future buyers and that is how to structure your property purchase when you decide to go ahead with your investments. The property market in Denmark is not fully open to foreign investors. De facto, in Denmark it is not possible to make a property purchase if you are not a national citizen, or a EU resident in Denmark for the past five years or working full time in Denmark. The answer to this is to follow what is called the corporate route and making your purchase via a Danish limited company locally called an ApS (Anpartsselskab).
If the acquisition of your chosen property is made via an ApS there is complete clearance from the legal point of view and there is no objection to conclude the deal. It is interesting to mention that in the old days Gibraltarians wishing to buy locally in Spain particularly in close by areas to Gibraltar had to do so following the Panama Corporate route. Much has now changed to the benefit of all the communities on both sides of the border.
First and foremost, Denmark is an extremely safe EU jurisdiction. It is a full member of the EU but not part of the Euro currency. There is nothing wrong with this and, similar to the UK, they keep control of their interest rates and are able to take monetary measures without having to resort to the European Central Bank. The true fact is Denmark has always been 100% within the financial measures dictated by the EU and has one of the most economically and socially developed countries in the world – as well as one of the highest rents per capita in the world. In addition, it has one of the lowest perceived levels of corruption in the world. Rara avis these days.
Denmark has a sound and growing economy which grew 2.2% in 2017, 1.8% in 2018 and is expected to grow 2% in this current year of 2019. Steady and stable.
At this point in time, property prices are rising in most of the country but not overly as to make the market burst any time in the future. The rising property market is expected to continue its trend for the next few years. This is the result of a positive and good economic growth as well as household income together with very low or nil interest rates and fair property prices. All these factors have helped to keep the property market healthy. In addition, the banks in Denmark tend to be highly conservative and rarely lend more than 60% of the property value. Credit for buyers is certainly available, but following a responsible and restricted lending criteria.
First and foremost, Denmark is an extremely safe EU jurisdiction.
What expenses does an investor have to account for when buying property in Denmark?
Company Incorporation costs between €900 and €2000 depending on whether you do some work yourself or decide to employ a solicitor to do it or to buy off the shelf ready-made companies which much as in other jurisdictions it is more expensive.
Solicitors fees are quite flexible but as a general rule you should account for some 0.5% of the purchase price plus VAT at 25%.
Registry fees are charged at a flat rate €190 plus 0.6% of the purchase value. This is paid at the Land Registry Office.
Estate agency fees normally cost between 1.5% and 2% of the value depending on the amount of work involved.
So it is quite clear that purchase expenses are most fair and in fact they are similar to those in Gibraltar.
And what about capital gains tax when I sell on?
At the time of publication of this article the official corporation tax in Denmark stands at a fair 22% levied on gross profit, minus business-related expenses, interest payments and depreciation which are deducted from the gross income of your ApS.
What about Income Tax on rental revenues?
The tax rate for companies is 22% of the income obtained from your tenants once you deduct all the relevant expenses like interest payments, advertising, management and maintenance plus advertising costs.
All the above reasons confirm Denmark – Copenhagen in particular – to be an interesting option to consider when making an overseas property investment.