Denmark is on track for significant economic shifts as it gears up for 2025, with recent trends showing optimism among homeowners and signals indicating changes in property transactions. Coupled with lowered interest rates from the country's central bank, the market seems poised for recovery after years of volatility.
After experiencing rapid fluctuations throughout 2022 and early 2023, the Danish property market has stabilized. Falling valuations at the end of 2022 led to concerns among those who purchased homes at the peak of the post-pandemic boom. Yet, by the start of 2024, house prices began to recover, nudging closer to their 2022 highs. Experts predict moderate growth, expecting prices for both houses and owner-occupied apartments to rise roughly 3.5% over the coming year.
Jeppe Juul Borre, the chief economist at Arbejdernes Landsbank, highlighted the current conditions contributing to the resurgence. "Interest rates have started to fall, employment is at a record high, and wages have gained reasonable speed. This will help to give some tailwind to the housing market," he stated. Nonetheless, with more inventory available, he cautioned homeowners to temper their expectations, reminding them increased supply tends to keep price surges at bay.
The Danish National Bank played its part by cutting interest rates four times throughout 2024, finally achieving a core interest rate of 2.6% as of December 12. Looking forward, analysts anticipate this trend will continue, with predictions of the European Central Bank lowering its interest rates alongside Denmark's Nationalbanken due to their financial policies linking the krone's value to the euro. Helge J. Pedersen, chief economist at Nordea, expected the ECB to cut rates by another quarter percent at its January meeting, followed by another reduction shortly thereafter.
Despite these decreases, not all Danish homeowners will see immediate relief. Particularly, those with F3 and F5-type mortgages face increased repayments due to changes from recent bond auctions. Totalkredit’s chief analyst, Sune Malthe-Thagaard, indicated these homeowners, accustomed to negative interest rates, would soon have to adjust to new rates of 2.29% and 2.43%, leading to higher monthly payments. This could mean increases of 610 kroner for F3 loans and 670 kroner for F5 loans per million kroner borrowed.
On another note, property taxation reforms implemented earlier this year have sparked controversy. The Danish Property Assessment Agency, responsible for land and building valuations necessary for property tax calculations, has reported glitches leading to incorrect assessments affecting thousands of homeowners. Errors could lead to unexpected tax bills or refunds, raising concerns among residents about their financial standing. Affected individuals have been encouraged to reach out to the agency for corrections if they suspect their valuations are off base.
The energy market has also seen significant movements. Mid-December saw electricity prices soar to the highest levels since the energy crisis of 2022, reaching 11 kroner per kilowatt-hour. Nevertheless, Mads Brøgger from Norlys Energi reassured the public, indicating these prices are likely temporary and shouldn't lead to another harsh winter blow for households. Parallel discussions about electricity taxes continue, but immediate cuts seem unlikely under the current budget for 2025.
To bolster home renovation efforts, the upcoming budget also reintroduces the håndværkerfradrag, or home improvement tax deduction, primarily aimed at energy upgrades. After its rollback by the prior Social Democratic government, this new initiative is set to provide some financial relief by allowing households to reclaim deductions capped at 8,600 kroner, albeit less generous than before.
Among other efforts, to ease communication for non-Danish speakers, the country will offer authorized rental contracts in English starting next year. This simple yet significant shift aims to support both landlords and tenants, making it easier for foreigners to navigate agreements without needing extensive language help.
Overall, these developments indicate Denmark's resilience as it emerges from turbulence. With policies promoting stability and growth, the country prepares for what could be a transformative 2025, all the more promising with the right conditions.
