Is copenhagen a hidden property gem?
Copenhagen may be a hidden property gem of Europe, according to one investment specialist.
Young Anglo-Danish company Nectar Asset Management helps UK investors to buy in Denmark and vice versa. Charles Sherratt-Davies from the company argues that it is an undiscovered gem.
Copenhagen has certainly ranked highly in international surveys for its quality of life for many years. Its stable economy, great schools and safety make it attractive for locals and visitors alike. Although it is one of the world's most expensive cities, it is also one of the most liveable with good public transport, a world class cycle network and strong environmental policies.
Copenhagen's population of over 1.2 million has been growing rapidly over the last decade There are currently a net 1,000 people per month being added to the population. By 2025 the population is expected to grow by 18 per cent. And most importantly for BTL investors, there is a 0 per cent vacancy rate in the city.
"Denmark has some of the lowest property transaction taxes in Europe," notes Sherratt-Davies, "with Stamp Duty Land Tax being just 0.6 per cent of the purchase price (with no upper limit)".
The country also has some of the cheapest buy to let mortgages in Europe, with a typical 80 per cent LTV mortgage having interest of just 1 per cent at present. Debt can be fixed for up to 30 years. A 30-year mortgage at 80 per cent and fixed for the entire term will be approx 3 per cent. Yields are between 3.5 per cent and 4.5 per cent for prime located residential property.
However, there could be reasons why the gem remains hidden: non-Danish residents cannot own real estate directly and will have to set up a local Limited Partnership or Ltd company, which then owns the asset. Corporation tax is 22 per cent in Denmark. (There is a double taxation agreement between the UK and Denmark meaning that any tax paid in Denmark can be offset against any UK tax payable, however.) The landlord will also have to pay property tax ("Property Value Tax" and "Land Tax"), equal to approx 1 per cent of the taxable value of the property.
There are further drawbacks for those who embrace any unexpected costs: the Danish company will have to submit annual accounts in Denmark which will be £500-£700. And usually, lease contracts are non-terminable by the landlord unless there has been a breach of the lease (e.g. non payment of rent). Tenants are usually required to pay three months' pre-paid rent, and three months' deposit. Rents can be increased in line with the Consumer Price Index. In older buildings, rents are regulated by the local council and there is a maximum ceiling that a landlord can charge in rent (£140-£180 per sqm per year depending on the condition of the property).
On the plus side, te ceiling in increased each year and for newer buildings, there is no regulation of the rents.