Denmark property market could lose 10% of value if speculation banned

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As some of Denmark’s pension funds prepare to write down their property portfolios, the country’s housing minister says he would find a 10% market decline an acceptable outcome as he tries to alter the law to prevent speculation.

The comments follow a heated debate in Denmark, largely centered on Blackstone Group Inc. Kaare Dybvad, the minister for housing in the Social Democrat government, says the firm represents an “infamous” business model in which properties are bought, renovated and then put back on the market at rents that tenants can’t afford. Blackstone says that it follows the law and that it represents too small a chunk of the Copenhagen real estate market to affect prices.

This week, Dybvad unveiled a proposal designed to protect tenants. Instead, he drew criticism from Denmark’s pension industry, which says the plan is so broad that it undermines longer term investment in the property market.

But those warnings aren’t enough to shake Dybvad’s resolve.

“I can live with smaller losses since the market has doubled within the past five years,” Dybvad said in an interview on Friday. “Against that background, I can live with losses at 10%, for instance.”

Pension funds have started to estimate the scale of their losses, if Dybvad’s plan goes ahead. Michael Nellemann Pedersen, chief investment officer at PKA Pension in Copenhagen, called the proposal “a step back;” he also said the corner of the fund’s real-estate portfolio that’s affected by the law will drop by about 15% if the government’s proposal becomes reality.

The pension industry now faces losses in an asset class that had stood out as an engine for returns in an era of negative interest rates. Denmark’s central bank first went below zero in 2012, and has negative rates longer than any other country.

Dybvad said that his proposal still leaves incentives to buy commercial properties. “So I do not think the investment case has been significantly degraded,” he said.

For now, the pension industry is asking the government to consider revising its proposal to make it target firms like Blackstone more specifically. It’s a view echoed by lawmakers.

Heidi Bank, who sits on the parliament’s housing committee for the opposition Liberal Party, says tenants’ rights would be better protected by empowering Denmark’s housing tribunal, which presides over disputes between landlords and renters.

Meanwhile, Dybvad says he wants to make his proposal retroactive. His ministry is currently looking into whether such a goal would be based “on solid ground, legally.”

The government is set to sit down with industry representatives to go over Dybvad’s proposal in the coming weeks. The minister says he expects an agreement to be reached either before Christmas or in January.

Bloomberg News
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