Market Report 2022

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Residential - Colliers Market Report 2022

Market for properties subject to cost-regulated rent control regaining momentum

Old-stock residential property has long constituted a particularly attractive invest ment opportunity, but after the amendment of section 5(2) of the Danish Housing Regu lation Act, the market for residential prop erty subject to cost-regulated rent control came to a halt, seeing only very few trans actions in 2019-2020. In the short term, the intervention caused a downward price correction of 5-10%, with investors with a more long-term investment horizon joining the field. Mainly institutional inves tors and property companies have taken the lead as the most active investors in this segment. As an investor pursuing a long term strategy, you are less affected by the qualifying period in terms of pricing, unlike short-term investors that typically have an investment strategy aimed at a high return on investment and a relatively early exit.

horizon. Another explanation is that political instability in an already complex and regulated market is likely to scare off for eign investors in the short run until such time when there is an established market precedent in terms of practices and pricing according to the new rules. Lately, we have seen a substantial increase in the transaction volume involving cost-regulated properties, suggesting that the market has regained momentum. Because of the market recovery and the exceptionally strong demand for residential properties, cost-regulated properties are in fact today trad ing at higher prices than before the intervention, on account of yield compression. This has also served to make the sell side less averse to divesting such properties as the seller will no longer be required to realise a potential loss. Active investors in the market will continue to be affected by a long-term focus and yield compression. Institutional and foreign investors are gaining ground in the segment, but increasingly partnering up with Danish asset managers. Although the seg ment may be at risk in a downturn, thereby widening the gap between buy-side and sell-side price expectations, old-stock residential properties continue to be attractive, low risk investment opportunities with prospects of higher returns through proactive asset management.

In addition, fewer foreign investors than before have been active in the market, partly because many of the previous inves tors were international equity

funds pursuing a short- to medium-term investment

Frederiksstaden, Copenhagen K