Newsletter Q3 2017 UK

Newsletter Q3 2017

SPECULATION IN THE COOPERATIVE HOUSING MARKET

Quite contrary to intention, antiquated lease legislation opens up for speculative capital gains when dissolving the housing society and selling the property.

By Peter Winther, Partner and CEO, and Ole Hjorth, Director, Sadolin & Albæk

media in connection with ailing societies, interest rate swaps, bankruptcies, under-the-table money and major uncertainty about valuations made by real estate appraisers. A lot of the problems are associated with cooperative housing societies established in the period up to the financial crisis when the combination of high prices of residential rental property and complex financial products resulted in unviable societies. However, it hardly evokes sympathy that the members of such cooperative housing societies have specifically targeted bankruptcy, inflicting substantial losses on the loan providers while enabling the members of the society to continue as tenants. Valuation uncertainty Ailing cooperative housing societies aside, the challenges presented by this form of ownership are mainly rooted in the problems inherent in the combination of a maximum price system and uncertainty surrounding the valuation of the society’s prime asset – the property.

In recent years, the Danish private cooperative housing sector has been the object of quite a bit of negative press coverage caused by the valuation problems inherent in this form of ownership. The combination of a maximum price system and complex rules produces major valuation uncertainty to the disadvantage of both residents and investors. Cooperative housing as a form of ownership has existed for more than a century and is an offshoot of the cooperative movement. The form of ownership has evolved markedly from the emergence of the very first housing societies at the end of the 19th century to the private cooperative housing societies of to-day. Like owner-occupied dwellings, private cooperative housing societies account for about 30% of the housing stock in Copenhagen and Frederiksberg, making them a key component of the overall housing supply.

However, cooperative housing has in recent years drawn quite a number of negative headlines in the

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