Top Stories
Swedish property problems could accelerate price drops in Denmark, central bank says
Home > Top Stories > Swedish property problems could accelerate price drops in Denmark, central bank says
Global Banking & Finance Review®
Company
By Jacob Gronholt-Pedersen
COPENHAGEN (Reuters) – Denmark’s central bank said on Tuesday that the risk of further price drops in the commercial property market could be accelerated by Swedish real estate firms selling out of their Danish portfolios, which could hurt banks.
Swedish property firms struggling to refinance their debt amid rising interest rates have begun selling their portfolios, which could have a spillover effect on the Danish property market by pushing down prices, the central bank said.
“Due to the low level of transactions, a price correction related to divestment by the Swedish firms at this point in time would have a relatively great effect,” the central bank said in a financial stability report on Tuesday, adding that the largest Swedish firms have properties in Denmark worth 99 billion Danish crowns ($14.5 billion).
Any heavy divestment by Swedish firms would come amid a sharp drop in the number of commercial real estate deals in Denmark this year, which according to the central bank indicates that prices have not yet adjusted to the new interest rate level.
The central bank warned that as commercial real estate prices fall, the collateral pledged by property firms for loans may not be sufficient to cover their full exposure to banks.
“This may lead to losses for the institutions in the case of default of the loans,” the bank said.
Lending by Danish credit institutions to real estate firms has increased in recent years, amounting to 537 billion crowns or around 38% of their exposure to companies.
The central bank also said Danish real estate firms do not face the same refinancing risks as their Swedish counterparts, because they mostly are financed by mortgage loans with long maturities.
($1 = 6.8090 Danish crowns)
(Reporting by Louise Rasmussen and Anna Ringstrom, editing by Louise Rasmussen and Kim Coghill)
A central bank is a financial institution that manages a country's currency, money supply, and interest rates. It oversees monetary policy and regulates the banking system.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount. They influence economic activity and inflation.
Financial stability refers to a condition where the financial system operates effectively, with institutions able to manage risks and absorb shocks without causing economic disruption.
Real estate is property consisting of land and the buildings on it, along with natural resources. It is a significant investment sector that can impact economic conditions.
Portfolios are collections of financial investments such as stocks, bonds, real estate, and cash. They are managed to achieve specific financial goals and risk levels.
Explore more articles in the Top Stories category
