Sales of owner-occupied apartments last month hit the highest level so far this year, with 18 percent more apartments sold in October than in September, according to the latest statistics from Boligsiden.
The increase in sales was even more marked in the municipalities of Frederiksberg and Copenhagen, where sales leapt by 53 percent and 29 percent month-on-month.
Sales in Odense were also up 21 percent month-on-month, with sales in Aarhus seeing a more moderate rise of 1 percent.
If you break down the sales in Copenhagen by district, Copenhagen East had the sharpest rise, with sales up 70 percent, followed by Frederiksberg with a rise of 69 percent, Christianshavn up 44 percent, and Copenhagen North up 36 percent.
How are changes to property tax driving sales?
Birgit Daetz, housing economist and communications director at Boligsiden, said in a press release that sales volumes had been pushed up by a rush to buy before the new Property Value Tax come into force in January, with buyers hoping to benefit from a tax discount.
"A large part of the explanation is the changes in property taxation, which are waiting around the corner in January 2024," she said. "Especially for the owner-occupied apartment market in the larger cities, and Copenhagen in particular, property taxes are set to rise significantly from the turn of the year."
"But if you buy and take over an owner-occupied flat before the end of the year, you can get a tax discount, which means that property taxes will not increase more than if the current rules continued. And that tax discount is maintained until the day you sell and move from the apartment.”
According to an article in Politiken, this discount means that a typical 59 square metre two-room apartment in Nørrebro, Copenhagen, will be approximately 9,429 kroner more expensive a year in property tax if you buy the home after December 31st, then if you wait for the new rules to come into force.
The tax discount may not be worth it
Mikkel Høegh, a housing economist from Jyske Realkredit, told the newspaper that the prospect of a tax discount was driving irrational behaviour that risked buyers losing out when the impact of discount on apartment prices disappears next year.
"I am concerned that this transitional rule is creating irrational behavior where people are speculating on paying the least possible tax," he said. "There's a somewhat uncomfortable bubble-like tendency, which increases the risk of a major shock afterwards".
The prospect of a discount has already driven up prices, with that 59 m2 two-room apartment in Nørrebro now worth 100,000 kroner more than it was in July and 250,000 kroner more than in April, according to Boligsiden, with this price rise far outweighing the 9,429 kroner annual tax discount.
Høegh told Politiken that when the new tax comes in next year and the possibility of getting a discount goes away, the value of properties will drop, meaning those buying over the last few months will end up losing significantly more than they gained through the discount when they finally sell their property.
"If the market was functioning well, it should therefore not matter whether you buy before or after New Year's", he told Politiken. "You also have to remember that the tax discount will not increase with inflation. It may seem very attractive to get it, but in reality, so long as you do not have an urgent need, it is better to wait to buy until after the new year, when I expect prices to drop and for there to be more to choose from."
Risk of a 'tax bomb'
In addition, tens of thousands of people who are set to receive a tax discount next year are in fact not eligible for one, meaning they risk having to pay back the discount, either in the 2025 tax statement or when they sell their home.
According to public broadcaster DR, this is because your eligibility for a discount is not only calculated on the basis of whether your Ejendomsværdiskat (Property Value Tax) to the state increases, but also on a second tax, Grundskyld, or 'land tax', which was previously paid to the municipality but will now be paid to the state tax authorities.
However, because the tax authority's IT systems are not yet able to process this municipal tax, any property owners whose Grundskyld has fallen will have to make up the difference when the IT systems catch up next year.
If, for example, someone's property value tax has increased by 10,000 kroner and their land tax falls by 15,000, they should not be eligible for a discount under the system, but because this year's calculations are only being done on the basis of Property Value Tax, they would in this case be given a tax discount of 10,000 kroner.
That 10,000 kroner tax discount will be there in the preliminary tax assessment they received earlier this month, without any warning about the extra 15,000 they will owe from the following year.
According to DR, the the majority of homeowners in Copenhagen and Frederiksberg -- including those rushing to by flats in October and November and December -- will end up paying too little in property tax next year, and then be hit by a larger than expected tax bill in 2025.
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