ECONOMY

 
By Department Director Steen Bocian, Danske Bank

THE DANISH HOUSING MARKET AT THE END OF A BOOM

The Danish housing market has experienced a prolonged boom and a subsequent slowdown, which in many ways resemble the housing market boom and bust in the US albeit with a 6-12 month delay. Does this imply that the troubles in the US subprime market are a forewarning of what is yet to come for Denmark? At Danske Bank we don’t think so.

House prices in Denmark increased continuously from 1993 until the end of 2006. At national level average house prices almost tripled during that period, and thus increased more than in the US. Not surprisingly apartments in Copenhagen have been at the epicentre of the Danish housing boom – with more than a quadrupling of prices from 1995 to 2006. The Danish housing market gathered particular strength during 2005 when average house prices increased as much as 24 %.

The sentiment in the Danish housing market changed in spring 2006. The number of interested buyers fell and the number of homes for sale increased. This resembles the development in the US, although with a lag of 6-12 month. On the other hand the number of forced sales in Denmark is still at what can best be characterised as a historical low. This is in contrast to the US where foreclosures are increasing – in particular in the subprime market.

Financial innovation
Financial innovation has stimulated the housing market in Denmark as well as in the US. Denmark introduced adjustable rate mortgages (ARMs) in 1996, interest-only mortgage loans in 2003 and loans with an interest rate ceiling in 2004. The introduction of these instruments has helped to give house purchasers a wider choice, although no-one should be able to get any kind of mortgage loan unless they can afford a traditional 30-year fixed rate mortgage loan.

The shift towards ARMs and interest-only mortgage loans has tended to make housing appear more affordable than it would otherwise be and has thereby boosted demand for owner-occupied housing and thus been supportive to increasing house prices. The shift towards ARMs and interest-only loans has also made the Danish housing market more sensitive to interest rate increases, although the widespread use of interest rate ceilings helps to reduce interest rate sensitivity.

Important dif ferences
Although there are a number of striking similarities between the housing boom in Denmark and in the US, there are also important differences. In particular there are fundamental differences in the way the financial system deals with mortgage lending.

First, Credit evaluation in Denmark is quite uniform and it is more thorough than in parts of the US mortgage sector. Danish mortgage institutions and banks can access detailed information on credit history, and will only grant a loan after sufficient and satisfactory documentation on salary and net financial position etc. is given. There is essentially no subprime sector in Denmark.

Secondly, the mortgage institutions in Denmark take the loans on their own books. The mortgage loans are then financed by the issuance of bonds with similar coupon and maturity. The credit risk is typically not resold and repackaged. In contrast, in the US it is common that the mortgage originator immediately passes the loan on to someone else. Often there can be a whole chain of institutions that repack and resell the risk in the form of securitized products. This practice implies that the first link in the chain is mainly concerned about increasing loan volume without focusing too much on the accompanying risk. This has resulted in teaser loans and liar loans, which are next to non-existent in Denmark.

The absence of a subprime market and teaser loans makes the Danish housing market more robust to house price falls. The ability of home owners to service their mortgage debt is generally not dependent on whether the value of their home increases further. This is in contrast to the US, where lax lending standards and the use of teaser loans, has put a substantial number of households in a stretched financial situation – where their ability to service their debt is dependent on continued house price increases.

Downward adjustment
As described above, the mortgage system in Denmark differs substantially from the US system. Some of the headaches of the US housing market are thus not present in Denmark. The Danish housing market is also supported by a buoyant economy with unemployment at a very low level and strong growth in disposable incomes.

Planned tax reductions will add further to disposable incomes. Future interest rate hikes will on the other hand dampen housing demand.

Based on this scenario we at Danske Bank foresee that nominal house prices will continue with a slow downward adjustment for the rest of the year followed by a stabilisation. Denmark may then face a prolonged period of stable nominal prices but slightly falling real house prices. In the event that interest rates increase more than we expect this will put additional pressure on prices in the areas where prices are most stretched.

STAYING CONNECTED... WHEN CRISIS STRIKE

Jytte Kaufmann Thomsen, Danimex 

SATELLITE COMMUNICATION: When natural disasters or man-made crises strike, it is fortunate that international aid organisations are usually queuing up to help. But effective aid demands equally effective communication systems, and it is exactly these systems – if they exist in the first place –which tend to break down during natural disasters.

Over the past 15 years, the Danish company Danimex has specialised in providing communication equipment to humanitarian aid organisations and establishing communication systems in even the remotest and inaccessible parts of the world. The systems are based on two-way VHF/UHF radio, satellite telephones or digital radio systems.

“In the industrialised world, wellfunctioning communication systems are often taken for granted,” says Jytte Kaufmann Thomsen, managing director of Danimex. “But this is not the case in many other parts of the world. And when lack of communication is combined with the general chaos of a crisis situation, then things really fall apart.”

Rapid response essential
Today, Danimex is the world’s leading supplier of communication equipment for humanitarian aid organisations, including major UN organisations.

“When a crisis occurs, whether it is an earthquake, tsunami, typhoon or hurricane, or when people flee in large numbers to desolate regions in the world, a rapid response is essential,” says Jytte Thomsen. “And the systems must work, including across any existing systems. We constantly have people on the move who are ready to provide support and technical assistance throughout the world, if the need arises. But it is primarily our large stocks of equipment and efficient logistics that enable us to supply total communication solutions at very short notice.”

Making a dif ference
Although crisis preparedness has become Danimex’s brand, the company also supplies equipment and systems for public and private sector companies that operate in remote and inaccessible areas of the world, where the only form of communication is via satellite.

“I don’t think any other company has so much competence concentrated in this special area as we have,” says Jytte Thomsen. “We also have access to the very best equipment from Thrane+ Thrane, Motorola and Codan HF, and we can offer fullrange solutions for voice, internet and fax over the Thuraya, Inmarsat and Iridium satellites. Combined with rapidity, precision, service and support, we help to make a difference when the need, often at the most unexpected times, arises.”

http://www.danimex.com

TIMELESS ELEGANCE

DESIGN: Goldsmiths Ole and Charlotte Lynggaard – father and daughter – are rapidly making their names in the international jewellery world.

It is Danish design at its very best. And probably also the most expensive. Jewellery designers Ole and Charlotte Lynggaard – father and daughter – are experiencing the kind of success that have opened the doors to partnerships in the retail world beyond the Nordic region. The jewellery company plans to initially target the UK, then the US and Japan. Ole and Charlotte Lynggaard’s collections can already be bought in select stores throughout Scandinavia.

“We are seeing amazing interest in our collections worldwide,” says the jewellery company’s sales and marketing manager Michel Normann. “And that is both from our primary customers, which are top jewellery stores, and from the end users, who are women from 25 to 90 years.” Ole and Charlotte Lynggaard’s unique mode of expression has given them icon status among connoisseurs worldwide, according to Michel Normann.

“The combination of pure Scandinavian design and classic timelessness is what fascinates, along with a functionalism not seen with other jewellery artists,” says Normann, who points especially to Ole Lynggaard’s classic locking device, which in addition to being a piece of jewellery in itself, creates the opportunity for combining other individual elements from the various collections with each other.

“It opens up completely new and surprising opportunities both regarding jewellery combinations and clothing style,” says Michel Normann. “A piece of jewellery worn with an elegant evening dress together with a string of pearls suddenly gets a new life on a leather necklace with a T-shirt the day after. That is one of the reasons why customers return again and again, because the various collections can be expanded both according to taste and purse.” Ole and Charlotte Lynggaard’s jewellery is in the same luxury price class as Cartier, Bulgari and Dior. Most of their jewellery is made at the company’s own workshop north of Copenhagen. The two designers work closely with their 45 goldsmiths to ensure that each piece of jewellery gets exactly the right form and the right precious stones.

http://www.olelynggaard.dk

Ole Lynggaard, 70, is a trained goldsmith. He studied in Germany, France and the USA, and has travelled in a number of exotic countries. Ole Lynggaard’s jewellery in red and white gold have simple and elegant forms in a timeless design.

Charlotte Lynggaard, 40, orginally trained as a designer. She finds her inspiration in nature, art and textiles. One of her most popular designs is inspired by a piece of Parisian lace. The supermodel of the jewellery firm, actress Connie Nielsen, is seen here wearing Charlotte Lynggaard’s “Flower Bracelet” in matt red gold, decorated with 16 carefully selected diamonds.