17. November 2011

The market for fully let freehold blocks of flats has become increasingly interesting in the last couple of years seen from an investment point of view.

 

Today you can buy well situated and modern residential properties in Central- and Greater Copenhagen at an average starting yield of 4.5-5% p.a., that can be compared with the present yield on Danish 10-year government bonds of below 2%.

 

CPM Asset Management has for the last couple of months worked on identifying properties that fulfill our investors and our own criteria for investing in this segment of the market.

 

We find that it is possible to buy residential properties at 80-85% of the present vacant value. This means that properties that are fully let and have a low risk, can be sold off as owner occupied dwellings when they become vacant, at a price that is 15-20% higher than the present value as a let unit.

Depending on the market conditions the flats can alter-natively be relet at higher inflationadjusted rents.

 

Furthermore there are in certain circumstances the potential to add a considerable value to the properties by optimizing the rent as well as the running costs.

 

It is also important to relate to the drivers for a potential increase in both the rentlevels as well as the prices of freehold flats in Copenhagen.

 

New figures from the City of Copenhagen show that the city’s inhabitants will grow by 13.4% in the next 10 years corresponding to 85,700 new citizens, and that 33,000 dwellings need to be built. This is a continuation of the last years positive development. A similar population growth has not been seen since the 2nd World War.

 

As an investor with a 7-9 year time horizon you get both a positive starting yield that is more than double the bond yield and a large potential return (we budget in our assumptions with >15% p.a. in the investment period with a leverage of 70%).

 

In summary we regard this as a historic opportunity, when relating the low risk for this property class on a relative basis, with the potential return.

 

Please contact Per Gransøe for further information.