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Denmark’s warning to Sweden: "Do not make the same mistakes that we have done!"

Tuesday, 22 November 2011
Sweden don’t really needs Danish advice because their had their own experience back in the 1990s as such if their memory is not as short as ours, then they really need to sit up and look back.

This has to do with the troubling Swedish real estate market situation. Some analysts feel that where Denmark is today is where Swedish housing market is heading. It is said that in Denmark, the housing bubble burst after a wild party loan. Now the Danes are warning Sweden to not make the same mistake.

“Do not make the same mistake as we did in Denmark,” said, Professor Finn Östrup who is the minister working on the financial crisis hitting the country.

Danish government abolished the amortization requirement in October 2003. The aim was that those who had low domestic economy would be able to borrow again for their dwellings.
After that house prices rose sharply. Just as in Sweden. It turned out that sector became very popular and in the end, the majority of Danish borrowers stood without amortization.
But in 2008 the bubble burst. Prices fell by 20 percent, in Copenhagen a lot more and they will continue to fall over.


Now, Denmark is grappling with ongoing financial crisis and a score of banks have gone bankrupt. One of Denmark's leading experts on financial crises, warns Sweden not to make the same mistakes.

“It was a disaster. Following the introduction of mortgage freedom price explosion came running. Denmark’s National Bank's comprehensive study of the effects showed that the loans were a major reason for the sharp price increases on real estate in Denmark,” says Finn Östrup, Professor of credit and capital market at the Copenhagen Business School.

Denmark just as Sweden had low mortgage rates, most people choose now, unlike before, where there were funny loans and the banks have been aggressive in their lending.
But perhaps the most important explanation for the bubble was that the Danish government eight years ago abolished the requirement for mortgage repayments. Such a thing was also observed in Sweden.

“It has been a bubble. We have seen that prices fell sharply across the country with about 20 percent in a short time. It is very difficult to sell homes. Nor has there been such a large selection of homes as seen now. The property market has completely stalled in Denmark and the indications are that we will have another big fall in prices,” says Finn Östrup.

He believes that the Danish authorities and politicians should have acted long ago.
“What should have been done in Denmark is that there would have been tighter lending rules,” says Finn Östrup.
He wants to give the Swedish Government and the FSA some good advice.

“One should be wary and not make the same mistake as in Denmark. There is no doubt that Denmark has made a huge mistake with the economic policy. We have a huge bubble in housing and a very rapid development of lending to Danish households. And we have a financial crisis that has hit Denmark.”
Financial crises and bubbles are nothing new to Denmark. In the past 100 years there have four financial crises in Denmark and three in Sweden.
By Team

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