This thesis analyses how wealthy families can save a lot of money when bying a condominium for their children, by using the Danish tax system cleverly. This method is known as parenting purchase; the parents buy the condominium and rent it to their children. The parents can then deduct the expenses. This method is superior to the children buying the condominium him/her self (with the parents as guarantee), unless the price on the condominiums increase above 9.37 % yearly for seven years. If you take in consideration that the child might move out of the condominium before the expected time, then the method loses bits of its attractiveness. The method requires the price of the condominium to raise with 5.06 % yearly for seven years, before the method yields a positive income. That calculation is included 2 % risk premium. This requirement is below the historical tendency on the price movement for condominiums over the last 18 years (6.5 % yearly). Besides condominiums, students in Denmark can also choose between rent apartments and housing cooperatives. Of the three accommodations the most available type is condominium, followed by housing cooperatives. Finding an apartment for rent is the hardest, but if a student is in great need of a place to live, they can get in front of the line to a dormitory. A comparison of user costs between rent apartments, housing cooperatives and condominiums shows, that rent apartments are the cheapest due to a price regulation dictated by the law, but as said before it is extremely hard to find a good apartment for rent. Housing cooperatives can be either cheaper or more expensive than condominiums (purchased by parenting method), as it depends on rather or not the association behind the housing cooperative has debt. A cost/benefit-analysis shows that parenting purchase costs more than it benefits the society. The method creates a social distortion between then students and maybe the next generation. Additionally it creates a bigger volatility in the price of condominiums. But on the positive side the method increases productivity and gives less need to build more dormitories. In conclusion there are no unambiguous answers to the question; if parenting purchase is the best choice. It depends on many economical factors e.g. supply and demand, demography, the government, interest rate, loan variants and income. Furthermore the child’s behaviors can influence the profitability of the method.
|MSc in Finance and Accounting, (Graduate Programme) Final Thesis
|Number of pages