Many banks are establishing property management companies following the spate of foreclosures

Banks left holding properties after foreclosing on owners unable to pay their mortgages are increasingly choosing to rent them out rather than selling them at auction.

Waiting to sell until the market rebounds, allows banks to recoup more of their losses than if they sold now.

The trend began in March when Roskilde Bank set up property management company Rosk Ejendomme. The bank was acquired by the central bank in August 2008 after it ran into financial trouble caused by excessive lending and falling housing prices.

Similar companies will soon follow in its wake as Nykredit, Alm. Brand, EBH and Fionia follow the trend. All the companies will manage residential as well as commercial properties.

Bjørn Mortensen, of Nykredit, which took over the ailing Forstædernes Bank last year, said his company preferred to wait until the market turned before it put its foreclosed properties on the market.

‘We’re not interested in selling good properties at a bargain,’ he said.

Another reason banks may choose to wait to sell their properties is because they have yet to assess their condition.

Owners burdened with financial problems that ended in foreclosure were unlikely to use money on upkeep, according to Henning Kruse Petersen, of the central bank’s Financial Stability Company, an organisation set up to manage claims against failed banks.'

‘It does no good to flood the market with run-down properties,’ he said.

Petersen proposed a similar measure in December, when he called for the creation of a central bank organisation to purchase and manage foreclosed properties banks were unable to sell.

His proposal would have helped alleviate problems that arise when property owners have mortgages with multiple financial institutions.

Petersen said that with the low prices of real estate right now, property rental could become a lucrative investment for banks. Nykredit’s Mortensen underscored, however, that his company had no plans to make property management a permanent business.

‘This is a defensive measure. We’d much rather finance the purchase of properties.’