(Bloomberg) -- Denmark needs additional measures to address “pockets of vulnerabilities” in its real estate market, the International Monetary Fund said.

Danish authorities should consider putting in place “more stringent conditions on new mortgages extended to highly leveraged households,” the IMF said Wednesday in its latest Article IV report on Denmark. 

The Nordic nation, whose households are among the world’s most indebted, is implementing a tax reform for its housing market — a move the IMF welcomed as improving stability. Among the fund’s proposals, Denmark could lower the maximum loan-to-value ratio below the current 95%, or require mandatory amortization until a certain equity threshold is reached.

Additionally, a 7% systemic risk buffer for Danish banks’ commercial real estate exposures is due to come into effect later this month, which the Washington-based fund said would boost lenders’ resilience.

The country’s financial supervisor now needs to ensure that banks are sufficiently provisioning for their commercial property exposures, and that their capital calculations are adequately covering for potential risks, Kotaro Ishi, mission chief at the IMF, told Bloomberg following the release.

“There is still some downside risk to prices, simply because interest rates are still high,” Ishi said. He also warned of potential spill-over from troubled Sweden, given many Swedish developers are active in Denmark.

Last month, Denmark’s central bank cautioned that the country’s commercial real estate prices could drop further after they have been slow to adjust to higher interest rates, with banks risking losses.

(Updates with comments from IMF mission chief from fifth paragraph)

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