Italy

Real estate in Italy: beginners guide to buying investment property

Italy’s housing market is stable, but coronavirus clouds outlook.

Last year, the Italian housing market was stable. There was a significant rise in demand, but there was less residential development. However, Italy has been seriously impacted by the Covid-19 epidemic, with unclear consequences for the property market.

According to the ISTAT, the national house price index rose marginally by 0.31 percent in 2019 (unchanged when adjusted for inflation). Quarter-on-quarter, house prices fell marginally by 0.2 percent in Q4 2019, but still rose by 0.22% in real terms.

During 2019:

  • New house prices rose by 0.98 percent (0.68 percent inflation-adjusted)
  • Existing house prices rose by just 0.1 percent (0.19 percent inflation-adjusted)

In the eight metropolitan cities of the country, the average price of new homes rose by 2.2 percent y-o -y to €4.470 (US$ 4.925) per square meter in 2019, according to Centro Studi di Abitare Co. On the other hand, according to ISTAT, the overall number of residences in new residential buildings declined by 1.4% in H1 2019.

Property sales and house prices are likely to decline sharply in the first half of 2020 as homebuyers postpone or defer their transactions until the coronavirus epidemic is controlled and the economy as a whole returns to normal.

House price change graph in Italy

Italy ‘s economy increased by 0.3 percent last year, following an expansion of 0.8 percent in 2018 and 1.7 percent in 2017, in the face of trade tensions and a poor investment forecast. The COVID-19 pandemic is predicted to pull Italy’s still dysfunctional economy into recession this year.

Oxford Economics expects the eurozone’s third-largest economy to contract by 3% this year, but other estimates indicate that the economy might decline by as much as 7%, given the Italian government’s €25 billion commitment to support the economy over the coming months, including steps to postpone first mortgage payments.

Rental Yields

Gross rental returns in Italy vary from low to moderate

Gross rental returns in the historic center of Rome, Milan, Venice and Florence – i.e., the yield you will receive from rent relative to the selling price of a house, including tax, vacancy and other costs – ranges from 2.4% to 4.4%, with yields in all four areas nearly the same. Yields on 120 square meters (sq.m.) apartments are very low in Milan, and yields are better on smaller apartments.

Apartment rates. Apartments in central Rome cost between €6,500 and €8,000 per square meter. Apartments in the affluent suburbs of Rome cost an average of between €4,500 and €5,800 per sq. m. Milan is more costly, with apartments in the center ranging between €8,900 and €12,400 per sq.m., and those in the suburbs range between €6,600 and €7,700 per square meter. Apartments in central Venice cost between €5,400 and €6,400 per sq.m., and on the outskirts, between €4,500 and €4,900 per square meter, with yields in the center of about 3.7%. Yields in Florence range at about 4.7 percent.

Conclusion: Real estate values in Italy are beginning to look enticing. But gross rental income is still low, and Italy’s punitive tax code doesn’t help.

Roundtrip transaction costs can be very high for residential property in Italy.

Buying Guide

Transaction costs are moderate to high in Italy

Overall roundtrip transaction costs in Italy range from 8.88 percent to 22.70 percent of the valuation of the property. Registration fee is 3% for primary homes and 7% for second homes. Non-resident buyers pay a fixed sales fee of 7%. The fee of the real estate agent is between 3% and 8% plus 22% VAT; usually split between the buyer and seller.

Landlord and Tenant

Italian law is strongly pro-tenant

Due to strongly pro-tenant rules, the rental market is shrinking.

Rents: Rents can initially be openly negotiated, but increases are minimal. Landlords can only increase their rent after the original 4-year term.

Tenant Rights: Landlords have the right to control rents and, in effect, the guarantee of tenure for eight years or more. A disdetta – a registered letter of notice to be sent at least six months before the end of the contract – may be served by the landlord at the same time as the completion of the regular four years. Failure to do so immediately renews the deal for another four years.

ECONOMIC GROWTH

Italy’s economy is still struggling

Even before the financial crisis, the Italian economy developed slowly, with annual GDP growth of 1.2 percent between 2001 and 2007.

It’s been a miserable decade since then. Italy’s economy grew by just 0.3 percent last year, down from 0.8 percent in 2018 and 1.7 percent in 2017, in the face of trade tensions and a poor investment forecast.

The COVID-19 pandemic is predicted to pull Italy’s already dysfunctional economy into a severe recession this year, after the government enforced travel bans and shut down industries except food and medicine for weeks. Oxford Economics expects the eurozone’s third largest economy to contract by 3% this year, but other estimates are more negative, predicting that the gdp could collapse by as much as 7%.

The Italian Government has recently pledged EUR 25 billion to boost Italy’s ailing economy in the coming months. Italy and eight other EU Member States have pushed the EU to launch joint Corona Bonds – a measure resisted by Germany and the Netherlands.

GDP Growth and Inflation in Italy

Italy’s budget deficit dropped to 1.6 percent of GDP in 2019, the lowest since 2007. This year, the government plans to raise the deficit above 2.5 % of GDP to cushion the economy from the coronavirus outbreak.

Consumer prices in Italy rose slightly by 0.3 percent in February 2020, a decrease of 1% growth in the previous year, according to ISTAT.

Unemployment in January 2020 was around 9.8%, unchanged from the previous month, but significantly below the level of 11.4% from 2012 to 2018.

Milan

Real estate investments: why invest in properties in Milan?

Rome

Real estate investments in Rome: is it safe to invest in properties?