From 2000 to H1 2008, house prices surged by 85% (53% inflation-adjusted), based on figures from Nomisma. However, house prices started to fall in H2 2008, mainly due to the global financial meltdown. From H2 2008 to 2011, house prices fell 8.6% (-14.3% inflation-adjusted).
In the fourth quarter of 2012, residential property transactions fell by 30.5% from the same period last year. For the whole year of 2012, property transactions fell by 25.8% y-o-y to 444,000 units, according to ANSA.
This is happening despite falling average interest rates on housing loans in Italy:
- The interest rate for new housing loans with initial rate fixation (IRF) of up to 1 year was 3.47% in March 2013, down from 3.9% in March 2012.
- The average interest rate for new housing loans with IRF of between 1 and 5 years was 4.05% in March 2013 from 4.78% from a year earlier.
- Over the same period, the interest rate for new housing loans with IRF of between 5 and 10 years was 4.46%, down from 5.14%.
- The interest rate for new loans with IRF of more than 10 years was 4.55% in March 2013, down from 5.21% in March 2012.
- The average interest rate for outstanding housing loans also dropped to 3.01% in March 2013 from 3.5% in the same period last year.
Despite falling mortgage interest rates, total outstanding housing loans dropped 0.8% y-o-y to €364.6 billion in March 2013, according to the Bank of Italy.
With the economy still mired in deep recession, the Italian housing market is expected to remain depressed in 2013, according to local property experts.
The economy contracted by 2.4% in 2012, after registering real GDP growth rates of 0.4% in 2011 and 1.7% in 2010. Real GDP is expected to decline by 1.4% in 2013 before rising by 0.7% in 2014, according to the National Institute for Statistics (ISTAT).
Analysis of Italy Residential Property Market »
Prices of apartments. Apartments in the wealthy suburbs of Rome cost on average between €3,900 to €4,900 per sq. m.. A 120 sq. m. apartment in the suburbs would cost around €3,900 per sq. m.
A 120 sq. m. apartment in Milan would cost on average €5,600 per sq. m. Milan apartment prices range from €4,900 per sq. m. to €6,200 per sq. m.
Rents of apartments. In the historical centre of Rome, monthly rents range from €18 to €21 per sq. m., so you can rent a 120 sq. m. apartment here for around €2,400 per month.
In Milan, monthly rents range from €13 to €17 per sq. m., so you can rent a 120 sq. m. apartment here for around €1,600 per month.
In the suburbs of Rome, rents range from €13 to €17 per sq. m. per month. So again, a 120 sq. m. apartment can be rented for around €1,600 per month.
Rental returns. Gross rental yields on apartments in Rome and Milan are poor. Larger apartments return poorer rental yields then smaller apartments. This is true in either of Italy’s two most important cities.
Gross rental yields on apartments in Rome’s historical centre range from 3.54% (200 sq. m.) to 4.22% (50 sq. m.).
In the suburbs, rental yields range from 3.25% (200 sq. m.) to 4.56% (50 sq. m.).
Apartments in Milan return rental yields of between 2.90% (200 sq. m.) to 4.10% (50 sq. m.).
Conclusion: Property prices are beginning to look attractive. But gross rental yields are very poor, and Italy’s predatory taxation system doesn’t help.
Capital Gains: Capital gains are not taxed if the property was held for more than five years. Otherwise capital gains are considered as ordinary income and taxed at progressive rates.
Inheritance: Inheritance taxes are levied at 4% to 8%, depending on the relationship between the deceased and the beneficiary, with non-taxable threshold amounts.
Residents: Residents are taxed on their worldwide income. at progressive rates, from 23% to 43%.
Rents: Rents can initially be freely negotiated, but increases are restricted. Landlords can only increase the rent after the initial 4-year contract.
Tenant Security: Tenants have the right to controlled rents, and effectively eight years or more of security of tenure. A landlord may only serve a disdetta - a registered letter of notice which must be sent at least six months before contract expiry - to coincide with the end of the standard 4 years. Failure to do so automatically renews the contract for another 4 years.
Italy is eurozone’s third largest economy with a total population of about 60.8 million and a GDP per capita of US$33,115 in 2012.
The country became one of the first eurozone victims of the global financial meltdown of 2008. The economy contracted by 1.2% in 2008 and by another 5.5% in 2009. But even before the global crisis, the Italian economy had already been growing sluggishly, with an average real GDP growth rate of 1.26% from 2001 to 2007.
The economy bounced back in 2010, with real GDP growth of 1.7%. However it slowed again in 2011 mainly due to the eurozone debt crisis.
The Italian economy is now in recession, with falling consumer spending and falling private investment. In the fourth quarter of 2012, real GDP declined by 1%, its sixth consecutive quarterly decline. The economy contracted by 2.4% in 2012, mainly due to chronically weak domestic demand, and is expected to shrink by another 1.4% this year before expanding by 0.7% in 2014, according to ISTAT.
Consumer spending is expected to fall 1.6% in 2013 from a year earlier.
Italy has the second highest debt in the eurozone, after Greece, at around 127% of GDP. In 2012, the budget deficit was reduced to about 2.9% of GDP, down from 3.9% of GDP in 2011, 4.6% in 2010 and 5.4% in 2009.
Yet Italy will surely face difficulties in keeping its deficit so low in 2013. In April 2013, the budget deficit amounted to €11 billion, up from €2.025 billion in the same period last year.
In February 2013, the overall unemployment rate was about 11.6%, down from 11.7% in the previous month but far higher than the annual average of 7.5% from 2004 to 2011. The unemployment rate is expected to climb to 11.9% in 2013 and to 12.3% in 2014, according to ISTAT.
The overall inflation rate slowed to 1.8% in March 2013, from 2% in the previous month, according to ISTAT.
Recently, the European Central Bank (ECB) cut interest rates to a new record low of 0.5%, in an effort to boost the region’s struggling economies.
PM Letta has recently frozen a tax on first homes, which was introduced by former PM Mario Monti. However, the EU has warned the new Italian premier that if he decides to cancel the property tax, he would have to find around US$5.2 billion in revenue in other sources.