So buyers in Italy will be happy that house prices have been declining for more than seven years, dropping by a total of around 16% from Q3 2008 to Q3 2015, or 23% after inflation, using European Central Bank (ECB) figures. Italy's house price index fell by 2.26% during the year to Q3 2015, according to the European Central Bank. When adjusted for inflation, the index fell by 2.44%. Nomisma's figures show a similar trend, with average property prices in the country’s 13 biggest cities falling 2.1% for new and 2.5% for existing homes.
Prices of second-hand houses in Italy fell by 5% to €1,973 (US$ 2,164) per square metre (sq. m.) during the last quarter of 2015, based on the figures from the real estate portal Idealista.it.
In Rome, the country's capital, the average house price fell by 7.5% in 2015.
Towns with double digit price falls in 2015 included Pordenone (-174%), Vercelli (12.3%), and Barletta (-11.7%). Major cities with large annual price drops include Genoa (-11.6%), Bari (-8%), Padua (-7.6%), and Palermo (-7%). The cities of Catania (-4.1%), Florence (-2.2%), Venice (-1.6%), and Bologna (-0.2%) also experienced price declines, but at lower rates.
On the other hand, house prices in Milan and Naples were virtually stable, with small increases of 0.7% and 0.1%, respectively.
The most expensive houses can be found in Venice, with an average house price of around €4,383 (US$ 4,808) per sq. m., followed by Milan with €3,489 (US$ 3,827) per sq. m., Bolzano with €3,420 (US$ 3,752) per sq. m., Rome with €3,396 (US$ 3,725) per sq. m., and Florence with €3,394 (US$ 3,723).
Sales continued to rise for the second consecutive year. In 2015, residential property sales were up by 6.5%, with about 445,000 residential properties sold, according to Agenzia delle Entrate, as reported by ANSA. Milan had the highest increase in house sales, with a 13.4% rise in 2015. Other cities with stronger sales included: Palermo (13%), Florence (8.9%), Turin (7.9%), Naples (6.6%), and Bologna (4.2%). Residential property sales in Rome also rose, but at a slower pace, by 0.8%.
According to Agenzia delle Entrate, the increase in home sales were brought by a significant improvement in the mortgage market, with the number of mortgages rising by 19.5% in 2015, to 193,000.
While the Italian property market is expected to have a better outlook in 2016 than in the previous years, growth is expected to be lower than that of the European average, in terms of prices and turnover.
“The way ahead is actually far from smooth and recovery will be slow. The scenario is complex and the dynamics of change may not be spectacular, but the signs are there and the fog is very gradually lifting,” said Nomisma CEO Luca Dondi. Nomisma predicts Italy's average residential house prices will rise by 0.5% in 2016, and by 1.7% in 2017.
Analysis of Italy Residential Property Market »
Prices of apartments. Apartments in the wealthy suburbs of Rome cost on average between €4,400 to €4,900 per sq. m.. A 120 sq. m. apartment in the suburbs would cost around €4,450 per sq. m.
A 120 sq. m. apartment in Milan would cost on average €4,900 per sq. m. Milan apartment prices range from €4,500 per sq. m. to €5,200 per sq. m.
Rents of apartments. In the historical centre of Rome, monthly rents range from €16 to €20 per sq. m., and you can rent a 120 sq. m. apartment here for around €1,900 per month.
In the suburbs of Rome, rents range from €12 to €16 per sq. m. per month. So a 120 sq. m. apartment can be rented for around €1,450 per month.
In Milan, monthly rents range from €14 to €16 per sq. m., and you can rent a 120 sq. m. apartment here for around €1,750 per month.
Rental returns. Gross rental yields on apartments in Rome and Milan are poor. Gross rental yields on apartments in Rome’s historical centre range from 3.00% to 4.02%, with little difference in returns by size.
In the suburbs, rental yields range from 2.95% (200 sq. m.) to 4.37% (45 sq. m.), with large apartments yielding significantly poorer investment returns.
Apartments in Milan return rental yields of between 3.53% to 3.88%, with no clear pattern of rental returns according to size.
Conclusion: Property prices are beginning to look attractive. But gross rental yields are very poor, and Italy’s predatory taxation system doesn’t help.
Round trip transaction costs can be very high on residential property in Italy. See our Italy residential property transaction costs analysis and our Residential property transaction costs in Italy compared to other countries.
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.
The Italian government raised its growth forecast for 2016 from 1.4% to 1.6%. The European Commission (EC) has a slightly lower growth forecast at around 1.4% in 2016, but expects Italy to continue to grow in 2017, by 1.3%.
The Italian economy has been in recession for the past three years, contracting by 0.4% in 2014, 1.7% in 2013, and 2.8% in 2012, due to the euro zone crisis. The economy contracted by 1.1% in 2008 and by another 5.5% in 2009. The country went back to 1.7% growth in 2010, but this did not last. The latest period of economic decline was preceded by meagre growth of 0.6% in 2011, according to the International Monetary Fund (IMF).
Even before the global crisis, the Italian economy had already been growing sluggishly, with average GDP growth of 1.26% from 2001 to 2007.
Italy is the euro zone’s third largest economy with a total population of almost 61 million and a GDP per capita of US$ 35,665 in 2015. However, the country’s public debt is remarkably large, estimated at around 132.8% of GDP in 2015. Since 2007, public debt in Italy has steadily increased, rising from 103% of GDP to 127% of GDP in 2012 and to more than 130% of GDP in 2013 and 2014. Italy currently has the second-highest public debt to GDP ratio in Europe, only next to Greece.
Aside from its huge public debt, Italy's banking system is on the verge of collapse. The number of bad loans held by the country's banks reached €200 billion (US$ 220 billion) in December 2015 or about 17% of GDP. Major banks have already felt its impact, with banking stocks dropping 28% since January 2016. Shares of major banks Monte dei Paschi di Siena and Banca Carige, suffered huge declines since the start of 2016, by 56% and 58%, respectively. The situation became so bad that the ECB ended up monitoring liquidity levels of some Italian banks on a daily basis.
To ease the problem of 'bad loans', Italy has arranged a deal with the European Commission to aid its worst banks sell non-performing loans and raise new capital.
The country will have a higher fiscal deficit in 2016, at around 2.4% of GDP, due to the 2016 budget, which will introduce tax-cuts to boost the economy. Italy's 2016 budget, supported by PM Renzi, was met with criticisms from the European Commission (EC) and Germany. The EU is concerned that Italy is slowing the pace of its fiscal tightening, despite its huge public debt. However PM Renzi has argued that the country should take advantage of the flexibility of the eurozone fiscal rules, which allow higher deficits in exchange for infrastructure investment and structural reforms that improve growth.
The government's 2016 budget was approved by parliament in December 2015.
In December 2015, Italy's unemployment rate remain unchanged at 11.4%, a three-year low, according to ISTAT. Consumer prices in February 2016 fell by 0.3%, following a 0.2% inflation rate in 2015.