Italy: Overview

RENTAL YIELDS

Last Updated: Jun 17, 2009

Very low in major Italian cities

Gross rental yields remain very low in Italy’s major cities. Apartments in Central Rome have gross rental yields of nearly 5%, but in the suburbs of Rome, rental yields fall to an average of 3.58%. Apartments in Milan yield on average 3.9%.

These low rental yields are a long-standing feature of the Italian market, and make Italy a relatively unattractive location for buy-to-let investment.

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TAXES AND COSTS

Last Updated: Nov 05, 2008

Rental income tax is high in Italy

Rental Income: Non-resident landlords are taxable on rental income earned in Italy. The rates range from 23% to 43%. Personal allowances for spouse and family are not available to non-residents, but certain deductions are granted.

Capital Gains: Capital gains are not taxed if the property was held for more than five years. Otherwise capital gains are taxed as income.

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.

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BUYING GUIDE

Last Updated: Mar 26, 2007

Transaction costs are moderate to high in Italy

Total round-trip transaction costs in Italy range from 10% - 22% of the property value. Registration tax is 3% for main homes and 7% for second homes. Non-resident buyers pay a fixed registration tax of 7%. The real estate agent’s commission is between 4% and 6% plus, 20% VAT; typically split between buyer and seller.

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LANDLORD AND TENANT

Last Updated: Dec 09, 2007

Italian law is strongly pro-tenant

Because of strongly pro-tenant landlord & tenant laws, the rental market is shrinking.

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.

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ECONOMIC GROWTH

Last Updated: Sep 15, 2009

Worst recession in Italy since the war

Italy had a population of 59.3 million in 2008, and GDP per capita of US$39,000. It was one of the six countries which signed the 1951 Paris Treaty that set Europe on the path to integration.

From 2001 to 2007, Italy’s economy grew by an average of 1.1%, one of the lowest economic growth rates in Europe (earning it the moniker the “sick man of Europe”).

Italy’s GDP is expected to contract by 5.5% in 2009. In 2008, the economy shrank by “only” 1%, outperforming other major European countries such as UK, Germany, France and Spain.

However, Italy’s relative resilience is due to its small, underdeveloped financial sector, as elsewhere the financial meltdown was the major cause of the economic recession. Experts warn that the underdevelopment of Italy’s financial sector, combined with falling productivity, may also cause Italy to recover more slowly from the recession.

Italy’s unemployment rate was high at 6.8% in 2008, and is expected to rise further to 8.4% in end-2009 and 10.7% in 2010.

The government’s ability to pump-prime the economy is extremely limited due to the huge public debt, at 106% of GDP in 2008. Italy’s ratio of public debt to GDP, already the highest in Europe, is projected to rise further to 117% by the end of 2010.

The budget deficit is also expected to rise to 4.7% of GDP in 2009 and 5.9% of GDP in 2010, from 2.5% in 2008. The EU mandates a 3% of GDP cap on the budget deficit.