Property sales weakened during the third quarter of 2013, with home sales declining by around 6.6% y-o-y, as reported by ANSA. However the decline was less than the previous quarter, with sales declining by 7.7% in Q2 2013, and lower than the 8.3% y-o-y during the first half of the year. In 2013, Nomisma estimates that transactions will be around 407,000, a sharp decline from around 869,000 in 2006.
House prices will continue to fall for the next two years, according to Luca Dondi, Nomisma’s Managing Director. House price increases are unlikely in less than three to five years, but they will be preceded by a recovery in the commercial real estate market which is expected to occur in 2015.
The Italian economy was still in the doldrums in 2013, with GDP falling 1.8% due to a reduction in domestic demand. The economic outlook for Italy is better in 2014, with growth expected to be around 0.7%.
From 2000 to H1 2008, house prices rose 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).
Deterring the housing market recovery is the recently introduced property tax TASI, which will affect main and secondary homes, which is tied to a garbage tax and an existing tax on secondary homes.
"The Italian real estate market is still on the mend and the new tax system will reduce the profitability of buying a house to rent it," according to Scenari Immobiliari’s founder and president, Mario Breglia.
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 €4,300 per sq. m.
A 120 sq. m. apartment in Milan would cost on average €4,800 per sq. m. Milan apartment prices range from €4,400 per sq. m. to €4,800 per sq. m. These prices are lower than last year.
Rents of apartments. In the historical centre of Rome, monthly rents range from €18 to €22 per sq. m., so you can rent a 120 sq. m. apartment here for around €2,300 per month.
In the suburbs of Rome, rents range from €13 to €16 per sq. m. per month. So a 120 sq. m. apartment can be rented for around €1,500 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.
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 3.57% to 4.02%, with little difference in returns by size.
In the suburbs, rental yields range from 2.97% (200 sq. m.) to 4.72% (50 sq. m.), with large apartments clearly yielding poorer investment returns.
Apartments in Milan return rental yields of between 3.62% to 4.30%, with again no clear pattern of rental returns.
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.
Italy’s economy went back into recession in 2012 as real GDP contracted by 2.4%, and was preceded by a slowdown with a meager growth of 0.4% in 2011, due to the euro zone debt crisis. All these happened after the country just went back to 1.7% growth in 2010 from the 2009 recession.
The country became one of the first euro zone victim 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.
Italy is euro zone’s third largest economy with a total population of almost 61 million and a GDP per capita of US$ 33,909 in 2013. However, the country’s public debt is also remarkably large, at around an expected 130.4% debt-to-GDP ratio in 2013. Since 2007, public debt in Italy steadily increased, rising from 103% of GDP to 127% of GDP in 2012, and currently has one of the highest debt in the euro zone.
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. In 2013, budget deficit target was slashed to 1.5% and should have a deficit within the European Union’s 3% of GDP ceiling in 2014.
In November 2013, Italy’s overall unemployment rate reached a record high of 12.7%, up from October’s rate of 12.5%. Both are far higher than the annual average of 7.5% from 2004 to 2011, according to ISTAT. Overall unemployment in 2013 was expected to be at 12.1% and might rose up to 12.4% in 2014, despite an expected bounce back from recession this year.
In December 2013, the overall inflation increased by 0.7% from the previous year, and was also up by 0.2% from the previous month. The average inflation rate for 2013 was 1.2%, according to ISTAT.