Italy: Overview
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Italy’s house prices heading south
For Italy’s housing market 2007 was another year of slower house price growth. The price index for 13 main metropolitan areas rose 6.1% (to €2,417 per sq.m., from €2,300 per sq.m.). This is lower than the 10.6% price increase seen in 2003, 8.7% in 2004, 7.1% increase in 2005 and 6.2% increase in 2006. It was the lowest growth in five consecutive years.
The housing market has been in an upswing since 1997, after a long period of recession in the mid 1990s. House prices have appreciated by 73% (48.5% in real terms) from 1998 to 2007.
Liguria, Tuscany, Northern Lakes, Puglia and Umbria are Italy’s most visited regions by foreigners in terms of property buying in 2007.
Although there are no restrictions on foreign ownership of properties in Italy, high transaction costs and taxes and laws that restrict rent increases and provide tenant security, are detrimental to the rental market.
RENTAL YIELDS
Yields are low at 4.5% in Italy
Italian gross rental yields are low, averaging at around 4.5%. Apartments in the historical centre of Rome yield 3.7% - 5.3%, while similar apartments in cosmopolitan Milan yield 4% - 5.2%. Apartments in Venice fetch 3.8% - 4.8%, while similar apartments in Florence yield a higher return, ranging from 4.8% - 5.8%.
TAXES AND COSTS
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.
BUYING GUIDE
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.
LANDLORD AND TENANT
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.
ECONOMIC GROWTH
Italy’s modest economic growth
Located in Southern Europe, Italy has a population of 59.34 million and GDP per capita of US$31,051. It was one of the six countries which signed the 1951 Paris Treaty that set Europe on the path to integration.
The economy performed modestly in 2007 with 1.7% GDP growth rate, still higher than the average rate of 0.9% from 2001 to 2006. A slower year-on-year inflation rate was recorded at 1.9% in 2007 from 2.2% in 2006. Moreover, unemployment rate also declined from 7.1% in 2006 to 6.8% in 2007. Real wages rose by 2.6%, after an average of 2.2% annual wage increase from 2001 to 2006.
As the left-of-centre government of Prime Minister Romano Prodi lacks a majority in the upper house, the passage of key reform measures is facing difficulties. The government is seeking to change the pension system and to increase labor market flexibility.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Bubble fears prompt foreign ownership limits in China
America & Caribbean
The slowdown of the U.S. housing market
Middle East and Africa
Bahrain is open to foreigners and sizzling hot
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): €6,083 For a 120 sq. m. property, usually an apartment. | Rental Yield: 4.27% For a 120 sq. m. property, usually an apartment. |
| Rent/month: €2,600 For a 120 sq. m. property. | Income Tax: 19.55% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
17.0%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 0.0 Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice. | |
FEBRUARY 2008
- In Rome, finding an ideal rental - http://www.nytimes.c
DECEMBER 2007
OCTOBER 2007
- Puglia: Like stepping on to a film set - Independent.ie
SEPTEMBER 2007
- Italy: A day on the lake...a night at the opera - The Independent
- Bag yourself a ruin in Tuscany - Telegraph UK
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