Market in Depth

Housing market supported by strong demand

Lalaine C. Delmendo | March 05, 2022

Italy's housing market remains stable, supported by strong demand. However, the outlook is now bleak, amidst surging inflation, slowing economy, and ongoing political uncertainty, coupled with the adverse impact of Russia's invasion of Ukraine.

During the year to Q2 2022, nationwide house prices rose by a miniscule 1.4% to an average of €1,827 (US$1,868) per square metre (sq. m.), according to real estate portal Idealista. When adjusted for inflation, house prices actually declined 6%.

In Rome, Italy's capital and largest city, homes prices stood at €3,008 (US$3,074) per sq. m., on average, in Q2 2022, up by just 0.9% from a year earlier but dropped 6.5% in inflation-adjusted terms.

Milan, Bolzano, and Venice have the most expensive housing in the country, with average house prices currently at €4,828 (US$4,935), €4,479 (US$4,580)  and €4,394 (US$4,493) per sq. m., respectively.

Nationwide, the latest figures from National Institute of Statistics (ISTAT) showed that the overall house price index rose by 4.65% during the year to Q1 2022, but fell by almost 1% when adjusted for inflation. Over the same period:
  • New house prices rose by 4.98% (-0.66% inflation-adjusted)
  • Existing house prices were up by 4.51% (-1.1% inflation-adjusted)

“The increase of HPI occurred in the context of a clear and persistent growth in sales volumes (it was +12.0% the annual rate of change registered for the residential sector in the first quarter of 2022 by the Observatory of Real Estate Market belonging to Tax Office, from +15.7% of the previous quarter),” said ISTAT. “Also the increase on quarterly basis of the HPI was due to both the prices of new dwellings, that rose by 0.7%, and those of existing dwellings which increased by 1.9%.”

Demand is rising strongly. In Q4 2021, residential property transactions increased 14.1% to 263,795 units as compared to a year earlier, according to ISTAT. All regions saw strong sales increases during the period – South (18.3%), Centre (14.6%), Northwest (13.7%), Islands (11.1%), small cities (15.1%) and large cities (12.9%). For the whole year of 2021, property sales transactions in Italy surged by more than 30% y-o-y to reach 982,260 units, following a 10% drop in 2020.

But there are now signs of housing market slowdown, with house prices expected to fall during the remainder of the year. “The outlook has deteriorated both for the agents' own markets and for the national market,” according to the Banca D'Italia's Q2 2022 Italian Housing Market Survey of 1,465 real estate agents. “Prices are now expected to decline in the current quarter, after having remained in positive territory for three quarters.”

Italy house price graph
“These assessments factor in higher energy prices and the invasion of Ukraine, which are believed to contribute to a downward pressure on both the number of potential buyers and house sale prices,” the report added.

The wider economy is projected to slow, too. Economic growth is expected to slow to 2.9% this year and 0.9% in 2023, based on estimates released by the European Commission (EC). During the onset of the Covid-19 pandemic, the eurozone's third largest economy suffered a huge contraction of 9% in 2020. Then in 2021, the economy grew by 6.6%, amidst easing of pandemic-related restrictions – but still inadequate to fully offset the prior year's sharp decline.

Analysis of Italy Residential Property Market »

Rental Yields

Italy: Moderate rental yields from 3% to 6%

Gross rental yields i.e., the rental return on a property if fully rented out, before all expenses, are low to moderate in Rome, Milan, Venice, and Florence. Gross rental yields for apartments in Italy are between 3% to 6%.

The purchase price of apartments in Rome is around EUR 3,000 per square metre (sq. m.) to EUR 6,000 per square metre (sq. m.) and these prices are now more obtainable than in Venice. Venice now has a price range between EUR 4000 to EUR 6,500. Florence is now about as costly as Rome.

Milan is a more expensive city to buy an apartment than any other Italian city, with apartment prices in Milan ranging from EUR 3,000 to EUR 13,000 per square metre (sq. m.). Despite Milan's high purchase prices, it generates good yields. Ostiense (7.9%), Pigneto (5.7%), Prati (5.5%), and San Lorenzo (5.4%) are the best yielding areas in Milan.

Round trip transaction costs are moderate to high in Italy. See our Property transaction costs analysis for Italy.

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Taxes and Costs

Rental income tax is high in Italy

Rental Income: Nonresidents are taxed on rental income earned in Italy. The rates range from 23% to 43%. Personal allowances for spouse and family are not available to nonresidents, but certain deductions may be granted.

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%.

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Buying Guide

Transaction costs are moderate to high in Italy

Total round-trip transaction costs in Italy range from 8.88% to 22.70%of the property value. Registration tax is 3% for main homes and 7% for second homes. Nonresident buyers pay a fixed registration tax of 7%. The real estate agent’s commission is between 3% and 8% plus 22% VAT; typically split between buyer and seller.

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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.

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Italy’s economy weakens, inflation accelerates

Italy luxury housesItaly has never fully recovered from the 2008-09 global crisis and the COVID-19 pandemic has added another blow to the country’s still weak economy. Before the financial crisis, the Italian economy was growing sluggishly, with average GDP growth of 1.2% from 2001 to 2007. It has been a miserable decade since then. The economy contracted by 1% in 2008 and by another 5.3% in 2009. The country went back to 1.7% growth in 2010 and 0.7% in 2011, but contracted by 3% in 2012 and 1.8% in 2013, according to the

Italy’s economy stabilized in 2014, then grew slightly by 0.8% in 2015, 1.3% in 2016, 1.7% in 2017 and 0.9% in 2018. Italy’s economy grew by a minuscule 0.5% in 2019, amidst trade tensions and weaker investment outlook.

The economy suffered a huge contraction of 9% in 2020, during the onset of the Covid-19 pandemic. Then the economy grew by 6.6% last year, amidst easing of pandemic-related restrictions – but still inadequate to fully offset the prior year’s sharp decline.

The eurozone’s third largest economy is projected to slow in the medium term, with a real GDP growth forecast of 2.9% this year and 0.9% in 2023, based on estimates released by the European Commission (EC).

“…the loss in households’ real purchasing power, waning business and consumer sentiment, persistent supply bottlenecks and rising funding costs overshadow the economic outlook. Thus, growth is expected to remain subdued over the forecast horizon,” said the EC.

“The risks to the growth outlook are tilted to the downside, in particular in view of potential supply disruptions of natural gas, given Italy’s still sizeable dependency on deliveries from Russia despite recent diversification efforts,” the EC added.

Nationwide inflation climbed to 8% in June 2022, the highest level since 1986, primarily due to soaring energy and food prices, based on figures from ISTAT.

Italy gdp inflation
But the labour market is improving. Overall unemployment fell to 8.1% in June 2022, the lowest level since April 2020. Unemployment averaged 11% from 2012 to 2021.

In 2021, Italy’s government recorded a budget deficit of €127.4 billion (US$130.3 billion), equivalent to about 7.2% of GDP, amidst a sharp increase in government spending aimed at stimulating economic activity weakened by the pandemic, as well as soaring energy prices. This was lower than the record shortfall of around 9.6% of GDP seen in 2020. The government aims for the deficit to fall to 5.6% of GDP this year.

As expected, public debt increased sharply to 155.3% of GDP in 2020, from 134.1% of GDP in 2019 mainly due to the introduction of pandemic-related public stimulus package. Public debt fell slightly to 150.8% of GDP in 2021.

The government aims to reduce public debt by about 10% of GDP by 2025. “But with geopolitical and financial risks compounding macroeconomic and fiscal uncertainty, achieving this will partly depend on whether further risks to growth materialise, and how far fiscal policy can be tightened in response,” said Fitch Ratings.