Market in Depth

Italy's housing market improving, despite ailing economy

Lalaine C. Delmendo | April 17, 2019

Italy's housing market is recovering gradually, despite the country's struggling economy. Demand is now rising. Residential construction activity is increasing. And the market outlook is improving.

The nationwide house price index fell by 0.8% (-2.25% inflation-adjusted) during the year to Q3 2018, according to the European Central Bank (ECB). Quarter-on-quarter, house prices increased 0.6% in Q3 2018 but actually 1.4% when adjusted for inflation.

Prices of new houses increased 1.41% (-0.1% inflation-adjusted) y-o-y in Q3 2018 while existing house prices dropped 1.31% (-2.75% inflation-adjusted) over the same period, according to ISTAT.

The average price of new houses in Italy stood at €4,500 (US$5,085) per square metre (sq. m.) in Q3 2018, according to the real estate portal Idealista.it. The average price of new houses is about 24% higher as compared to that of existing houses.

Both demand and supply are increasing.  Residential property sales in Italy rose by 2.3% during the first three quarters of 2018, from the same period last year, according to Centro Studi di Abitare Co. It took an average of 4.9 months to sell a new house in Italy in Q3 2018, an improvement from the previous year's 6.5 months.

During the first half of 2018, the number and area of new dwelling permits rose by 4.7% and 5.9% respectively, according to ISTAT.

The residential real estate market for new buildings has confirmed its positive cyclical trend in 2018,” said Alessandro Ghisolfi of Centro Studi di Abitare Co. “In comparison to the demand, today the supply is still very underestimated, and this encourages a shortening of sales times that up until three years ago were unthinkable. For 2019, the signs remain positive...”

Italy house price graph
Italy's economy expanded by 0.9% in 2018, a slowdown from a growth of 1.6% in 2017, according to ISTAT. The economy registered quarterly declines in the last two quarters of 2018, throwing the euro zone's third largest economy into a technical recession. The economy is expected to remain weak this year, with some forecasting a full-year contraction.


Analysis of Italy Residential Property Market »

Rental Yields

Gross rental yields in Italy are low

Gross rental yields in the historical centre of Rome and of Milan - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - range from 2.4% to 4.5%, with yields in Rome lower than in Milan. Yields on 120 square metre (sq. m.) apartments are really low, yields on smaller apartments a little better.

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. In the historic centres of Rome and Milan, prices are nearer €8,000 per sq. m.

Conclusion: Property prices in Italy 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.

Read Rental Yields »

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%.

Read Taxes and Costs »

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.

Read Buying Guide »

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.

Read Landlord and Tenant »

ECONOMIC GROWTH

Italy’s economy is forever struggling

Italy luxury housesEven 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. Italy's economy contracted by 1.1% in 2008 and by another 5.5% in 2009. The country went back to 1.7% growth in 2010 and 0.6% in 2011, but contracted by 2.8% in 2012 and 1.7% in 2013, according to the International Monetary Fund (IMF). Italy’s economy then grew by 0.1% in 2014, 1% in 2015, and 0.9% in 2016. Italy’s economy expanded 0.9% in 2018, a slowdown from a seven-year high growth of 1.6% in 2017, amidst trade tensions and weaker investment outlook.

The Bank of Italy, the country’s central bank, expects the economy to expand by a meagre 0.6% this year. However, some economists are more pessimistic, projecting a full-year contraction in 2019.  In fact, the economy registered quarterly declines in the last two quarters of 2018, throwing the euro zone’s third largest economy into a technical recession.

Consumer prices in Italy rose by around 1% in February 2019, up from 0.9% in the previous month and 0.5% a year earlier, according to ISTAT.

Unemployment was about 10.8% in 2018, slightly down from an average of 11.7% from 2012 to 2017, according to the IMF.

At 2.1% of GDP in 2018, the budget deficit was the lowest since 2007. The government targets a deficit of 2% this year.

A populist nightmare followed the March 2018 elections
On March 4, 2018, Italy held a general election. The election resulted in a hung parliament since no particular party won an overwhelming majority. Two months after the election, it was announced that a little-known law professor Giuseppe Conte has been proposed as the head of the coalition cabinet between the far-right League led by Matteo Salvini and the post-ideological Five Star Movement led by Luigi Di Maio.

Italy gdp inflation
In other words, a populist nightmare - sending the Italian bond markets plunging and causing alarm in Brussels. Both allies are anti-EU, anti-immigrant, and are supported by ecosystems of fake news, pushing anything from anti-Semitic and racist propaganda about George Soros to claims about the Obama administration plotting to smuggle migrants from Libya to Italy, or anti-vaccine conspiracies.

The Five Star Movement has been particularly good at presenting sanitised messages in mainstream media while allowing their social media followers to spread hate, racism and fake news.

The two parties’ informal media networks are separate, but interconnected, and have links to far-right and pro-Russia propaganda sources in the West.

Worse, the coalition’s expansionary budget designed to meet costly election promises does not help the country’s ailing economy, which officially entered technical recession in the last two quarters of 2018. In fact, the European Commission has repeatedly criticized the Italian government’s policies and warned of “contagion” that could hit the rest of the region.

“Don’t underestimate the impact of the Italian recession,” said French Finance Minister Bruno Le Maire.

“The European Union is right about Italy,” said Corrado Alberto of entrepreneurs association Api. “Those who talk about stagnation are way too optimistic, we are facing a real recession.”