Italy's Residential Property Market Analysis 2024
Italy's housing market is improving gradually, amidst recovering demand and stabilizing residential construction activity.
Table of Contents
- Housing Market Snapshot
- Demand Highlights
- Supply Highlights
- Rental Market
- Mortgage Market
- Historic Perspective
- Socio-Economic Context
Housing Market Snapshot
In Q3 2024, nationwide house prices rose by a modest 2.2% to an average of €1,851 (US$2,033) per square meter (sq. m), according to real estate portal Idealista. When adjusted for inflation, house prices increased by 1.5% over the same period.
Quarter-on-quarter, nationwide house prices were up by 1.6% (1.3% inflation-adjusted) in Q2 2024.
Italy's house price annual change
In Rome, Italy's capital and largest city, homes prices stood at €3,036 (US$3,334) per sq. m., on average, during the year to Q3 2024, up slightly by 0.9% from a year earlier (0.2% inflation-adjusted).
Milan, Bolzano, and Venice have the most expensive housing in the country, with average house prices currently at €4,988 (US$5,478), €4,610 (US$5,063), and €4,529 (US$4,974) per sq. m., respectively.
Nationwide, the latest figures from the National Institute of Statistics (ISTAT) showed that the overall house price index rose by 2.94% during the year to Q2 2024 (2.17% inflation-adjusted). On a quarterly basis, prices were up by 3.23% (2.97% inflation-adjusted) in Q2 2024.
By submarket:
- New house prices rose strongly by 8.08% (7.27% inflation-adjusted) y-o-y in Q2 2024. Quarter-on-quarter, they increased by 4.76% (4.5% inflation-adjusted).
- Existing house prices were up by 1.88% (1.12% inflation-adjusted) from a year earlier and by 2.94% (2.69% inflation-adjusted) from the previous quarter.
"The increase of HPI occurred in the context of a slight recovery of the sales volumes (it was +1.2% the annual rate of change registered for the residential sector in the second quarter of 2024 by the Observatory of Real Estate Market belonging to Tax Office, up from -7.2% of the previous quarter)," said ISTAT. "The increase on a quarterly basis of the HPI (+3.2%) is also attributable to both the prices of new and existing dwellings, increasing by 4.8% and 2.9% respectively."
"In the second quarter of 2024, HPI increased in all the geographical areas. The highest trend growth is recorded in the South and Islands (+3.9%) driven by the prices of new dwellings, which increased by 9.5%. This was followed by the North-East (from +1.6% to +3.7% ), the North-West (from +1.9% to +2.5%) and the Center (from +0.6% to +2.2%)," added the county's statistics agency.
Property transactions are noticeably improving. In Q4 2023, sales of real estate units and other kinds of property transactions reached 277,415, up by 3.4% from the previous quarter and by 0.5% from the same period last year, according to the latest figures released by ISTAT. Of which, transfers of residential properties accounted for about 93.3% share.
While residential demand remains weak as compared to its long-term historical average, "the number of house sales went up both quarter on quarter and year on year, while the average discount on asking prices and the time on the market held close to their lowest levels since the survey began," according to the Banca D'Italia's Q2 2024 Italian Housing Market Survey of 1,564 real estate agents.
There are also indications that the residential construction sector is now stabilizing. In the first quarter of 2024, authorized new residential buildings rose slightly by 1.1% to 14,393 units as compared to the same period last year, following an annual decline of 7.7% in 2023, according to ISTAT figures. Likewise, the floor area of new residential building permits increased slightly by 0.6% y-o-y to 1.22 million sq. m in Q1 2024.
However, the overall economy remains weak. During 2023, the eurozone's third-largest economy grew by a paltry 0.9%, a sharp slowdown from annual expansions of 4% in 2022 and 8.3% in 2021.
Italy's economic performance is expected to remain weak in the medium term, with a projected real GDP growth rate of 1% this year and 1.1% in 2025. "In 2024, the GDP growth rate will be supported by the contribution of both domestic demand net of inventories and net foreign demand (+0.7 percentage points each), with a still negative contribution from inventories (-0.4 p.p.). In 2025, the growth of the Italian economy will be predominantly driven by domestic demand (+0.9 p.p.)," according to Italy's Economic Outlook 2024-2025 report released by ISTAT.
Local house price variations
Milan, Italy's second most populous city, has recently overtaken Venice as the most expensive city in the country, with an average house price of €4,988 (US$5,478) per sq. m. in Q3 2024, up slightly by 0.4% from a year earlier, according to national listing portal Idealista.
In Venice, known as the "City of Canals" and one of Italy's most picturesque cities, the average house price rose by a modest 2.5% y-o-y to €4,529 (US$4,974) per sq. m over the same period.
In Rome, Italy's capital and largest city, home prices stood at €3,036 (US$3,334) per sq. m, on average, up slightly by 0.9% from a year earlier.
In other major Italian cities:
- Bolzano, a gateway to the Dolomites mountain range in the Italian Alps, has one of the most expensive housing in the country, with the average price of homes reaching €4,610 (US$5,063) per sq. m in Q3 2024, up by 2.5% from a year earlier.
- In Turin, the average price of homes increased by 2.1% in Q3 2024 from a year earlier, to €1,885 (US$2,070) per sq. m.
- In Bologna, home prices increased by 2.3% y-o-y to €3,526 (US$3,872) per sq. m over the same period.
- In Florence, house prices rose by 1.9% y-o-y to an average of €4,157 (US$4,565) per sq. m.
- In Naples, Italy's third biggest city, home prices increased strongly by 8.6% y-o-y to an average of €2,830 (US$3,108) per sq. m.
- In Palermo, house prices increased by a modest 2.8% y-o-y to €1,372 (US$1,507) per sq. m.
- In Genoa, the average price of homes rose slightly by 1.3% y-o-y to €1,411 (US$1,550) per sq. m.
- In Catania, house prices fell slightly by 0.1% y-o-y to €1,203 (US$1,321) per sq. m in Q3 2024.
Demand Highlights
Home sales improving again; demand shifting to the South, and larger homes
Real estate activity shows some improvements. In Q4 2023 (the latest figures available in ISTAT), sales of real estate units and other kinds of property transactions reached 277,415, up by 3.4% from the previous quarter and by 0.5% from the same period last year. Of which, transfers of residential properties accounted for about 93.3% share.
All regions saw an increase in real estate sales during the period - Centre (+5.9%), Islands (+4.7%), South (+4%), Northwest (+2.9%), and Northeast (+2.6%).
Demand started to slow in the second half of 2022, amidst surging inflation and global economic slowdown. It began to recover only by the second half of 2023.
Southern Italy continues to experience robust demand, mainly due to the rise of "smart working" and work-from-home setups, according to Idealista. Moreover, a recent report published by Gabetti, Professionecasa, and Grimaldi noted that demand is growing for the following types of properties:
- Multifunctional homes, with larger dimensions and modular spaces adapted for remote working;
- Properties with outdoor spaces, gardens, or terraces;
- Condo units with services, such as gym, garage, and multifunctional rooms, and;
- Bigger-sized second homes.
New tax measures to buoy southern Italian homes market
A recent measure extended the benefit period for the 7% flat tax for pensioners who decide to retire to southern Italy from five years to nine years. The law, which has been effective since January 2019, requires the pensioner to transfer his tax residence to an Italian municipality with no more than 20,000 inhabitants located in one of the following regions: Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, or Puglia.
The new rule applies a substitute tax of 7% on pensions and all other foreign incomes. Other benefits include an exemption from payment of tax on the value of real estate located abroad (IVIE) and the tax on the value of financial assets held abroad (IVAFE).
Earlier, other tax measures were launched by the government:
- Abolition in 2016 of the Tassa sui Servizi Indivisibili (TASI) and Imposta Municipale Propria (IMU), which are taxes on principal homes (except luxury homes and castles).
- 25% discount on the IMU tax for houses being lent on an "agreed rental" (canone concordato) contract for a minimum of 3 years plus two years of automatic renewal which complies with the local authorities' minimum and maximum rents.
- A flat rate of 4 per thousand and a €200-worth standard deduction on IMU tax for luxury homes and castles.
- Differentiation between mountain land and land on the flat, with the first getting IMU exemption.
Italian towns selling homes for €1 continue to increase
Since early 2016, a growing number of small, rural towns in Italy have been selling abandoned, dilapidated homes for €1 to international buyers, in an effort to repopulate the towns.
"In the last 40 years people, especially young people, left the countryside to find work in bigger cities, and those small villages like Mussomeli became abandoned all over Italy," said Italian real estate expert Stefan Neuhaus.
The Italian towns currently offering €1 home include Ollolai (Sardinia), Sambuca (Sicily), Cantiano (Le Marche), Mussomeli (Sicily), Zungoli (Campania), Gangi (Sicily), Bivona (Sicily), Cammarata (Sicily), Borgomezzavalle (Piedmont), Nulvi (Sardinia), Fabbriche di Vergemoli (Tuscany), Oyace (Aosta Valley), Troina (Sicily), Delia (Sicily), Taranto (Apulia), and Cinquefrondi (Calabria), among others.
Since 2021, more Italian towns started to offer houses for just over a dollar, including the Sicilian town of Castiglione di Sicilia, the Sardinian town of Bonnanaro, and the Bucolic town of Maenza. For instance in Castiglione di Sicilia, roughly 900 abandoned homes are currently offered for €1. Then in June 2023, the municipality of Ripacandida also joined the €1 house program.
In 2024, more municipalities have joined the program, including the UNESCO World Heritage Site Sicilian city of Caltagirone, the Sicilian municipality of Troina, and the village of Cattolica Eraclea in the province of Agrigento.
However, there is a catch. Prospective buyers must agree to repair and restore the property, which could cost a lot. In addition, buyers must comply with a number of conditions. First, buyers must provide an insurance deposit of between €1,000 and €5,000 depending on the town. Then, buyers need to submit their renovation plans to the town council, which must be completed within a set time frame, typically in three years. The specific process and requirements vary by municipality.
Also, even if there were interested buyers, some sales transactions did not materialize because owners of abandoned homes were impossible to track down as they had already migrated to other places.
Because of these obstacles, the €1 scheme has been less effective than it was initially planned.
To address this, a number of Italian towns are now introducing other ways to lure new residents. The towns of Carrega Ligure in Piedmont, Latronico in Basilicata, Biccari in Puglia, and Troina in Sicily have launched websites to showcase cheap, renovated homes. They have also opened real estate agencies to support interested homebuyers in contacting old owners who have abandoned their properties.
"We attempted in 2014 to sell stone mountain cottages for one euro, but over the past decades the owners had all migrated beyond the Alps and we couldn't get hold of them. Also, the properties were divided among too many heirs which made things way too complicated," said Carrega Ligure mayor Luca Silvestri.
"So we thought the best way was to help locals willing to offload their old homes by giving them an online platform, handled by village authorities, where they can either sell or rent the properties. Supply meets demand," Silvestri added.
There are no restrictions on foreign ownership in Italy.
'Superbonus' tax credit scrapped
In 2023, the government announced the end of the popular Superbonus 110, which was introduced in 2020 to provide homeowners with a tax credit of up to 110% on the cost of upgrading their property.
While the tax credit led to a surge in home renovations and helped to fuel the country's economy after the effects of the Covid-19 pandemic, the tax measure proved to be too costly. In April 2024, Economy Minister Giancarlo Giorgetti said that take-up of the incentives had hit €219 billion (US$240.5 billion). It also pushed up building costs and was stained by widespread fraud.
Recently, the government agreed on a limited extension of the Superbonus subsidies for low-income households who had not completed home renovations last year. However, they otherwise faced having to draw on less generous 70% tax credits this year.
Supply Highlights
Residential construction activity stabilizing
In the first quarter of 2024, authorized new residential buildings rose slightly by 1.1% to 14,393 units as compared to the same period last year, following an annual decline of 7.7% in 2023, and increases of 0.1% in 2022 and 21.9% in 2021, according to ISTAT figures.
Likewise, the floor area of new residential building permits increased by a meager 0.6% y-o-y to 1.22 million sq. m in Q1 2024.
Before the Covid-19 pandemic, residential construction activity in Italy declined to an average of 49,900 dwelling permits annually in 2013-19, from 129,000 units in 2008-12 and 265,00 units in 2004-07.
Rental Market
Good rental yields
In Italy, gross rental yields - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - are good, averaging 7.04% in Q3 2024, slightly down from 7.67% in Q1 2024 and 7.49% in Q3 2023, according to the recent study conducted by the Global Property Guide.
By major cities, in Q3 2024:
- In Rome, gross rental yields for apartments range from 3.72% to 8.53%, with a city average of 6.82%.
- In Milan, apartments offer lower rental yields of between 2.9% and 6.51%, with a city average of 4.6%.
- In Florence, rental yields for apartments range from 5.71% to 7.83%, with a city average of 6.75%.
- In Turin, apartment rental yields are much higher than the national average, at around 4.46% to 9.44% in Q3 2024, with a city average of 7.62%.
- In Palermo, rental yields are also high, ranging from 5.75% to 10.17%, with a city average of 7.96%.
- In Naples, apartments offer rental returns ranging from 4.36% to 11.2%, with a city average of 7.07%.
- In Catania, rental yields range from 6.09% to 10.29%, with a city average of 8.42%.
Despite good rental yields, round-trip transaction costs can be high on residential property in Italy and the country's predatory taxation system makes things worse.
Rent controls
Despite good rental yields, private renting is unattractive for Italian landlords because of rent controls and other restrictions.
The standard rental contract allows free negotiation of the initial rent but commits the landlord to a four-year contract and gives the tenant the option of extending for another four years. Rents can only be increased annually by 75% of the cost of living index; i.e. if inflation is 2%, then you can only increase your rent by 1.5%.
Because of these restrictions on rent increases, most landlords prefer to 'frontload' long rental contracts to take into account anticipated future rent increases, inflation, and capital value appreciation. Frontloading, in turn, artificially raises rents for new contracts.
Despite this, average rents have failed to keep up with inflation since the mid-1990s. While house prices rose by an average of 6.3% from 2000 to 2008, rents rose by an average of only 2.4% over the same period.
However, in recent years, the gap has been narrowing because of the sluggish housing market, with house prices falling by a cumulative 21.4% (-36.2% inflation-adjusted) from 2011 to 2023. Over the same period, rents rose by 9% (but still declined by 11.6% when adjusted for inflation).
Mortgage Market
Housing loan interest rates falling again
Interest rates for both new and outstanding housing loans in Italy are now declining again, following the European Central Bank's recent monetary policy shift amidst easing inflationary pressures.
In August 2024, the average interest rate for new housing loans in Italy stood at 3.59%, down from 4.29% in the prior year but still up from 2.07% two years ago, according to the ECB. Over the same period:
- The floating rate and an initial rate fixation (IRF) of up to 1 year: 4.68% in August 2024, slightly down from 4.81% a year earlier but still far higher than the 1.72% two years ago.
- IRF of 1-5 years: 3.06% in August 2024, down from 4.79% a year ago but still up from 2.62% two years prior.
- IRF of 5-10 years: 3.87%, down from 4.28% in August 2023 but still up from 2.53% in August 2022.
- IRF of over 10 years: 3.41%, down from 4.07% in the previous year but still higher than the 2.39% two years ago.