Last Updated:
Sep 15, 2009
House prices in Italy rose by 3% in H1 2009 from a year earlier, according to the house price index published jointly by the Bank of Italy (BoI) and the National Statistical Institute (Istat), after rising by 4.2% y-o-y in 2008 (0.86% in real terms). When adjusted for inflation, house prices rose by 1.9% y-o-y to H1 2009, according to the BoI.
However house price declines are seen as inevitable, as the Italian economy is expected to experience its worst recession since World War II. After shrinking by 1% in 2008, GDP is projected to contract by as much as 5.5% in 2009. Unemployment is anticipated to rise to 10.7% by the end of 2010 from 6.8% in 2008.
Property prices are expected to drop by 7% to 8%, says Nomisma, an economic think-tank, noting that residential sales dropped by 15% in 2008. It also expects sales to contract another 8% to 10%.
The relative resilience of house prices in Italy has been attributed to what was formerly considered as a weakness, its underdeveloped mortgage market. Despite having the fourth largest economy in the EU, Italy’s mortgage market is around 20% of GDP, significantly below the EU average of 50% of GDP. Most property transactions are financed through savings.
Yet now, because the mortgage market is small, the effect of lower interest rates is likely to be counterbalanced by the larger impact of Italy’s weakening economy.
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.
However house price declines are seen as inevitable, as the Italian economy is expected to experience its worst recession since World War II. After shrinking by 1% in 2008, GDP is projected to contract by as much as 5.5% in 2009. Unemployment is anticipated to rise to 10.7% by the end of 2010 from 6.8% in 2008.
Property prices are expected to drop by 7% to 8%, says Nomisma, an economic think-tank, noting that residential sales dropped by 15% in 2008. It also expects sales to contract another 8% to 10%.
The relative resilience of house prices in Italy has been attributed to what was formerly considered as a weakness, its underdeveloped mortgage market. Despite having the fourth largest economy in the EU, Italy’s mortgage market is around 20% of GDP, significantly below the EU average of 50% of GDP. Most property transactions are financed through savings.
Yet now, because the mortgage market is small, the effect of lower interest rates is likely to be counterbalanced by the larger impact of Italy’s weakening economy.
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.
Read Price History »
RENTAL YIELDS
Last Updated: Jun 17, 2009
Gross rental yields remain very low in Italy’s major cities. Apartments in Central Rome have gross rental yields of nearly 5%, but in the suburbs of Rome, rental yields fall to an average of 3.58%. Apartments in Milan yield on average 3.9%. These low rental yields are a long-standing feature of the Italian market, and make Italy a relatively unattractive location for buy-to-let investment.
TAXES AND COSTS
Last Updated: Nov 05, 2008
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.
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
Last Updated: Mar 26, 2007
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
Last Updated: Dec 09, 2007
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
Last Updated: Sep 15, 2009
Worst recession in Italy since the war
Italy had a population of 59.3 million in 2008, and GDP per capita of US$39,000. It was one of the six countries which signed the 1951 Paris Treaty that set Europe on the path to integration. From 2001 to 2007, Italy’s economy grew by an average of 1.1%, one of the lowest economic growth rates in Europe (earning it the moniker the “sick man of Europe”).
Italy’s GDP is expected to contract by 5.5% in 2009. In 2008, the economy shrank by “only” 1%, outperforming other major European countries such as UK, Germany, France and Spain.
However, Italy’s relative resilience is due to its small, underdeveloped financial sector, as elsewhere the financial meltdown was the major cause of the economic recession. Experts warn that the underdevelopment of Italy’s financial sector, combined with falling productivity, may also cause Italy to recover more slowly from the recession.
Italy’s unemployment rate was high at 6.8% in 2008, and is expected to rise further to 8.4% in end-2009 and 10.7% in 2010.
The government’s ability to pump-prime the economy is extremely limited due to the huge public debt, at 106% of GDP in 2008. Italy’s ratio of public debt to GDP, already the highest in Europe, is projected to rise further to 117% by the end of 2010.
The budget deficit is also expected to rise to 4.7% of GDP in 2009 and 5.9% of GDP in 2010, from 2.5% in 2008. The EU mandates a 3% of GDP cap on the budget deficit.
