The Real Estate market :: Italy
The Italian property market, in the early months of 2010, is showing the first tentative signs of recovery. After more than two years of lowered interest, during which home sales fell by almost 30% and prices by about 10%, the first quarter of 2010 showed a good increase in trade (up 4.2% over the first quarter of 2009). Currently, in the larger cities the rise in sales (up 10% on average), has been more marked than in smaller towns (+2.7%); however, the reverse occurred during the previous fall.
Indicators show, especially for large cities such as Rome and Milan, a gradual absorption of the oversupply that the market had accumulated in recent months; by the middle or the end of this year we should start to see a general improvement and a bigger dynamicity of the market.
However, several uncertainties remain resulting in the impossibility of giving a unique interpretation of the highlighted dynamics. Approximately 30% of Italians declare to be looking for properties, on the other hand, the regression of household income (-2.8% in 2009, the worst since 1990), the unstable labour market, difficulties in obtaining loans and fears of systemic contagion from the Greek crisis, are slowing buying decisions.
On the prices front: after a decline of around 4% in 2009 and 5% in 2008 (source: Scenari Immobiliari), the fall in nominal prices is expected to slow or even stop in 2010 (estimated between -0.5% and - 2%).
To note, with regard to international comparisons between Italy and other major real estate markets, as our country has signalled over the period 1997-2007 increases in prices much less pronounced (+63% in real terms) than the UK (+ 141%), Ireland (+127%), Sweden (+111%), France (+109%) and Spain (+108%), consequently, the maximum correction was not so marked for Italy as in Britain Ireland and Denmark (decreases above 20%).
In a hypothetical honeycomb shaped cycle(or hexagonal) of the Italian property market, characterized by six evolutionary phases, we have observed over the past 13 years, in order:
1 - a first phase consisting of an increase in demand and therefore in sales, with stable prices and an improved market liquidity; the timing of is faster, with a gradual decrease in the average price discount (1998-2000)
2 - a second phase characterized by a rise in transactions, with marked increase in prices and the presence of many speculative purchases (2001-2006);
3 - the stage where even the followers enter the market: the market gives the first signs of fatigue, with contraction in the number of transactions, increased sales time and the average price discount, even when prices are still rising (2007);
4 - the end of the positive market: the number transactions contracts the market becomes illiquid and prices no longer continue to rise (2008?)
5 - the most negative phase of the market: prices and number of transactions fall, in an illiquid market where small investors are swept away (2009?)
6 - the final stage: prices are still down but transactions grow gradually pulled by the big investors, with average discounts high (1996-1998 and 2010?)
The average gap between asking price and final price (average discount) for 13 major urban areas in late 2009 was 15% according to a UBH market research; estimates for intermediate cities were instead given a score of 12.6 %. The average discount on luxury homes was recorded at 7,5%.
The average time to sale in the big cities is currently about 7 months, slightly down compared to last quarter of 2009.
Although still in a context of crisis, the Italian property market seems close to a point of rebirth and from this point of view, Italy tails Britain and Holland, who are leading the recovery of housing market in Europe.
However, some distinctions are necessary, we do not expect a homogeneous recovery of the market but we see quite a marked difference between different sectors.
Despite the large reduction in interest rates and mortgage rates, because of the credit crunch new mortgage loans fell (-44% since 2008). Italians depend greatly on their savings, rather than requesting new loans: only 42% of the sales are secured with the employ of a mortgage. Private equity per sale averaged 131,000 euros, or 69% of the average cost per housing unit.
The erosion of incomes and rising unemployment is also having a major negative impact on the ability of the Italians to repay mortgage rates, although being much less in debt (less than 50% of disposable income) than the European average (90 %, with peaks of 200% in Denmark); 18% of households claim to have difficulties in meeting mortgage payments.
The peripheral buildings, of poor construction, in areas of scarce environmental quality, which are normally targeted to poorer sectors more dependent on credit, will continue to show weakness, in our opinion, in prices and demand even in the months ahead.
Conversely, quality housing, with energy saving particulars, good location in town centres, in renowned tourist centres, or in areas of environmental quality, and luxury homes will continue to behave much better than average.
For quality buildings the market remains dynamic and transaction contractions have been much lower than for other sectors: in 2009 luxury residences have suffered a decline in average prices of only 2.5% (+1% is the prediction for 2010), with a substantial stability in the sales.
The sectors that are currently attracting more buyers are for houses of quality; buildings with high energy savings and rustic countryside properties.
The quality housing sector market is favoured by the liquidity made available by the recent repatriation of capital held offshore, following to the moratorium. The precariousness of the financial markets, the low returns of bonds and the pervasive sense of fear following the Greek crisis will certainly push many private investors to prefer investing in brick and mortar, seen as safe haven, rather than leave the money parked in cash.
In a highly risk-averse international context, mid-sized centres are preferable to large cities, because they are less subject to fluctuations in prices and speculation.
Last updated: June 2010 |
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1 - Italian Home sales
2 - RE cycles in Italy
3 - House prices: Italy vs Europe
4 - House prices in Europe: 1997-2009
5 - The honeycomb cycle in Italian RE
6 - New mortgages and average ratesi
7 - Average return on Italian Government bonds |
