Research article

Italy overview

After a series of difficult years, Italy may be entering a period of stability. We look at the rise in transactions, the signs of domestic growth and the wider international interest in the prime market

Domestic stability

Lower interest rates and improved affordability drive activity

Stability is returning to the Italian residential market. Transactions increased by 18% in 2016, reaching their highest level since 2012, although they remain 39% below their 2006 peak. Recovery has been strongest in the north – the south continues to lag.

Domestically, activity has been driven by low interest rates, better access to mortgage finance, and improved affordability.

Higher transaction levels come from more realistic pricing. In the first quarter of 2017, the average discount on asking price was 12% (in 2014 it was 16%).

Figure 1

FIGURE 1Sales volumes Transactions increased by 18% in 2016

Source: Savills World Research using Agenzia Entrate

Importantly, sentiment is improving. The latest Bank of Italy survey of estate agents suggested that expectations are for the market to continue to strengthen in the short and medium term.

Price growth is more muted. According to ISTAT (see below), national price growth was positive in 2016, up 0.1% in the year to Q4 2016. More recent data from Idealista, however, reports national price falls of 1% in the second quarter of 2017, and annual drop of 6.5%.

Figure 2

FIGURE 2Annual growth

Source: Savills World Research using ISTAT

Second homes

High stock levels are helping create a buyer’s market

Stock levels are high in the prime second home market, creating a buyer’s market. Prices are around 30% down from their 2008 peak and a greater willingness to price properties accurately has helped to increase sales. A growing trend is to ‘try before you buy’, with rentals of three to six months available to prospective buyers.

Most international buyers are drawn to Italy’s heritage, natural beauty and quality of life. Some 74% of prime property buyers favour historic properties, and those renovated to a high standard are most in demand. Views are important, as is access to a town.

Europeans comprise the bulk of international buyers. Germans and Swiss are particularly active in the north of the country, while Dutch, Belgians and those from the Nordics are buying, too.

In spite of Brexit uncertainty and weak sterling, British buyers are present, some actively seeking euro-denominated assets. British vendors who intend to repatriate funds are in a strong position.

Americans have been mobilised by the strong dollar and are a growing force. Buyers from India, Singapore, Hong Kong, China, Australia, New Zealand and South Africa are present, but in smaller numbers.

Signs of growth

Challenges persist, but Italy’s economy is forecast to rise

Italy is the eurozone’s third largest economy, and the eighth largest in the world. It is a major exporter of pharmaceuticals, cars, oil and vehicle parts. It is the world’s second largest exporter of wine by volume, just behind Spain.

Following the eurozone crisis, Italy’s economy is now returning to growth and is forecast to rise by 1.4% in 2017. Modest recovery has been driven by domestic demand, retail sales and, recently, industrial output, which is on track to record double yearly growth.

Italy is the fifth most-visited country in the world and expected to host a record number of tourists in 2017. Reflecting rising demand for city breaks, the fastest-growing tourist markets are Milan, Verona and Rome, where tourists are up a combined 17% in the last five years.

Challenges persist. Government debt stands at 133% of GDP – higher than Portugal, but lower than Greece. Unemployment stands at 11.3% (forecast to fall to 10.7% by 2019) and youth unemployment is high, at 37%.

Figure 3

FIGURE 3Tourist numbers up Italy is the world’s fifth most-visited country

Source: Savills World Research using ISTAT, year to March 2017

Mainstream residential markets

The highest mainstream values are found in Italy’s economic heartlands in the north and west                   

Mainstream values

Source: Savills World Research using ISTAT

Global prime prices

How luxury property prices in Italy compare to cities and leisure hotspots globally                                    

Global prime prices

Rental markets

With the introduction of a new tax on holiday rentals, we identify the cities with the strongest markets for short lets

Short-let services, such as Airbnb, have exploded in popularity. They bypass the long tenancies and rent caps enforced in Italy’s highly pro-tenant rental markets. For some second-home owners, they are a means to receive rental income for at least part of the year.

In June 2017, however, the Italian Government introduced a 21% tax on the income from short-term holiday rentals in an effort to stem this activity. The tax will be paid by the letting agency or web portal (previously, owners had to declare it and be taxed as part of their income).

Three indicators show which cities have the strongest markets for short lets (see Figure 4 below). Venice, a high-yielding, year-round tourist destination, tops our overall ranking. Rome and Milan are second and third respectively, benefiting from broad demand both as city break and business destinations.

Figure 4

FIGURE 4City strength Rental demand, supply and return (Savills score)

Source: Savills World Research

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