Why 2017 May Be The Best Time To Invest In Italian Real Estate in Decades
It would be no exaggeration to say that the Italian economy has been in dire straights for almost an entire decade, and the real estate sector has performed just as poorly. GDP has contracted regularly and growth, when it did occur, has rarely exceeded 1%. Moveover, housing prices have been falling for the last decade continually. However, there are signs that this situation is changing, and there are reasons to be optimistic. Moreover, now may well be the most opportune time to enter the Italian real estate market, and here’s why: housing prices are at their lowest, and the market is about to enter positive growth. Examine these graphs from the European Central Bank:
As evidenced, the Italian housing market is at its lowest nadir, which means prices are now at the lowest they have been in many, many years, and the growth in prices is about to start. As Italian analysts Fitch Ratings report: “As for Italy, after years of decline, [the housing market] is expected to stabilize” with “a marginal growth in housing prices for 2017”. Thus, now is the most discounted Italian property will ever be. If you’re interested in buying a little place in Italy, now is the time to start looking!
Let’s take a look at the Italian housing market.
Overall transactions increased 16.3% in 2016 as new buyers looked to take advantage of falling prices, with the sharpest increases in Turin (26.4%), Bologna (up 23.7%), Genoa (22.9%), Milan (21.9%), Naples (17.1%), and Florence (16%). Other areas in the South were more depressed, but Rome’s housing transactions grew 10.9% and Palermo sales grew 9.2%. This growth in sales is buttressed by increases in mortgage availabilities, with lending increasing a total of 27.8% in 2016. Low interest rates have helped drive this increased demand for mortgages, with average rates as low as 2.32% on mortgage loans in December of 2016.
Rental returns are notoriously low in Italy, ranging between 3% and 4% throughout the country. In Rome, rental yields can be as low as 2.95% in larger apartments to as high as 4.37% in smaller apartments. Moreover, as will be discussed more further down, taxes on rental income are especially high in Italy, making renting out the property you own an unattractive proposition. If you’re going to buy a little place in Italy, best just to live there yourself.
Taxes and Transaction Costs:
Rental Income taxes range progressively from 23% to 43%, with certain maintenance deductions. Fortunately, capital gains are not taxed if you hold your property for more than 5 years, so if you buy a home in Italy and live their for 5 or more years, you will pay no taxes when it is sold.
Transaction costs are quite high in Italy as well. Nonresidents will pay a 7% registration fee, between 3-8% in commission to the realtor, and half of the 22% VAT, for a transaction cost between 21% and 26% of the price of the home. Not the worst transaction costs in the world, but certainly painful.
The (Significant) Upside
With all this talk about the negatives of living in Italy, from the weak economy to the low rental yields and high transaction costs, you may be a bit turned off from taking advantage of the wonderful opportunity before you to buy Italian property at the lowest prices seen for decades. So here’s a reminder of everything great that Italy has to offer: delicious food, incredible beaches, historic and iconic culture, beautiful landscapes, gorgeous and welcoming people, and an absolutely joyous quality of life.
Take advantage of the opportunity now. For free help in getting a mortgage in Italy, contact Crossborder today.