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Italy

PROPERTY MARKET REVIEW - March 2014

Italy's house prices down 6.5% on the year. Will it ever end? House prices are still falling in Italy, although the decline slowed during the past two quarters. House prices in Italy have been on a declining trend for almost five years. Italy’s house price index fell by 6.54% during the year to Q3 2013, according to Eurostat. When adjusted for inflation, the index actually declined by 7.58%. Property sales weakened during the third quarter of 2013, with home sales declining by around 6.6% y-o-y, as reported by ANSA. However the decline was less than the previous quarter, with sales declining by 7.7% in Q2 2013, and lower than the 8.3% y-o-y during the first half of the year. In 2013, Nomisma estimates that transactions will be around 407,000, a sharp decline from around 869,000 in 2006. 

Lower interest rates - Housing loan rates in Italy, November 2013: Fixed rate up to 

1 yr: 3.23% Fixed rate 

1-5 yr: 3.65% Fixed rate

 5-10 yr: 4.45% Fixed rate 

10 yr +: 4.73%. 

Italy’s interest rates reflect European Central Bank rates. Due to a decline in the euro zone inflation below its target as well as rising unemployment, the ECB decided to cut its base rate from 0.75% to 0.50%. After a few months later, the ECB made another surprising rate cut of around 25 basis points to 0.25% in November as a reaction to the sudden drop of inflation to an annual rate of 0.7% (below the 2% target) in October 2013.

 Mortgage debt in Italy is lower than EU’s average Outstanding mortgages in Italy were 23.3% in 2012, significantly below the EU27’s average of 52% of GDP, according to the European Mortgage Federation (EMF). 

Property yields in Italy range from 2.8% to 4.6%, according to Global Property Guide research in June 2013. Smaller apartments have higher yields. In the historical centre of Rome, yields for 50 sq. m. apartments are at around 4.22%, while larger apartments of around 200 sq. m. have yields averaging 3.54%. Apartments in Rome’s suburbs have yields ranging from 3.25% (200 sq. m.) to 4.56% (50 sq. m.). 

Gross rental yields in Milan range from 2.83% (120 sq. m.) and 4.10% (50 sq. m.). Rents in the historical centre of Rome are much higher with monthly rents ranging from €1,000 to €3,600. Milan’s apartments have rents between €840 and €3,000. Apartments in Rome’s suburbs have cheaper rents ranging from €800 to €2,600. While house prices rose by an average of 6.3% from 2000 to 2008, rents rose by an average of only 2.5% over the same period. In 2009 and 2010, rents rose by only 2.36%, while residential property prices dropped by an average of 0.2%. 

High homeownership rate Italy is a nation of home-owners. 80% of all homes are owner-occupied, especially in the south and small towns, up from 59% in 1980. Why the rapid increase in home ownership? Mortgage borrowing is now much easier. Living standards have risen, despite relatively slow economic growth. 

There are tax breaks for ownership, mortgage relief, and low value assessments when calculating imputed income tax and capital gains taxes New housing supply is almost exclusively destined for homeownership The Fair Rent Act of 1978 established a common four-year lease, and continued rent controls Better economic outlook in 2014 Italy is the euro zone’s third largest economy with a total population of almost 61 million and a GDP per capita of US$ 33,909 in 2013. However, the country’s public debt is also remarkably large, with an expected 130.4% debt-to-GDP ratio in 2013. Since 2007, public debt in Italy has steadily increased, rising from 103% of GDP to 127% of GDP in 2012, and Italy currently has one of the highest debt to GDP ratios in the euro zone.

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