The Italian Real Estate Market – Lifestyle Investment

Despite its new government, Italy’s economy continues to struggle, having contracted for seven consecutive quarters since mid-2011. Recent promises by economy minister Fabrizio Saccomanni to cut housing and labour taxes seem to be too little and too late, with statistics office ISTAT reporting a slide from 86.3 to 85.9 in its May consumer confidence index.

The Europe-wide picture is no more positive, with the OECD again cutting growth forecasts for the Eurozone. The OECD’s twice yearly Economic Outlook publication has predicted the Eurozone will shrink by 0.6% in 2013, as member countries continue to struggle.

In Italy, consumer spending has been weak for over a decade and the Eurozone’s third largest economy seems at a loss as to how to recover its financial balance. The International Monetary Fund is predicting that the country’s gross domestic product will fall 1.5% in 2013, after the 2012 decline of 2.4%.

House prices have been tumbling alongside consumer confidence. According to statistics agency Eurostat, Italy’s house price index has been falling for almost four years. In 2012 it fell by 4.64% (-6.94% after inflation), while residential property transactions dropped by 25.8%. According to data from the FIAIP, prices have continued to fall into 2013, by as much as 11.98% in some areas.

With prices at rock bottom and Italian mortgage lending plummeting (new mortgage lending dropped by around 42% in 2012 according to CRIF and MutuiSupermarket.it), foreign investors are turning the stricken country’s situation to their advantage: the Scenari Immobiliari research institute reported that second-home sales to overseas buyers rose 14% during 2012. Foreign investors spent a total of €2.1 billion ($2.8 billion) on Italian real estate during the year, with Germans, Britons and Russians making up over 70% of the buyers.

The depressed prices and the willingness of Italian owners to drop prices during negotiations (sometimes by as much as 30% according to the Case e Ville real estate agency), are creating the ideal scenario for foreigners looking to pick up a bargain place in the sun. The Italian Federation of Professional Estate Agents has predicted a slow recovery of the property market from the second half of 2013, while the Gabetti Franchising Agency is more cautious, predicting the market will begin to improve in 2014. Either way, it seems that prices are likely to be at their lowest during the coming months, which is spurring the influx of foreign investors.

Investment advisors International Property World state that Italy is currently considered to be one of the world’s top destinations for real estate investment, with capital appreciation reaching up to 20% in some areas. Fractional ownership company Appassionata, which is headed up by Michael Hobbs (the entrepreneur who headed up Adams Childrenswear for nine years in the UK), has first-hand knowledge of the situation, having seen its owners benefit significantly from the capital appreciation of their properties during the past 18 months.

Appassionata manages two houses – Casa Giacomo and Casa Leopardi – which the company has painstakingly restored from tumbledown farm buildings purchased in 2007. Set on the five acre Estate Giacomo Leopardi in Le Marche, the houses are surrounded by olive groves, grape vines, a lavender plantation and a truffle orchard, with owners sharing the organic produce as well as having exclusive use of the house that they share ownership of for five weeks every year.

Appassionata’s luxury houses are a lifestyle investment, with around 90% of owners planning to eventually pass them on to their children as an asset. With inheritance taxes reduced from up to 60% in 2000 to a current real estate maximum of 11%, along with generous allowances, Italy is enjoying one of the lowest inheritance tax systems in Europe – a further factor behind the rise in foreign investment.

Casa Giacomo (the first of Appassionata’s houses to be completed and which has now fully sold), has seen its owners benefit from 18% capital appreciation in just over 18 months. Fractions in the five bedroom/five bathroom Casa Leopardi, with its private pool and use of the estate’s tennis and basketball courts, are selling fast at their current price of just £185,000.

London-based commodity trader and workaholic James Mason was quick to recognise the opportunity that Italian properties such as Appassionata’s were offering. Having bought his fraction as a surprise for his wife and children, he has enabled his family to spend more quality time together at the same time as benefitting from the capital appreciation and investing in an asset for his children.

With the Italian real estate market at such a low point, it seems the time is ripe for other investors to follow James’ example. Italian law firm Magaraggia has reported that real estate transactions for 2012 were at their lowest rate since 1985, with transactions totalling 448,000 homes and 430,000 homes for the respective years. They also observed a strong decline in the overall exchange value, which at an estimated €75.4 billion in 2012 was nearly €27 billion lower than in 2011. While none of this is good news for the Italian economy, it has certainly made the market more enticing for foreign investors.

Those looking to make a lifestyle investment, such as that offered by Appassionata, are being further drawn by Italy’s growing reputation as one of Europe’s most exclusive holiday destinations. Figures from the Bank of Italy show that while Italy received fewer visitors overall in 2012 than in 2011, international tourists spent almost 3% more while in the country – a positive indication that Italy is becoming the European destination of choice for wealthy holidaymakers. Despite the slight recent drop in visitor numbers, Italy remains the world’s fifth most visited country, according to the latest data from the World Bank.

All this adds up to make Italy a particularly interesting investment prospect at present. Europe’s fifth largest nation may be experiencing economic gloom internally, but from overseas the opportunity looks bright indeed.