Prices still below pre-crisis level in Italian property market
Italy’s real estate market recovery is still struggling to recover as prices remain below pre-crisis levels and are unlikely to rise until the end of next year, according to the latest research.
The number of residential properties sold in the first half of 2010 was 30% lower than before the financial crisis began in 2008, according to Bologna based research institute Nomisma.
In the six months through June, prices fell 1.8% from the second half of 2009, according to the study based on a survey of the 13 biggest cities in Italy.
‘Abroad, the market recovery has been felt for some months now, with investments resuming and prices picking up. The Italian market still appears to be far from a firm recovery in terms of both prices and sales, the Nomisma report says.
Prices for apartments in Rome fell to 3.2%, those in Sicily fell to 5.3%, and Milan experienced a drop to 4%, the report shows.
Italian business and consumer confidence fell in June as households grew more pessimistic amid the highest jobless rate in almost six years. Nomisma said the decline in confidence had ended a temporary pickup in late 2009, curbing the real estate market’s rebound.
At the same time, the overall balance of trade deficit is €860 million. The trade deficit with the European Union in May amounted to €540 million against a surplus of €181 million in April.
Another problem is that the mortgage market in Italy is under developed compared with other European countries. Domestic buyers rely on personal savings for home purchases and foreign buyers either pay cash or take out a mortgage in their own currency.
One of the main reasons for the underdevelopment of the mortgage market is the length and cost of the loan recovery process. From the time a borrower has defaulted, it takes around five to seven years until final settlement of the legal proceedings. This makes Italian banks cautious about extending mortgage loans.
The buy to let market is also under used as rent controls and other restrictions mean that the sector has long yields and poor returns. When a law was passed in 1978 encouraging landlords to sell, a lot of landlords grabbed the chance.
The standard contract allows free negotiation of the initial rent, but commits the landlord to a four-year contract and gives the tenant the option of extending for another four years. Rents can only be increased annually by 75% of the cost of living index; i.e. if the inflation is 2% then you can only increase your rent by 1.5%.