Italian property’s long term values deemed solid
words by Carla Passino
A performance analysis of the Italian property market for the last 25 years shows that values have grown substantially in real terms.
After years of boom, the Italian property market has entered a phase of gentle decline. Prices are expected to fall slightly in 2009, and sales have already gone down. But how much will this slowdown affect long term property values?
Rather little, if previous market patterns recur. With the proviso that past performances are never a guarantee of future ones, an analysis of historic data by estate agent conglomerate UBH indicates that Italian property prices are robust in the long term.
The UBH research department looked at property prices and sales volumes for the last 25 years. This year’s figures show that sale times are up (6.6 months in January 2009, against 5.2 in the same month of last year) and the gap between asking and sale price has become more substantial (14.1% against 11.3% last year). This follows on from last year’s market slowdown, which saw transaction volumes go down by an estimated 19.3% and prices by 6.8%.
But put these figures in a historical perspective and the property sector start looking a lot healthier. Over the last 25 years, sale volumes in Italy have grown hugely, and so have values. Last year’s transactions were 1 ½ times those of 1985—and nominal prices were three times as high.
Of course, Italy knew a period of high inflation during those years, but even taking that into account, real values still grew by a substantial 57%.
Even more interesting is the comparison with a past property slowdown—the one that started in 1992, which was widely considered one of Italy’s worst property crashes since the end of the Second World War. In that year, sales went down by 16.3%. Prices quickly followed suit, falling by 16.3% in 1993, 12.6% in 1994 and 5.5% in 1995.
Unlike now, the cost of money, and thus mortgages, remained high at the time, hindering recovery. And the top end of the market was badly affected, with a 13.5% decline in premium home prices between 1992 and 1993, against 1.2% in 2008.
Nonetheless, values bounced back—nominal figures started picking up in 1996, and, by 2005, prices had substantially overshot the 1992 ones in real, as well as nominal terms.
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Italian property market
This article seems written by an optimistic estate agent. The early 90s decline is one thing, but this market is on the brink of a severe market correction. It just stands to reason. When everyone's retirement funds have bounced back from this recession -- a very long-term prospect indeed -- we'll see some values going up again. That may not be til 2020! A more useful and actually market-friendly article would have discussed the opportunities that will exist to pick up good properties on the cheap (I can hear the estate agents wailing!). While I am a bit poorer than I was a mere 6 months ago, I'd like to think that my dream of living in Italy is not dead. Getting information to people like me, who would like to buy but have fewer resources now, could keep buyers motivated. It would also help sellers take a dose of reality about where the market is going -- DOWN! I'm looking at the bright side -- there may be a wide open window of opportunity for some great purchases. THEN, I'll go back to this optimistic article and convince myself that in a decade or so I will have made a good investment. In the meantime, as one could say, "Get real!"
Re: Italian Property Market
I do agree with you that because Italy has not suffered a collapse in prices in the way that in particular the UK has, many Italian vendors do not realise the crisis afflicting the property market beyond their borders, in particular in the UK and US.
You would be amazed at the number of vendors who have RAISED the price of a property in the past year when they know a potential foreign buyer is interested.
Ye there is still cheap property in Italy to be found, particularly in the northern and southern tips of Tuscany (Garfagnana, Maremma etc) and also in places such as Abruzzo and Calabria.
Going to Google and typing in Cheap Property in Italy would be as good a place to start as any.
The general concensus amongst
The general concensus amongst economists is that the Italian economy is in meltdown and it is going to get considerably worse before it gets better. GDP is declining at its fastest rate for 30 years, According to ISTAT, the overall economy has just seen its sharpest decline since 1993. This is bound to start having an effect on property prices eventually and we can expect sharp dips before any growth rekindles. The affects of the UK and German recessions will start to take affect as foreign buyers fail to get mortgages on second homes. Spain has been badly hit by this foreign buyer withdrawl and there will also be an increase in mortgage defaults as holiday homes secured against UK bricks and mortar are reposessed or sale is forced to help cover UK mortgage costs as jobs are threatened. A good source for keeping tabs on the Italian economy is here http://www.istat.it/english/.
Now the optimistic viewpoint. Since I left Rome in 1997 I've been dreaming of renovating a small house in Marche or Abruzzo. I've been dismayed as my hesitance saw ruin prices rise much more sharply than my expendable income and I was priced out of the market. After a few years looking at emerging markets (including a very near miss on a bad development in Morocco) at last I can see that I can again afford to enter the market in Italy. Since I last reasearched the market two or three years ago, Internet prices for country houses for renovation have reduced. I could now pick up a 120sqm ruin for €35,000 and according the above article I could expect to negotiate about another 14% off that. UK builders are getting desperate for work. Some of my friends have halved their daily rates to win contracts. If you want to use local builders like I would prefer to though, this will soon be reflected in Italian building rates and there'll be deals to be had on raw materials too. What would normally have cost €800 per sqm could soon cost around €500 per sqm to renovate. And I saw a swimming pool for sale at half price on another web site!!!
One thing I have noticed though, is that the gap between buying a ruin and renovating it and buying something already finished is diminishing, so watch that carefully. It may be possible to let someone else do the hard work... Good luck and see you in Marche for house hunting in the fall.
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