#real estate italy
From the late 1980s to the late 1990s was a period during which the sale prices of residential real estate in Italy increased significantly. When combined with the high tax environment in the real property sector, this pushed purchase and ownership costs too high for most Italians and the volume of residential real estate transactions fell dramatically in this period. Italy has a homeownership rate of 77%, so this fall in transaction volume is unusual for the post-war era. Taxes on residential sales in Italy varied between 4-11%, depending on whether the home was to be the primary residence or a second home. Also, residential properties are taxed annually at valuations of 27-34%. When prices surged, the combined purchase/tax burdens were simply too great for the bulk of potential buyers. The growth in the marketplace that began in the late 1990s was largely the result of lowered interest rates to 4-7% as Italy entered the stricter integration phase of European Monetary Union (EMU). 1
Historically, real estate in Italy has not been the focus of serious international interest. Commercial real estate has been the domain of large state-owned corporations, while residential real estate has been subject to too many bureaucratic burdens for internationally funded development to be attractive. The entry of Italy into the first phase of the Euro process has however had positive effects on the real property sector. Private companies have had to manage their real estate holdings more efficiently to help their overall competitiveness in the rapidly integrating Pan-European marketplace. The Italian State has also been forced to both privatize and efficiently manage real property assets in order to meet the strict EMU budget guidelines.
Another positive development has been the increase in listed property companies, as well as real estate investment trusts (REITs). Still, Italy has minimal history of commercial real estate development that is not linked to a specific occupying corporation. The development of large retail centers such as shopping malls is also in its infancy and is blocked in its growth by the politically powerful lobby of small and medium sized merchants. Rents on commercial buildings are also quite low, at 3-4% on average, as Italian businesses remain content with ownership and have not developed the leasing business to Pan-European levels. 2
Many of the opportunities as well as the negative aspects of the Italian property market are illustrated by the real estate market of the country’s economic capital, Milan. On the negative side, there are few modern office buildings. Less than 30% of office buildings in Milan have an integrated HVAC system. The city has more than 53.8 million square feet (5 million square meters) of inactive industrial space left over from Milan’s transformation into a service economy from an industrial economy. There is also a lengthy bureaucratic hurdle in the time required to obtain a license to build – currently 20 months.
Residentially, Milan has been drawing new buyers back into the city from the suburbs and towns beyond. This reverse in population flow is partially due to frustration with the high commuting times into the city, and has been reinforced by lower urban property prices. However, more than half of all housing in Milan is over 40 years old and in need of renovation.
On the commercial side, between US$13-15 billion in corporate real estate assets will come onto the market from 1999-2001. Tax breaks have encouraged corporate divestiture in this sector, and notable properties in Milan will be among the properties newly available. The Milanese real estate market in all segments will continue to benefit from the city and surrounding province’s (Lombardy) position as the economic powerhouse of Italy. Lombardy is the wealthiest region in Italy, with an annual GDP of US$175 billion, 23% of Italy’s overall GDP. 3
Italy has and continues to intervene in the real estate market through taxes, tax breaks, and significant capital investment. The Italian government is heavily centralized into the state bureaucracy housed in Rome, where it employs 60% of the capital city’s workforce. The government has and is funding many construction projects in Rome to prepare the city for the 2000 Jubilee Year that is expected to draw even more tourists to the city than usual. More than 70 construction sites have been active in preparation for 2000. Many of them have been targeted at improving the city’s urban transportation system. The largest single project has been the construction of a new conference center at a price close to US$500 million. Jubilee projects overall have received around US$2 billion in government funding, including a new auditorium at the Flaminio and a new opera house at Villa Pepoli. 4