Running into the second quarter of 2018, we note that our initial views from the start of the year, whereby we noted that residential real estate in the major urban centres were starting to become more liquid with demand returning but that rural areas were likely, in the short term, to lag both in demand and in price recovery. Data on prices and volumes support our earlier thesis, as for the first time in many years, the Italian Real Estate market looks to have finally turned the corner.
Transactions and other parameters have improved thanks to the EUR11 billion impulse from international capital and non-residential investments. Empirically, we are starting to see increased interest in the rural sector where in some cases we have potential to achieve multiple buyers for a single property, for the first time since early 2008. The rental market is also performing well with stable, if not increasing prices despite a continued decent overhang of supply. As usual, it is the “quality” properties, those possessing excellent location and interesting habitation features that command the lion’s share of the increases in demand.
A study of Italy’s real estate pricing gives a different picture to those that we have seen in other markets. Perhaps, due to its sheer size, Italy did not suffer the 50–70% “price crash” scenario of other smaller markets, those with more limited access to and sources of buying interest. Having said that, prices in Italy have declined 30-35% with declines now arresting but not altogether stopped. Volumes for residential transactions are running at less than half of what they were at the peak. As with most financial investments, it is not possible to pick the absolute bottom of a market but it is possible to sensibly gauge turning points, based on numerous other verifiable inputs, not least of all an end to the persistent lack of inflation which historically has been a supporting factor for house prices.
According to Nomisma (a Bologna based independent real-estate focused research institute), a full-fledged recovery may still be two years down the road. Given the lead times for transactions, it seems now may be an opportunistic time to be looking. From our experiences in 2018, we have seen opportunistic foreign buyers entering the market in rural and secondary urban cities where the price discounts remain their most significant.
We are convinced that property is on the move in Italy, a broad and deep pool of supply is being met by an equally broad and deep pool of capital from international and domestic sources. With interest rates continuing at their lowest levels in history, many of our clients are taking advantage of the current low prices and cheap leverage to secure the best chance of significant capital gains while also enjoying the access to La Dolce Vita. The next three years are looking very interesting.
Sources: Nomisma, Aura, BNP, CBRE & Colliers