The Italian property market in 2013 – the year of opportunity?
Our clients are always asking whether now is a good time to buy property on Lake Como or the other Italian lakes. The answer is not a simple ‘yes’ or ‘no’. Here is our reasoning, suggesting that those who wait until next year may well look back on a missed opportunity.
The Eurozone crisis
While the main Eurozone crisis seems to have peaked long ago, with international firepower committed to the support of the Euro, a series of aftershocks was inevitable. The bailout of Cyprus has been the latest aftershock, small as its economy is, and once again a solution has been found at the 11th hour which demonstrates the resolve of the Eurozone bloc to protect the Euro but not to spare individual countries a degree of pain if they get themselves into financial difficulty. At last the discussions, influenced strongly by Germany, show signs of economic responsibility as the single currency evolves towards closer financial union.
Italy remains in the economic doldrums. The Italian’s core problem is a burden of government borrowing – not the major banking crisis of Spain and Ireland prompted by cheap lending and an overheated property market that went into steep decline – with Italian difficulties made more painful by a decade and more without tangible economic growth. World financial markets seem surprisingly comfortable with the Italian political uncertainty, enabling refinancing of government borrowing at sustainable rates of interest, and the Eurozone is not applying undue pressure for further austerity. Political uncertainty which foreigners find hard to handle has been an everyday part of Italian life for decades, so we probably don’t need to worry unduly about this.
At core Italy is an over-regulated economy with too much red tape and too many restrictive practices, coupled with further layers of regulation to try and clamp down on corruption and non-payment of taxes, which is particularly endemic in the south. Legal free enterprise is stifled and deep-seated cultural, political and social changes are needed to generate growth and increased prosperity. At best it is going to be a long slow haul, although the rise of Beppe Grillo’s Five Star Movement may be an early indication that the tide is beginning to turn.
The Italian property market…for international buyers
72% of the population own their own homes, a proportion similar to the EU average, with the big difference being that generations of Italians are often content to live together under one roof. When belts have to be tightened then moving house is easily deferred. So prices in the Italian domestic property market have slipped somewhat over the five years since 2008 – demand is low, finances tight and supply plentiful, but the impetus to buy is muted.
Generally this domestic situation is of little relevance to an international buyer looking for a home in Italy. Italians prefer to be in the centre of town, foreigners look for a quieter location with outside space. The Italians configure their houses differently, with bedrooms small and crowded by the standards of the international buyer. Views are everything for the international buyer but matter little to the majority of Italians. So it is no surprise that there are two very largely distinct markets – homes for Italians, and homes sought by international buyers. In understanding house prices this distinction is vital, yet rarely have we seen it mentioned. Italian domestic economics have little direct effect on the price of Italian homes suited to international buyers.
For the international market house prices are of course a reflection of the balance between supply and demand for international style properties, with prices driven also by international pricing (New York, London, Barbados and the French Riviera provide ‘how much does it cost?’ comparators), international living standards and exchange rates.
International demand for Italian property
Italy is the home of so much that is wonderful – the climate, more world heritage sites than any other country, and desirable food, wine and culture. More than 25 million foreigners visit each year to enjoy the charms of Italy, many being repeat visitors. And of these a number reach the decision that now is the time in their life when they would like to own a slice of Italy, to have a home of their own which they can enjoy. Our contention is that a pretty similar number of people arrive at this decision each year, and then content to wait until ‘the time is right’. Economic crisis in 2008 caused a deferral of plans to buy, but did not dim the enthusiasm for one day having a home in Italy. Our database of enquiries over the past seven years bears testimony to this – the vast majority who contacted us two or more years ago remain interested, have not purchased and still intend to do so…. ‘when the time is right’.
So there is clear evidence that the reservoir of international buyers with intent is growing year by year, awaiting the right moment. With bank interest rates low and economic gloom continuing, a number have taken the decision to go ahead each year – fewer than in the ‘good times’, but nevertheless rather more than a trickle. Those that took the plunge have no cause for regret – their investment has not lost value in Euro terms, and they have already had many weeks of the pleasure they sought. Plus they bought when, in real terms, prices were more attractive than they had been for many years.
While the staple purchasers of real estate in Italy have been economically quite nervous – the British and Americans in particular – political and economic uncertainty has brought a significant range of new nationalities to the table in increasing numbers. The Australians with their strong currency, the eastern Europeans and Middle eastern buyers who see Italy as a much more secure home both for themselves and their money, northern Europeans who are fellow Eurozone members, Israelis who have the boldness to explore new territories, Scandinavians heartily sick of successive icy winters, and Asians from growing economies who have the desire to widen their travel and experience horizons. Just as London property prices have rocketed through international safe-haven demand, so a knock-on effect has been to look for other safe havens offering safety, both personally and for their assets.
The pattern is not uniform across Italy. Liguria is benefitting from the unwelcome intentions of President Hollande just across the border in the French Riviera, whilst the Italian lakes (particularly Lakes Como and Maggiore which are so close to Milan and to Switzerland) are easily accessed and cater readily to the international lifestyle. Tuscany was perhaps oversold, and there are many larger properties sitting on the market as a consequence with prices fairly soft and negotiated discounts quite common. Umbria has fared much better, and remains a favoured alternative to Tuscany with many similar charms and more attractive prices. The attractions of cheapness in Calabria and Puglia have lost their shine with too many tales of mis-selling, and an understandable reversion to quality when times are less certain.
Prospects for 2013
2013 looks set to be a busy year. We have seen enquiries for the Italian lakes, particularly Lake Como, running at three times the level of 2012, six times the level of 2011. And many of these are enquiries with serious intent and chequebooks at the ready – the people who want to buy an Italian property and have decided that now the time is right. Unlike the past five years, there has been significant numbers of clients looking actively for properties in the first 10 weeks of this year, and our diary is already filling with further appointments for the next two months. It is the first time we have seen a significant number of international buyers looking at properties in the months of January and February, and a significant number of purchases have been negotiated for properties on Lake Como and Lake Maggiore. The range of nationalities out hunting for a home on the Italian lakes is wide, spanning Europe, the Americas, the Middle East, South Africa, Australia and Asia.
Buyers remain in a discerning frame of mind. The best properties sell most easily – those offering excellent lake views, peace and quiet, a sunny location away from road and village noise, yet within easy reach of facilities and Milan Malpensa airport. The biggest trend in obtaining value which we have seen over the past year is the willingness of international buyers to take on a significant renovation project, taking a carefully calculated decision once they are confident that we have the expertise to deliver the finished home (on time and on budget, without worries). While investment return is rarely the main driver, there is a great deal of comfort derived in buying wisely. With potential gains on completion upwards of 30% and the ability to have their home exactly as they would like, this trend amongst buyers is understandable.
It is interesting to talk to those who are selling properties on the Italian lakes – whether developers, small builders, or private individuals. Few are under financial pressure to sell, and the majority are confident that, if their property has been priced properly, they simply need to sit and wait until the right international buyer comes along prepared to pay close to the asking price. Prices on the Italian lakes have been a little softer in the mid-level (€500,000 – €1.5m) over the past year, while the market has been robust above this level with significant discounts rarely conceded. As spring comes sellers anticipate that the stream of international buyers is only likely to increase, and they are prepared to wait for the right buyer.
Are we confident that the corner has been turned? Yes, gently confident that there is a large reservoir of people intending to buy a home in Italy, fed up with gloomy news and growing in confidence that the economic crisis is passing, with a much wider range of nationalities now keen to find a home on the Italian lakes. It may be that we will look back on 2013 as the year when the market on the Italian lakes resumed its steady growth and future buyers will see 2013 as an opportunity missed.