01 January 08

Property

Property

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Italian idyll

Though it has the seventh highest GDP in the world, once spawned an empire, delivered the Renaissance and is renowned for luxury brands like Gucci, Prada and Ferrari, Italy hasn’t had the international acclaim on the property scene that France or Britain enjoy.

In popular culture, Italy’s organised crime networks have tarnished its global image, especially in the south. Yet recent events in the property market are almost worthy of a Francis Ford Coppola movie script themselves.

In December 2003, Parmalat SpA, one of Italy’s biggest corporations, declared itself bankrupt, with debts of €14 billion. The scandal that erupted included a hole in the company accounts of €4 billion, and was dubbed “Italy’s Enron”. The aftermath had a knock-on effect, and many Italians turned their backs on the stock market and began to look favourably at property again as a more reliable investment.

“It burnt a lot of people’s fingers and triggered movement into the property market,” says Paul Hudson, of Property Finders Italy. However, he believes that this was only a short-term anomaly, and that growth has returned to a more stable moderate level. This is evident in the house price index for the 13 major metropolitan areas, which have seen growth rates drop year on year for the past four years.

As a founding member of the EU and one of the powerful G8 countries, Italy is an economic leader. But in recent years the former powerhouse has been sluggish – GDP growth in 2006 was 1.9% and unemployment is at 7%. Italy’s housing stock is also generally considered to be of a lower quality than the rest of Europe’s major urbanised economies. More than 70% of it has been built after 1950 and the rejuvenation evident in other major cities has not been evident here. Single family houses only account for 30% of stock, one of the lowest in Europe. The market is very much driven by the local Italian population, and because of the low availability of quality accommodation in the large densely planned urban areas most buyers are seeking new housing in the fringes.

“Since the introduction of the euro and European banks fixing the interest rates, mortgages have become more accessible,” says Hudson. He adds that when they set up in Italy a decade ago mortgages weren’t very common, while now 100% mortgages are accessible. In fact, while use of mortgages has grown five fold since 1998, the mortgage debt to personal disposable income ratio in Italy is still only 20%, one of the lowest of the world’s major economies. While the introduction of the euro has helped encourage mortgage uptake, the effect has been balanced by increasing interest rates.

Savills Global Residential Market Review 2007 reported that overseas buyers in Italy are often frustrated by the lack of property available and being unable to purchase. While Italians have a culture of owning several properties around the country, the secondhand and holiday market is seeing a decline. Many Italians are now looking abroad to buy property – in 2006 buying more than 22,000 houses, mainly in Spain and France.

Italy is a country of contrasts, with the north mainly affluent, and the south more agricultural and rural. In some areas of the country, such as parts of Tuscany, prices have grown by no more than 1%, while in some areas of Milan and Rome, apartment prices are rivalled only by those in cities like Paris and London.

Younger Italians generally prefer to live in the big city centre locations, but they also tend to stay at home for longer – 43% of men under 30 still live at home. The typical Italian buyer is between 35 and 54, and those renting tend to be younger Italians who cannot yet afford to buy. With the aging Italian population and increased availability of mortgages this means that in future the trend will be towards buying rather than renting, which may just give the Italian market the rejuvenation it requires.