By Paola G. Lunghini
May 2007 

The real estate market of Italy is becoming very stable. The strongest segment is still the residential market, but office and retail real estate are showing positive growth rates too. International investments are also growing.

Photo: The “Parco Leonardo” is developing in front of the gates of Rome: the bulk of the area consists of apartments—a real deficit in the city—and is complemented by retail and office space.

According to a recent survey from Nomisma, one of the main economic research institutes, the solidity and the capacity of the Italian market—in spite of the uncertainty demonstrated as a result of the recent increase in interest rates that have already brought about negative effects on the American market, above all on account of the insolvency of the most risky loans—are based on the “structural virtuosity” of Italian families. In terms of their property, they are very solid (they are richer than the average European or American family: if you place the wealth of Italian families at index 100, US families come in at 58 percent, and families in France and the UK come in respectively at 71 percent and 81 percent of the Italian number). The relationship between debt and wealth in Italy is negligible (only around 5 percent, while in the US, the UK and Germany it’s between 20 and 25 percent, and in France it’s between 10 and 15 percent). The saving rate “remains among the highest in countries with strong economies, even though it decreased in recent years, during which there was a tendency towards growing debt: it went from 19.4 percent in 1994 to 10.2 percent in 2006”. There are few bad loans: the percentage of families in difficulty is only 1.7 percent, and the gradual increase in interest rates has made its effects only marginally felt.

Thanks to new contractual formulas that guard against inflationary phenomena acting on the service of debt, there should not be any strong repercussions on the level of consumption, nor on the level of demand of first-time home buyers, except perhaps in the case of investment. Many sources put the total potential demand at almost two million families per year. And that includes a growing number of foreign workers, in particular from outside the European Union, who plan to reside in Italy.

Healthy market for residential real estate

According to the latest data from the consultancy firm Scenari Immobiliari with a presence in Milan and Rome, and for some time now also in Frankfurt, Germany, the Italian residential market is a "heavy-weight”, with around 800.000 sales, accounting for around 99 billion Euros out of the total real estate turnover in 2006 estimated at over 120 billion Euros. The prices have risen by 92 percent in the last decade, according to Nomisma, and such an increase is among the lowest in Europe, with the exception of Germany: in the UK it was almost 200 percent, in Spain 173 percent, and in France 137 percent.

The year 2006 demonstrated once again a positive trend, above all in provincial real estate. In fact, in 13 mediumsized cities, the average growth in sales was 6.2 percent for new homes and 6.9 percent for existing homes, with a lower increase for the commercial real estate market (a growth of 5.6 percent for offices, 5.7 percent for retail and 6.1 percent for industrial and warehouses), which testifies to a weaker trend in the latter compared to the residential market. According to the Research Department of Gabetti Property Solutions, a real estate service company listed on the Italian Stock Exchange, the suburbs are doing particularly well, and the phenomenon is substantiated by the demographic realignment in progress, which the influx of foreign population is contributing to in ever more evident ways. This shift towards the towns in the hinterland is also owing to the growing number of newly constructed homes on offer, and to the demand that is ever more willingly directed there.

Therefore it is a healthy market, even if it didn’t grow as much as in the previous years. FIMAA, the association of real estate agents, records that over 4.5 million homes were sold between 2000 and 2005. One could consider a more limited increase in quantity to be physiological. This view is shared by the Research Department of UBH, a group active in the brokerage of real estate and credit, with a network of 800 agencies. And Gabetti Property Solutions insists this does not indicate a step backwards, but rather the consolidation of a phase of general stability; and one could add that it is also a really beautiful word on the real estate level.

A look at the cities

According to the Research Department of Tecnocasa—a network of over 3,500 agencies in Italy, and also over 1,400 agencies in many other countries—the total annual increase in 2006 prices in Milan was at 5.7 percent. Among the city’s most dynamic macro-areas is the historic centre. Meanwhile project developments on the city’s territory continue. The Hines Group is the main actor in the project in the Garibaldi-Repubblica area. The Rubattino project is led by the listed company Aedes, together with Gefim, a developer from Turin. And in the Sesto San Giovanni zone, the listed company Risanamento, together with star architect Renzo Piano, is about to develop the former Falck area in a mainly residential way.