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Are we risking a property bubble?
17 September, Milano Finanza
The long-lasted bonanza of short-term rentals might end soon. Or to be precise, in a couple of years (if not sooner), investors and short-term rental managers might encounter some difficulties to the point that they might be forced to abandon the business. The demand for this type of rentals will centrally continue growing for what concerns the tourism and business sectors, supporting the market.
“Not only the demand for short-term rentals is booming, but we’re also witnessing a spike of property purchases for investment”, confirms Vincenzo Cella, Halldis Managing Director. “That means, houses that are expressly destined to this type of business”.
It doesn’t exclude that there might be some risks approaching, such as taxation, regulation, and the difficulties to keep an adequate level of profitability. The warning comes from Alessandro Leder, manager and coordinator for the project Solo Affitti Brevi. “We’ve started seeing fines for significant amounts (some thousands of euro) due to the complex regulative system at national, regional and provincial level”. Moreover, having considered the shortage of long-term housing (4+4 and 3+5 years), some administrations such as those of Florence and Venice decided to put a cap on the number of short-term rentals. Such limits might also be introduced in condominium’s regulations. “The mediatic debate, like the one concerning old towns being assaulted, certainly doesn’t help”, confirms Cella. “We must also add the fragmentation of the municipal, regional and national legislation and regulation. For this reason, we’re currently working on a simplification of the legislation as Italy’s Property Managers Associations”.
Concerning taxation, we must not forget that the online platforms such as Airbnb, HomeAway and Booking.com are still not complying with the obligation of operating as a withholding agent. “The Regional Administrative Court took action against Airbnb, and the decree is expected by October”, highlights Leder.
There are various reasons for the rejection of the withholding agent by the leader of online listings, which means paying a 21% flat tax. Even though Airbnb is not registered for tax purposes in Italy and doesn’t have to comply with each single tax regulation according to the different nations, regardless the property owners are privates or companies; the company complains that its platform has been damaged concerning compactivity. Airbnb is the only company in its sector to cash the rent money on behalf of the advertiser, unlike the others which operate only as mediators. The company fears that, if it accepts to act as a withholding agent, its clients will move to the other platforms. A very complicated matter.
Besides, the short-term rentals market has started to show some signed of saturation. For instance, in Trentino Alto Adige and Friuli-Venezia Giulia, the number of short-term rentals has decreased in the last ten years, while the growth has been meagre in Umbria. In the province of Bergamo, after the introduction of decree 50 regulating the fiscal aspects of short-term rentals, the properties have reduced from 200 to 4. Not to mention Gallipoli, which saw a sharp decrease in visitors this past summer, impacting especially rentals. The most worrisome data comes from Milan, whose property market is thriving. Leder explains, “In the last year, the average rent in the city has decreased from 104 to 96 euro, with a reduction of 8 euro a day, due to the entry of many small operators with little experience betting everything on the low prices”. “But a few euros become a 3-thousand-euro loss if we multiply them for the 365 days of the year. This number might even double, or triple, or more, depending on the number of properties under management. Hence, the risk is not connected to the single owner, who has no fixed costs or a set revenue target; it rather concerns the small private companies managing 10-20 apartments that might capsize in case of some fluctuation of rent prices. I believe the toughest part will come in a couple of years when the industry will have stabilised, and the margin will start reducing”.
In this context, “It’s evident that the investors’ trusts and expectations will drop”, Cella observes. “The good news is that the demand is still growing, for tourism as well as for business. Rent prices are also rising, with no impact on the hotel sector, which is growing too. They’re two parallel markets, both doing very well, especially for high-quality properties offering a high level of service. What happened in Gallipoli will be mended soon: the demand had been booming for three years, and prices were too high. Next year there will be no problems”.
Source: Milano Finanza
Translator: Cristina Ambrosi