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Boom of rents and sales of old houses. An Italian paradox

29 January, Credit Village

The Italian property market is going through a bizarre situation. On one side, transactions are increasing, on the other hand, the law of supply and demand is not working very well, and prices resumed dropping. The figures recently published by Istat picture this singularity.

As per the law of supply and offers, the price for an item which is high on demand will tend to increase as the number of people wanting the item increases. This is not happening in the Italian market. But, as the economic journalist Maurizio Sgroi explains, this is only apparently true: “At the moment, the only buyers in Italy are those who can afford to buy, those who are selling a property or parents buying a house for their sons”. Due to the very low mortgage interest rates, according to the expert, who is buying now had seen the house some time ago and he thinks that this is the right moment to invest on real estate. The trend is to buy old houses to renovate. For this reason, buyers tend to drop property prices, so that they will have more liquidity to invest in the restructuring.

At a closer look, figures from Istat show that not all the properties are losing value. New houses, for instance, have not depreciated at all. In the third quarter of 2018, the prices of new properties grew by 1.4%. Hence, the negative price trend is to be associated with dated properties, for which there is wider availability on the market. To sum up, we can say it’s worth to spend some more money in a beautiful house, while in the case of old properties, as there are many of them on the Italian market, the options are two: not buying at all or trying to obtain a bargain in order to save money for the renovation.

Scenari Immobiliari president Mario Breglia agrees with Sgroi: “People looking for good quality houses can’t find them. The results are two: they don’t buy, or they buy at reduced prices, as the buyer has to budget the renovation costs”. The positive trend of new properties matches this view, confirming a phenomenon that emerged in the past few years: “new houses in the city centre are selling fast”.

Besides, rentals have also impacted the property market. As Istat reports,4+4 contract leases, as well as short-term rentals, had grown. It’s possible to see this phenomenon in the big cities and in tourist destinations. For this reason, good quality properties excellently located had been withdrawn from the market, as the owners realised they could make good profits from renting rather than selling them. As Breglia explains, this has led on to a reduction of properties available on the market. While there are fewer houses available on the market, the available ones are in worse conditions and have lower prices. This explains why, although the number of transactions is increasing, property prices are not growing.

Moreover, according to the figures by BIS (Bank for international settlements), between the end of 2016 and the end of 2017, property prices increased in all the developed countries by 3%. The market resumed growing in 2012 and, in some cases, it has returned to the pre-crisis levels. Unfortunately, Italy is the only exception among the developed countries, as the country ranks at the bottom of the chart.

Concerning the outlook for the Italian real estate, Sgroi is negative, while for Breglia it’s only a matter of time. Sgroi: “In Italy, most of the people aged over-65 owns a house. These houses will be inherited by the next generation. But part of this stock is destined to end up on the market, because many will not be able to afford their maintenance and because the number of houses will be higher than the number of people inheriting them. The result? Property prices will drop even further”.

Breglia from Scenari Immobiliari is more positive: “The Italian property market depends on inflation. When inflation resumes rising, property prices will rise with it, as long as the construction sector recovers. So far, only Milan has recovered”.

Source: Credit Village

Translator: Cristina Ambrosi

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