Spread effect on real estate? Transactions rose by 5.6% and prices fell by 1% in 2018

28 November, Il Sole 24 Ore

The current financial and economic uncertainty in the country might impact the recovery of real estate, despite the consistent growth of transactions which are expected to reach 573 thousand (+5.6%) by the end of the year. The recovery has never been very strong in the past few years. It’s not by chance that prices registered once again a reduction equal to 0.9%. In the meanwhile, the rental market, especially short-term rentals, is growing along with purchases for investment. This is the scenario pictured by the Third Real Estate 2018 Observatory by Nomisma which was presented today in Milan at the Cariplo conference centre.

As the report reads, “The slowdown of the economic growth, combined with the uncertainties due to the tensions between the national Government and the European Commission inevitably had an impact on the Italian real estate sector” resulting in slimmer chances of a recovery of the market. Nomisma reminds that the quota of house purchases funded by mortgage “has gone from 43.8% to 59.8% in few years, with loaned amounts totalling 50 billion euro (after having dropped to little above 20 billion)”.

Unlike property transactions, “the rent market has become more dynamic”, as remarked by Nomisma. Short-term rentals have radically changed the market in big cities. If there are clear advantages for property owners, “more profits and lower insolvency risks”, the targets of the traditional demand for rentals, such as families and students, “suddenly had to deal with a hike of rents that is not going along with an increase of incomes”. However, the average rent increase is set at +0.1%, although the big cities reported higher increases, like Bologna (+25%) and Milan (+1.5%). For this reason, “the traditional demand or that demand originated by essential assets for cities, such as universities, must be preserved, as its strategic role has to be taken into account in policies and investments”.

Considering that the average cost of a property in Italy is 165 thousand euro, the residential transactions are expected to generate a 94.5 billion turnover in 2018. Nomisma estimates that 2.6 million families are currently looking for a house (or are planning to start looking in the next 12 months), representing a potential market worth 436.9 billion.

The investment component has grown from 6.1% in 2017 to 15.4% in this year. The increase in the demand “is driven by the economic convenience (in most cases only perceived) of the real estate market and by the lack of valid alternative investment opportunities”.

The value of the rental market is estimated around 21.4 billion euro (the new leases registered in 2017 represent a quota of 36%). According to Nomisma, in the next 12 months, the families looking for a property to rent will increase, adding to the other 2 million households already present on the market for a total potential value of 11.3 billion euro per annum. If the demand for houses is 100, 52% is those who are looking to buy a house, while 48% is those who are renting.

For what concerns the corporate segment, “the total investment volume is still rather small and mainly driven by international investors, although not with the same performances registered in 2017”. The decrease in prices also has concerned shops (-0.8%) and offices (-1.5%).

Source: Il Sole 24 Ore

Translator: Cristina Ambrosi

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