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Why are property prices not rising? Istat: -0.4% in 2017

21 May, Il Sole 24 Ore

Property prices in Italy have registered again a negative result on a yearly basis despite they slightly improved in the last months of 2017. In fact, Istat reported a 0.3% fall in the last quarter of 2017 compared to the same period of the previous year and a +0.1% compared to the third quarter (thanks to new construction). On the overall, prices dropped in 2017 by 0.4%.

The price increase is the missing piece for the recovery of real estate, which has recovered in terms of number of transactions already a couple of years ago. In fact, 2017 reported 543 thousand transactions. According to the operators of the sector, these numbers are close to the stabilisation (even though they’re far from the 2006 figures which are, however, an exception in the history of the sector).

The general negative trend of prices shows a substantial stagnation at a national level. This doesn’t mean that there aren’t exceptions and positive results, as reported by Milan and the most sought-after areas of the main cities. According to the latest figures from Immobiliare.it, prices increased by 0.3% in the first three months of 2018 in the provincial capitals with over 250 thousand inhabitants (smaller towns registered a 0.7% decrease). According to the portal, Venice, Florence and Bologna are leading the positive trend, while the performance is negative for southern Italy.

However, according to Eurostat, Italy is the only European country that hasn’t reported yet a countertrend of prices. Why?

Even analysts are wondering why. Many forecasted a recovery, even though a mild one. Apart from the various internal dynamics, there are at least four differences with the other European countries.

Firstly, GDP and occupation in Italy have grown less than in the other countries in the last few years. In addition, the country was impacted by the turbulence on the financial markets and by the weakness of the banking system, due to the bad debt originated from real estate. The lower purchasing power and the little trust, together with a long period of credit crunch, have weakened the demand, which is still mainly referred to the main dwelling and it can’t sustain the current prices.

Secondly, in Italy, there wasn’t a dramatic fall of prices as it happened abroad with the crisis of subprime loans, due to the traditional attachment of families to the house that brought property owners to not lower their expectations so easily. Therefore, the decrease was slower than elsewhere, even though it caused a value loss of over 25%, and the current recovery is equally slow. Furthermore, we must consider the level prices started from since they were skyrocketing before the crisis, making the stabilisation process longer.

Moreover, the supply in excess turned out to be more than expected, as it accumulated through the years through transactions at halved prices and it was fuelled by a taxation that pushed people to get rid of properties.  And we must also include the uncertainties of the assets connected to NPL that are still to be placed on the market.

Finally, with the introduction of Imu, we must take into account that taxation in Italy has grown considerably, with the inevitable decrease of prices.

Returning to the figures from Istat disclosed on 6th April, “in the fourth quarter of 2017, according to the initial estimate, the price index of properties purchased by families (Ipab), as a main dwelling or as an investment, increased by 0.1% compared to the previous quarter and decreased by 0.3% in comparison with the same period of 2016 (it was -0.8% in the third quarter)”.

This negative trend “is due to the decrease of prices for existing houses (-0.5% compared to the -1.3% of the previous quarter), while new construction decreased less (+0,5% in the third quarter)”.  On the overall, “the slight increase of Ipab is due solely to the prices of new houses (+0.7%), while those of existing properties remained stable”. On average, property prices in 2017 decreased by 0.4% compared to 2016 (when the variation with 2015 was equal to -0.8%).

Finally, Istat notes that, compared to 2010, “house prices in 2017 decreased by 15.1% (-1.4% for new houses, -20.5% for old ones)”. There are no reports by Istat before 2010, but prices had started dropping already at the time.

Source: Il Sole 24 Ore

Translator: Cristina Ambrosi

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