Three main impacts of COVID on the Italian property market but the outlook is optimistic
The Italian property market has taken a hit from the COVID health and economic crisis.
Wide-ranging central bank and government policies and stimulus packages are supporting the economy. As emergency restrictions ease, the outlook is optimistic.
The impact of COVID-19 on the Italian residential property market is threefold. Firstly, it creates a natural tendency to worry, making all but the most committed buyers more cautious in the short term. Secondly, on a practical front, travel restrictions have impinged on buyers’ and sellers’ ability to transact, as restrictions limit people’s ability to go about business as usual. Thirdly, the situation generates economic effects which impact the traditional drivers of affordability.
Prior to the COVID pandemic, Italy was experiencing a healthy upturn in its economy
The residential real estate sector particularly in the north of the country was showing a rise in demand for properties and residential construction was increasing.
The uncertainty surrounding the health situation and its duration have seen many would-be investors put their plans on hold. Data for online property listings show a fall in the number of Italian properties on the market. In addition, searches by potential buyers has decreased sharply.
Essentially, the impact of the pandemic on the economy and on property markets extends worldwide. It is not restricted to Italy. Provided that the situation continues to improve, we will likely see a negative effect in the short and medium-term on the real estate market in Italy. However, we expect to see that bounce back as vaccination continues apace and economic recovery gathers momentum.
The Italian luxury real estate sector reports decreased activity but it is far from paralysed
Initial information shows that luxury real estate is weathering the storm. Although they have slowed, transactions are continuing. It is too early to tell how the situation will evolve economically. However, it seems likely that investors will seek to protect their assets by focusing on safe securities such as luxury real estate. The perceived safe-haven of bricks-and-mortar investments in times of uncertainty helps to underpin values of high-end properties.
Experience from crises such as the recession in 2012, shows that once the most critical period passed, the Italian real estate sector gradually recovered.
Volatility in financial markets and low-interest rates continues. This means the real estate sector could again become a strong investment opportunity as we emerge from the COVID pandemic.
Italian property prices may fall before they rise
There is a general expectation that there will be a fall in property prices for a while. This would make Italy a buyers’ market. Thereafter, in the medium term, prices should increase to previous levels. This means sellers will need to be pragmatic on pricing in the short term, as demand becomes more dependent on needs-based and opportunistic buyers.
Having come through a global financial crisis in 2008, governments and central banks have a better understanding how to act in the face of uncertainty. Since then, they have moved quickly to implement measures to combat economic downturns. The approach of the European Central Bank’s (ECB) and the Bank of Italy’s monetary policy suggests that the low-interest-rate environment is likely to continue.
The Italian government has introduced stimulus packages to support property investments
During the pandemic, the Italian government quickly activated its wide-ranging fiscal easing measures in its, “Cura Italia” decree.
The government later announced a further stimulus package in its “Rilancia Italia” decree. Measures include property-related subsidies and tax benefits to support relaunch and investment in the Italian housing and construction sectors.
The combination of the central bank and government policies should support the economy through the current recession and what could otherwise have been a much stronger blow to economic growth. Furthermore, since the 2008 crisis, obtaining mortgage financing in Italy has become easier and this looks set to continue.
The pandemic has driven new ways of working
Many real estate agents and legal professionals took advantage of the pandemic lockdowns to plan how they will manage business in the future.
As restrictions lift, professionals have turned to technological innovation to serve clients. For example the use of using video calls. This could become the new normal.
At De Tullio Law Firm we have seen an increase in clients using our Power of Attorney services. This allows us to organise clients’ property sales and purchases remotely as well as manage many other property-related matters on our clients’ behalf.
If you are thinking of investing in Italian property and would like to talk to us about any aspects mentioned in this article, please get in touch.
We are aware that the pandemic has left the signing of many Italian residential property transactions in the air. Many are worried that they may be in breach of contract. This is particularly relevant if there is no specific reference to a pandemic as a force majeure in their contracts. If you need a legal strategy session to discuss your situation, we are here for you.
You may like to watch our useful info videos about buying property in Italy.