Coronavirus Business Impact And Outlook for The Italian Property Market
The Italian real estate market is taking a hit from the Coronavirus (COVID-19) health and economic crisis. The wide-ranging central bank and government policies and stimulus packages should support the economy through the current difficulties. As emergency restrictions ease, the outlook is optimistic.
The impact of Coronavirus on the economy and, in particular, 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 – at least until global markets stabilise. Secondly, on a practical front, travel restrictions impinge 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 Coronavirus (COVID-19) outbreak, 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 however seen many would-be investors put their plans on hold. The data on online property listings show that the number of Italian properties up for sale and searches by potential buyers has decreased sharply since mid-March.
Essentially, the impact of Coronavirus on the economy and on property markets extends worldwide, not just in Italy. Provided that the situation is brought under control in a reasonable period of time, we will likely see a negative effect in the short and medium-term on the real estate market in Italy, but we expect to see that bounce back as soon as recovery starts.
The Italian luxury real estate sector reports decreased activity but is far from paralysed. The initial information available shows that luxury real estate will weather the storm. Although they have slowed, transactions are continuing. While it is too early to tell how the situation will evolve economically, 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.
Previous experience from other crises, most recently the global financial crash in 2008 and the recession in 2012, shows that once the most critical period had passed, the Italian real estate sector gradually recovered. With volatility in financial markets and low-interest rates, it seems likely that the positioning of the real estate sector as an investment opportunity could again be strengthened after the Coronavirus (COVID-19) pandemic.
There is a general expectation that there will be a fall in property prices for a while, making Italy a buyers’ market, before we see prices increase to previous levels in the medium term. 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 relatively recently has helped governments and central banks understand how to act in the face of uncertainty and they are moving quickly to implement measures to combat the economic downturn. 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.
Coronavirus business impact: “Cura Italia” Decree
In addition, the Italian government activated wide-ranging fiscal easing measures in its March, “Cura Italia” decree. The government will announce a further stimulus package in its “Rilancia Italia” decree later in May. Measures are expected to 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.
Many real estate agents and legal professionals have been taking advantage of the Coronavirus confinement to plan how they manage business in the coming months as restrictions are gradually lifted. During the crisis, professionals have turned to technological innovation to serve clients. It could become the new normal once restrictions are lifted to have fewer meetings outside offices, to travel less and, activity will be more focused on conference calls and video calls.
From a legal perspective, we are seeing an increase in clients using our Power of Attorney services to finalise their property transactions as well as many other property-related matters.
The Coronavirus (COVID-19) pandemic and lockdown measures have left the signing of many Italian residential property transactions in the air. Many people are worried that they may be in breach 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 so please get in touch.