Debt laden Italian banks render Italian real estate cheaper

The weakness of Italian banks, an opportunity for foreign investors? Italian banks have an estimated $360 billion worth of bad credit. Those are loans that will be hard to be rebate by the doors, since their financial or economic recitation doesn’t allow the stipulated payments. It is calculated that about $200 billion worth of loans will never be paid back. So, despite extremely low interest rates, the volume of real estate trading in Italy is way lower than precrisis levels, about 40% lower. Prices have stabilized at a low level. Indeed, the average is 2100 dollars per square meter. At some beautiful resorts, especially in Southern Italy and on the East Coast, in central and southern Italy, you could buy apartments at the seaside for around $1000 per square meter. Consider that Italy is a beautiful country which has drawn investors over the centuries. It is densely populated: its 310,000 km² host roughly the same population as France (around 65 million people), which has more than 500,000 km². But in Italy, the country is so full of steep hills, mountains, and semi-desertic areas, especially in the South, that human settlements can take place in roughly half of the country. This population density provides for the value of Italian real estate, which can never dramatically plummet. Since Italians care a lot for housing, the quality of Italian real estate is often outstanding, never too low. Conclusion: in my humble opinion, the Italian real estate market should have bottomed, is a good time for foreigners to take advantage, investing in one of the world’s most beautiful countries. The last real estate Observatory of Nomisma, one of Italy’s most prestigious think tanks, evidences that the interest of Italians is no longer limited to the residential sector in recent months: investment in real estate for companies has also grown. While noting a slight recovery in the housing market, in place for several years and confirmed in early 2016, Nomisma still urges caution. Certain factors – the Observatory cites the outcome of the British referendum, which sealed the release of the UK from the European Union – could undermine the stability of the macro-economic environment, with inevitable repercussions on the Italian real estate market, still far from the levels prior to the economic crisis. In fact, the increase in purchased and sold properties registered in recent years – the trades have increased as well 2014 (+ 3.6%) as in 2015 (+ 6.5%) – it was not large enough to allow a return to pre-crisis levels. Nomisma, which provides for an increase of 7.6% of trade for 2016, points out that the market trades in 13 major Italian cities were reduced by 40% in the residential sector and 50% in the non-residential. Further confirmation the modest recovery in the housing market is coming from the Observatory of casa.it, which certifies a growing interest in the residential homes. In the first half of 2016, the demand for housing has increased (+ 2.6%) – the analysis reveals that Italians are mainly seeking apartments (29%) and three-room apartments (26%) in semi-central or remote areas. But this has not been accompanied by a simultaneous increase in prices: a square meter costs on average 2,010 euro, down 0.1%.

The Italian real estate market recovers slightly in the 2Q of 2016

The last real estate Observatory of Nomisma, one of Italy’s most prestigious think tanks, evidences that the interest of Italians is no longer limited to the residential sector in recent months: investment in real estate for companies has also grown. While noting a slight recovery in the housing market, in place for several years and confirmed in early 2016, Nomisma still urges caution. Certain factors – the Observatory cites the outcome of the British referendum, which sealed the release of the UK from the European Union – could undermine the stability of the macro-economic environment, with inevitable repercussions on the Italian real estate market, still far from the levels prior to the economic crisis. In fact, the increase in purchased and sold properties registered in recent years – the trades have increased as well 2014 (+ 3.6%) as in 2015 (+ 6.5%) – was not large enough to allow a return to pre-crisis levels. Nomisma, which provides for an increase of 7.6% of trade for 2016, points out that the market trades in 13 major Italian cities were reduced by 40% in the residential sector and 50% in the non-residential. Further confirmation the modest recovery in the housing market is coming from the Observatory of casa.it, which certifies a growing interest in the residential homes. In the first half of 2016, the demand for housing has increased (+ 2.6%) – the analysis reveals that Italians are mainly seeking apartments (29%) and three-room apartments (26%) in semi-central or remote areas. But this has not been accompanied by a simultaneous increase in prices: a square meter costs on average 2,010 euro, down 0.1%.

Italian real estate market back on a growth path

In 2015, in Italy, the real estate housing market, after the long, steep descent observed since 2007, seems to be back on a growth path (449,000 standardized transactions), confirming and passing (6.5%), the positive figure of the previous year (421,000). This is what we read in the report of the Revenue Agency for real estate and ABI (Italian Banks Association) for the residential sector. Observatory of the housing market Affordability index rose to 11.9% in March, the historical records No coincidence that in 2015 the “affordability index” developed by ABI, which measures the ability of families to buy a house by borrowing, continues its positive trend. With a significant improvement in the second half of the year, this trend led him to establish time high. According to the monthly projections, in March 2016 the index should be further improved reaching a value of 11.9%. Trades up 6.5% to 449,000 in 2015 The report notes that the figure of 2015 still strengthens the positive trend already observed in 2014, marking a clear sign of recovery. If, in fact, the growth recorded in 2014 was influenced by the effects that the new system of registration fees, mortgage and property rights, enforced on 1 January 2014, has had on the market,  – says the study – the figure for 2015 represents an outright + 6.5% growth. “ Declining interest rates among recovery drivers The causes of this housing market recovery depend, according to the report, on four factors. “In the first place, by the fact that, sooner or later, first purchasers who were staying off the market because of the crisis, must acquire a dwelling. Second, the overall economic situation begins to give positive signals, though not exciting, in particular on the various indicators that measure household confidence. ” Third, the interest rates have declined further and the bank credit has increased. The data in the report show that in 2015 purchases made with a mortgage loan increased by 19.5%, and the average interest rate (calculated on first installment) fell by 0.65 percentage points to 2.75% on average. See the market in 2016

Rental income tax – a more favorable rate applies from 2016 on

In the STABILITY LAW 2016, a new Flat-Rate Tax Scheme favors landlords The flat-rate tax scheme, first introduced into the Italian tax system by Stability Law 2015, has been modified and made more practical and favourable in the 2016 Stability Law. The government’s aims for introducing the flat-rate tax scheme are to boost employment, steer Italy’s economic recovery in a positive direction, reduce undeclared taxable income and employment irregularities. The reformed tax scheme applies to individuals operating in what are classified as, ‘the arts and independent professional activities’ sector. This includes individuals generating income from the rental of investment properties and second homes. The reformed tax scheme: Establishes a tax replacing Irpef, Irap and additional taxes of 5% for the first 5 years and of 15% from the sixth year onwards: neither VAT nor other taxes are due.  Represents an opportunity to regularize compliance on any activity that has not previously been declared to the Italian Tax Authority. Foreign property owners may not realize that they need to declare this type of income, even if it is seasonal and infrequent. Owners may be subject to heavy penalties in case of an audit by the Italian tax authority. Taxable income in the flat rate – tax scheme is determined by applying profitability coefficients. These codes vary according to business activity. Accommodation, lodging, lettings and B&B activities are determined by applying a profitability coefficient of 40% of revenues. Let’s make an example: Mr. Smith owns a property in Puglia and decides to start running a (seasonal) business by renting out the property for holiday letting. Mr. Smith decides to apply for the flat rate-tax. Taxable income : Euro 16.000 (coefficient of profitability 40% of 40.000) Tax to pay: 800 (tax rate 5% of 16.000). With the ordinary tax scheme Mr. Smith would pay approximately Euro 4.300 on the same profit. And he would pay much more if eligeable costs to offset generate a higher profit. As an example, if the annual revenue are Euro 40.000 and the deductible cost are 15.000, the taxable profit will be Euro 25.000 and the taxation will be around Euro 6.500. As you can see from the example above, in the “5% tax scheme” for the purposes of calculating income tax, expenses are not included – the basis for the calculation of taxable income is exclusively based on revenue. Only social security contributions (INPS) can be deducted from revenues; it is worth a reminder here that any Italian resident taking advantage of the flat-rate scheme, must have social security cover. Social security contributions are calculated as a percentage of revenues, a reduction of up to 35% of contributions is available. Up to a profit of 14.000 euros the social security contribution is fixed at approximately Euro 1900. Looking at the example above – where the maximum profit is 16.000 – the social security/insurance contribution costs will be 1900 + 20% * 2000 = 2.700. These money will not be lost; after 5 years of contribution you will accrue a (small) pension. An Individual planning to start-up a business activity in Italy qualifies for the flat-tax scheme, provided that the individual has not (officially) carried out the same activity in the past three years and that revenues will not exceed €40.000 per annum. Foreign residents and non-residents, who generate an income from letting their property in Italy, wishing to benefit from the flat-tax scheme, must notify the Italian tax authorities through a Notice of Business Start-Up. If you need help to understand your personal situation, please contact me or seek advice from a qualified accountant registered with the ODCEC, the Italian professional accounting association of certified public accountants, auditors and advisors.

Italian real estate investment, pros and cons

The Italian economy is historically fluctuating. Sometimes, it undergoes a depression that can last more than a century. For instance, the Italian economy was perhaps Europe’s most prosperous during the Renaissance. Then, European nations started colonization of Africa, Asia and America, becoming richer and richer. Micro-states or cities in the peninsula (Italy became a nation only in 1861) weren’t neither big nor powerful enough to colonize. So a certain economic decadence began, because European nations became more competitive than the small states in the peninsula that is nowadays Italy. Nevertheless, there sure were decades, like the 80s and the 90s,  when the Italian real estate became and stayed really expensive, compared to European real estate in general. Generally speaking, Italy often offers interesting opportunities for real estate investors. The pros of investing in Italy Italy’s incredible cultural and artistic heritage is a sort of insurance against excessive devaluation of the Italian housing market. Indeed Italy will always draw tourists by the millions, and investors by the thousands. World renowned artists as Sting own secondary residences in Italy. The same can be said for the sweet, temperate climate and its beautiful natural landscape, so various and rich. Idem for wine (in 2015 Italy was the first exporter in the world) and food. Italian population is huge compared to the habitable land. These guarantees quite stable prices for real estate, since the demand for housing is never sluggish. Italians care much for their homes. Normally, they are well-built and well decorated. Italian excellence for design and architecture is worldwide recognized. The 2008 recession has weakened both Italian banks and families. This has brought down real estate prices, to a level never seen in the last 50 years. Real estate prices in Italy have bottomed, they are more likely to recover than decrease further. Many Italians live abroad, which renders Italian legislation, is not favorable, at least not disadvantageous for foreign residents altogether. Traditionally, Italians like and welcome foreigners. They Italian style and way of living has many fans worldwide, you might as well become one of them. The cons of investing in Italy Italian legislation can be complicated, you’d better take advantage of legal counsel if you are to invest in Italy. Italy’s infrastructures, motorways, roads, Internet, phone and railway networks are not as performant as in Germany, France, Netherlands or northern European countries. Traffic jams are frequent in big cities. Driving can be slow. The peninsula, because of its geographical situation, is not so well-connected with the rest of Europe. The Alps are quite a barrier if you follow to Italy by car or train. Nevertheless, airports are numerous and flights frequent and often cheap. Conclusion Italy is always been a remarkable country. Its charme is evident and solidly established. Investing in Italy can hardly be a waste. The profitability of a real estate investment in Italy oftentimes depends on the economic conjuncture. Sometimes prices skyrocket, but now they are historically quite low. So…

Lower property taxes likely to improve Italian real estate market

In 2016, the Italian government lowers property taxes in order to boost the real estate market IMU (Imposta Municipale Propria) and TASI (Tassa sui Servizi Indivisibili) are abolished for principal residences Practically, only residents in Italy will benefit from this abolition. Therefore, these two taxes will remain unchanged for secondary residences. For luxury houses and castles, IMU will get a reduction. Owners of those luxury properties will pay a flat rate of four per thousand and receive a standard deduction of €200. Since the four per thousand is calculated on the cadastral value of the property, which is always considerably lower than the actual value, oftentimes sometimes more than 60% lower. There is also a 25% discount on IMU for the foreign residents who have rented their house in Italy, provided that the contract complies with the minimum and maximum rents set by local authorities. Asfor the garbage fee, TARI, please reade below: “TARI: who should pay”. Property purchase taxes are quite reasonable for principal residences Purchase from private owner or from Non-VAT Registered   |   Purchase from VAT Registered   Principal Residence   Second Home   Principal Residence   Second Home Stamp Duty 2% 9% €20 €200 Land Registry €50 €50 €200 €200 Cadastral €50 €50 €200 €200 VAT 4% 10%* IMU, TASI, TARI: property taxes for Italians who reside abroad Many Italians who own real estate in our country but are resident abroad and the rules for the application of the IMU, TASI and TARI abroad are different. If, on the one hand are exempt from paying IMU from 1 January 2015, on the other they are still required to pay the tax on services and the indivisible municipal waste, albeit reduced to a third. IMU for Italians living abroad: exemption Many, in fact, are th Italians living permanently abroad who own a property in Italy. As for the IMU it has been established, with effect from 1 January 2015, that is considered to be directly used as a main residence one housing unit owned through ownership or usufruct in Italy,by Italian citizens not resident in the State and members of the Italian residents to Anagrafe ‘abroad (AIRE), provided that is not leased or given on loan for use. (Decree Law no. 47 of 28 March 2014, converted into Law 23 May 2014 n. 80). Essentially it means that Italian citizens living abroad and the owners of a property used as a principal residence do not pay the IMU. Always provided that the property is not luxury / fine (cadastral categories A1, A8 and A9), otherwise the IMU must be paid even if to a lesser extent, with the application of a rate of between 2 and 6 per thousand. TASI: liable for payment Matters are different when it relates to the TARI and TASI. Recall that this is the direct tax to finance the cost for indivisible services that offer the municipalities (public lighting, road safety, etc.) and is applied to all properties. Taxable for TASI are the owners of the houses but also those who hold, in any capacity, the property, so even tenants in case of lease for residential purposes. In particular, those who hold the property are required to pay a share of the TASI between 10% and 30% and the remaining burden on the owner. To determine the minimum and maximum is the duty the Municipality. TARI: who should pay Introduced as the TASI by 1 January 2014, the TARI is the new garbage fee. Taxable for TARI are all those in local and uncovered areas used in any capacity, located in the municipality. Are exempt from the TARI all those areas that do not produce waste, a condition due to non-usability of the premises and areas (e.g. because the house does not have the minimum requirements of habitability, as they lack the electricity connections, Water and Sanitation). Each municipality, in the Regulations of the garbage fee, may establish exemptions and reduction of TARI (e.g. failure to provide the service of waste management, service interruptions management and collection of waste that may cause damage to the community and to ‘environment, not continuous use of the property, property occupied by a single person). TARI and for Italians TASI living abroad: payment reduction to 1/3 As for Italian citizens who live permanently abroad, even if already retired in the countries of residence, owners of a property in Italy, on the one hand they completely discount the IMU, on the other must pay both TASI that TARI. However, they can still benefit from a tax reduction equal to 1/3. So if the amount calculated under ordinary TASI, amounts to EUR 300, Italian citizens not residents will pay 100 Euros. And if the property is luxurious or fine? Given the silence of the provision, it follows that the reduction in one-third of TASI and TARI can apply even if the property treated as a principal residence of the non-resident, is classified in cadastral categories A1, A8 and A9.

Survey: the Italian real estate keeps on improving

The evolution of the Fiups Index (real estate operators sentiment) from 01/2012 to 08/2015 The Fiups is an acronym for Federimmobiliare, University of Parma and Source Group and is a graphical representation of sentiment. The index is produced by Sorgente Group. The Sentiment is a survey from a qualitative group, aimed at identifying the expectations expressed by the various sectors of the real estate in the 12 months to follow. It’s a projection of market sentiment in its main actors, a panel of around 200 operators in the real estate market, an evaluation that seeks to measure the expectations of real estate, on a quarterly basis. The answers provided in 14 major questions that comprise the estate Sentiment questionnaire, are the basis for the calculation. The operators respondents of the survey belong to the following main areas: trade, development, property, facility, design, evaluation, consulting, real estate finance, as well as numerous specialized professionals in the sector (engineers, architects, surveyors, notaries). Scientific coordinator of the project is Professor Claudio Cacciamani, flanked by Professor Federica Ielasi, while current operational coordinators are Dr. Sonia Peron and Dr. Lara Maini, of the Department of Economics of the University of Parma. The index highlights an increase from 19.21 (relative to the first quarter 2015) to 20.05 (August 2015), confirming a growth trend of confidence which started from the beginning of 2012. The responses by the operators of the panel highlight how a sentiment of growth and improvement in the economy by the operators of the panel is absolutely consolidating. This will insert the point of departure from the surveys of the past … and it’s expected that in the next 12 months answers given by the operators of the panel will underscore a sentiment of improved perspectives in the economy. The latest survey above reveals a more positive attitude of the operators, which is increasingly pushing not only to price stability, but also to moderate growth. All sectors seem to take advantage of this new vision, with the exception of industrial buildings. A stand out are hotels and commercial properties, which reflect the current economic recovery tangibly perceived by the operators of the panel.

The Italian real estate market catches up

Italy finally in the top ten of European real estate investors This is what immediately catches your eye when you see the report “Emerging trends in real estate europe 2016” published by PriceWaterhouseCoopers (PwC) and the Urban Land Institute (ULI). Italy then at the top thanks to the entry of Milan among the top ten European destinations for international operators, namely the eighth: four steps ahead compared to the previous year. Milan real estate’s on a hot streak This was possible thanks to the 4 billion euros invested in Milan at the turn of the last three months of 2014 and the first nine months of 2015. In particular Milan expectations are even greater growth in the year, so much so that it is expected that the real estate market of the city will be the second most vibrant in Europe in 2016. The most dynamic areas, after the boom of Porta Nuova, should be those close to Central Station and the district of City Life. Foreign investment on the real estate market in Rome As in Rome, the capital is on the 25th place in the rankings but is now ninth when you consider the amount of investment expected in the year. Here, the market is more difficult because of smaller dimensions: the problem, is the presence of poor quality product, but also the high level of fragmentation and less transparency. The residential market, is likely to remain the most dynamic especially if the approach is also extended to sub-sectors such as houses for students and healthcare. Foreign real estate investment in Europe, Berlin shines At the top of the ranking of Europe’s most interesting cities for operators remains Berlin, as it was last year. In second place was another German city, Hamburg, followed by Dublin, Madrid, Copenhagen, Birmingham and Lisbon. After the eighth Milan and Amsterdam we finally still find a German city, Monaco. Paris outside the top ten, however, due to domestic economic problems, most notably the unemployment rate. But to suffer the most will be Russia (especially until it is not clear what will happen in terms of economic sanctions, according to the report) and Turkey, for the known current events.