New property tax not impacting on luxury real estate market in Italy
A challenging economic outlook in Italy has led to a more cautionary attitude amongst property buyers but the world’s wealthy still consider it to be one of the most desirable second home hotspots.
Unlike the UK, the US, Ireland and Spain, Italy did not experience a housing market bubble prior to the financial crisis. Although official data reports that mainstream prices are only 10.5% lower than their peak in the second quarter of 2008, most analysts acknowledge that mainstream prices have dropped by around 30% over this period.
According to an analysis by Kate Everett-Allen, from Knight Frank’s international research team, the absence of a housing bubble meant Italy’s banks coped relatively well with the credit crunch in 2008/2009 but strains appeared in 2011 when the Eurozone’s sovereign debt crisis deepened and the banks’ large holding of Italian public debt left them exposed.
Italy’s public debt to GDP ratio now stands at 120% and it is forecast to be 2014 before GDP growth re-enters positive territory.
However, Italy’s prime residential market has outperformed its mainstream counterpart. The €3 million plus market is in good shape and sales volumes are healthy. But in some markets such as Tuscany, Umbria and Florence the €450,000 to €1 million price bracket is sluggish as buyers in this market segment tend to be more heavily reliant on finance.
‘Nonetheless, there remains strong demand for development products below €1 million and for many international buyers, Italy’s established prime locations offer a more secure second home option without the risk that many emerging European markets present,’ said Everett-Allen.
‘A weaker euro in the first half of 2012 made very little difference to the volumes of sales but interest from non-Eurozone buyers improved once the euro reached 1.20 against the pound,’ she added.
The Knight Frank research shows that buyers from the UK, the US, Belgium, Denmark, the Netherlands and Russia are the most active. ‘The one issue that connects these buyers is their level of wealth, many are increasingly internationally mobile with multiple residences globally,’ said Everett-Allen.
Knight Frank does not expect the new IMU tax introduced in late 2011 by Mario Monti’s new government of technocrats as part of a strict austerity programme to have much impact on the luxury property market. For the first time Italians now have to pay tax on all their properties, including their primary residence and the tax also applies to non-resident second home owners.
‘We do not expect the IMU tax to have a significant impact on Italy’s luxury housing market for two reasons. Firstly, because the sums remain relatively small. Home owners are due to pay 0.4% of the cadastral value on a primary residence and up to 1.06% on a second home. Secondly, despite the IMU tax changes Italy’s purchase costs and annual property charges continue to compare favourably with some of Europe’s other prime second home destinations,’ explained Everett-Allen.
She added that foreign buyers who use a company structure to purchase property are advised to seek tax advice as they are now potentially subject to higher taxes.