Stereotypical view of Italian real estate market masks a property sector worth investment

Two decades of anaemic economic growth, the absence of meaningful structural reforms and notorious dysfunctional politics do not help Italy’s reputation as a real estate investment destination.
 
Additionally, the global recession has earned Italy a membership in the infamous ‘Club Med’, alongside the struggling economies of Greece, Portugal and Spain. The critical view on Italy from outside is often laced with references to weak rental growth, below average building quality, high tax rates, inefficient bureaucracy and unsatisfactory market transparency.
 
While all of this is indisputable, it is very easy to ignore Italy as a property investment destination, according to the latest property market analysis from Henderson Global Investors. Its report indicates that there is more to Italy than meets the eye and concludes that international players may be missing a trick.
 
Analysts point out that Italy is the seventh biggest global economy and has been part of the European Union since its foundation. It has a broad based economy with an export industry almost on par with France and well ahead of that in the UK
 
Despite high debt to GDP ratio, bond investors have historically been less nervous about Italy because the public debt level has been almost stable for 10 years and is forecast to increase only moderately, the report says.
 
The high government debt is counterbalanced by low debt levels in the private sector. ‘In fact, Italian households have the lowest consumer and mortgage liabilities of all Western Europe,’ the report points out.
 
‘Italy also has a relatively resilient banking system and economic strength is regionally divided and as a result country level economic figures are heavily diluted and therefore often misleading,’ it adds.
 
As of the middle of 2010, distressed sellers are nowhere to be seen in Italy, yields for prime products are hardening and rents are close to bottoming out. In commercial property, use of debt has remained conservative. It benefits from equity rich domestic investors and property capital values have avoiding exaggerations in either direction, it also says.
 
‘It becomes obvious that a closer look at the Italian economy reveals a rather more differentiated picture often missed by international observers. As far as the property market is concerned, inside and outside views on Italy can be widely divergent. Foreign players mainly see risks, whereas locals praise the achievement of relative market stability,’ said Stefan Wundrak, European research manager at Henderson Global Investors.
 
‘Investors who stick to the caricature of the Italian economy and property market are quite likely to miss a trick,’ he added.