News analysis: Italy’s real-estate prices still declining but at slower pace

By Marzia De Giuli

MILAN, Italy, Nov. 29 (Xinhua) — With the Italian economy still mired in recession, real-estate analysts expect further declines in property prices but foresee less unfavorable developments in the market.

The outbreak of the global financial crisis in 2008 and the consecutive debt crisis in 2011 led to credit freeze and decreased household income in Italy.

But differently from other European states, where prices reached unsustainable levels and then plunged, construction companies and banks in the Mediterranean country were keeping prices artificially high.

Such price rigidity in Italy resulted in a sharp decrease of transactions which fell from some 869,000 in 2006 to around 407,000 expected this year, according to a report from the Bologna-based Nomisma think tank.

The trend is continuing, but a real-estate bubble is unlikely to occur in the final phase of the crisis, Nomisma Managing Director Luca Dondi explained. “Repricing in Italy is taking longer than in other markets,” he told Xinhua. “Here the bubble was smaller, we let the air out little by little.”

According to a recent report from Italy’s central bank, residential property prices should record a decline of 5 per cent on average in 2013 and a modest rise throughout 2014. But the risk for this projection was downside and real-estate agents expect further declines in prices, the report said.

Dondi estimated further downward price correction during a period up to two years, which will encourage demand. He said he did not expect price appreciation before three to five years.

“Italy’s property market is not in a restart phase though is showing timid improvement and will recovery gradually, if Italy is not hit by other unpredictable economic shocks,” he said.

He highlighted however that the double-digit growth rates experienced by the sector between 2003 and 2007 were irreparably lost with the country’s longest recession in 20 years, and will be “only a memory.”

But why the repricing process has been much slower in Italy than in other European countries? Dondi and other experts pointed out three main reasons.

“The first wave of crisis was very short, so operators thought the property market could recover soon and kept prices high,” Dondi said. Meanwhile Italian banks did not want to mark-to-market their considerable exposure to the real estate sector because they would have big losses, he also noted.

Guido Lodigiani, Corporate Director of Italy’s largest real estate portal Gruppo, added that “Italy is a nation of homeowners, where some 75-80 percent of all homes are owner-occupied.”

“Homes are an essential part of Italian families’ assets, and a significant price reduction would mean feeling much poorer,” he explained to Xinhua.

Lodigiani agreed with Dondi that prices would continue to fall in the course of 2014. He estimated however that the number of transactions could slightly improve for effect of an easing of contraction in loans for house purchase, as also expected by the central bank’s report, assuming a modest strengthening of the economy.

This could be a good moment for foreign players to invest in the Italian real-estate market, especially in key cities like Milan – which will host the next world exposition in 2015 – and Rome, Lodigiani said. “In a basket for investors, the Italian market is a defensive one,” he noted.

According to Real Capital Analytics Inc., a global research and consulting firm, from January through early October, the volume of Italian cross-border transactions totaled 2.7 billion euros (3.6 billion U.S. dollars), the largest amount of foreign investment in the country’s commercial real estate since 2007.

For example, Morgan Stanley, which had not purchased property in Italy since 2007, said it had acquired a majority stake in 13 shopping malls and two retail parks, while Allianz Real Estate’s takeover of two office buildings in Milan and Rome was its first investment in Italy since 2008.


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