The experts of the international consulting company Coliers have conducted an economic analysis of the Italian real estate market fundamentals, identifying signs of crisis of buying and selling real estate in Italy, the causes of falling prices, as well as possible scenarios.
Over the past 5-6 years the European banking system, namely the international financial markets are facing the consequences of the severe economic crisis. One of the most pressing problems that European and Italian banks are facing is the steady increase in problematic loans due to declining property values.
Signs of Italian property market crisis
According to Oldypak Capital LP report, Italian property market has all the signs of crisis in the sector:
Most of the properties put up for auction are only sold for the third or fourth time with a corresponding reduction in the base price;
An unprecedented increase in the number of objects for sale through fee-based portals such as immobiliare, although we are mainly talking about economy class properties in ordinary locations and not prestigious real estate in Italy;
The sharp decline in sales contracts over the past 5 years confirms the oversaturation of markets and reduce the interest of local investors, both residential and commercial real estate.
So what has influenced the decline in property values?
The price of housing in Italy and the potential rental income – the higher the rental rate, the higher the value of the property;
The price of the property and the available income – the higher the income and the higher the purchasing power, the higher the value of the property;
The price of the property and the availability of credit – the more credit available for real estate transactions, the higher the nominal value of the property.
“Real estate bubble
Taking this into account, we can guess where the real estate bubbles came from, created by the aggressive lending policies of banking institutions which led to the slump of the whole sector (credit crunch).
The Italian property market is stable
However the good news is that after a careful analysis of all factors mentioned above we can say that the Italian property market at the moment is not overvalued and there are no threats of bubbles which take place in Spain (+27%), Britain (+22%) and especially in France (+47%).
Thus, after analyzing the current micro and macroeconomic trends with their impact on property values over the past 55 years, the Italian property market is at 1991 levels, without taking into account inflation in the same period and is characterized by a lack of growth in real estate values.
Sperlonga, Lazio Region, Italy
Negative factors affecting the sector
We can thus identify the negative impact of micro and macroeconomic factors on the real estate sector:
– A sharp decline in demand for residential and commercial real estate, caused by a decline in household and company income as a consequence of tight tax policies, lower GDP growth, higher unemployment (over 36%, an increase of 78% among young people) and inflation, lower availability of credit for real estate transactions.
– On the other hand, a glut of properties offered for sale by banks (unpaid loans), developers of development projects not yet completed, state organisations that have privatised properties and need to sell them quickly.
So what are the scenarios for the near future, according to experts?
According to Oldypak Capital LP report, a further 3% decline in property values is expected, with further losses on the repayment of loans from banks worth about 32 billion euros;
The tax and monetary cuts may lead to a 14% fall in property prices in Italy (but with wide variations, not more than 5-7% in the advanced locations and up to 25-27% in the periphery) and losses in the banking sector of up to € 35 billion.
And the gloomiest scenario of a severe economic recession and credit crunch could affect property values in Italy up to 27% down and Italian banks losing up to €66bn.
