Italy is one of the most beautiful countries in the world and welcomes more than 90 million tourists each year. The nation has incredible cuisine, amazing historical and cultural sites to explore with a great climate to enjoy it all in.
Italians are famous for living the ‘Dolce Vita’ and so people from all over the world buy properties in Italy to experience it for themselves. Property prices in Italy are also relatively low compared to other parts of Europe which, at least on first glance, makes them attractive to foreign buyers.
All this makes living in Italy extremely appealing and a popular lifestyle choice for many foreigners and Expats including me. However, is buying an investment property in Italy a good idea? There are several main factors that you need to take into account before you decide whether investing in the Italian property market will allow you to realize the kinds of returns that you need.
Timescale For Return On Investment.
When you’re making a decision about an investment property, in Italy or elsewhere, you should always consider how you intend to realise the returns on your investment and over what timescale you expect to do it.
- Buy to use the property yourself: After you’ve bought the property you will be able to live in Italy while not having to pay rent. You will also be able to sell the property later and benefit from any appreciation in value during the intervening period.
- Buy the property to rent: You can realize consistent returns on your property if you purchase in an area where demand for rentals is high. You can also sell the property at any time if it significantly appreciates in value.
- Buy the property to sell in the short term: If you expect significant increases in prices you can buy the property to quickly sell it on at a profit. In other cases the property can be bought while under construction and sold at a profit once the building work has been completed.
- Buy to sell at a profit in the longer term: You can realize good returns through the intrinsic appreciation in the property price over many years. This can help in retirement or be passed on as part of an inheritance.
Buying Property In Italy As An Investment – Is It Right For You?
Property prices in Italy vary considerably with relatively high prices in Rome, Milan, Florence and other Tier 1 cities and extremely affordable prices in more rural parts of the country.
This means that you can find some amazing bargains in Italy; and given that there are few legal restrictions to stop foreigners buying land, apartments and property in the country it may appear to be quite a tempting investment opportunity.
To add to this, Italy can provide a high standard of living at a very low cost; with top quality food, entertainment and other living costs being significantly cheaper than in other parts of the Western world.
Therefore, owning property in Italy represents a fantastic lifestyle choice. Living in Italy on a part time basis or as a full time Expat will allow you to explore the incredible culture, enjoy the cuisine and picturesque landscape while keeping the cost of your living low.
However, when it comes to buying property as an investment there’s other factors that need to be taken into account before you can make an informed decision that will meet your financial expectations and future ambitions.
Factors To Be Considered When Buying An Investment Property.
The following are some of the key factors to keep in mind:
- The location of the property.
- The property’s current market value.
- The property’s projected future value.
- The return on your investment in the short and long term.
- Regional and national economic growth.
- Government deductions, taxes and regulations.
When these factors are taken into account, particularly in the long run, Italy doesn’t fare as well as other nations with comparative property prices. That’s not to say that you shouldn’t consider purchasing a property in Italy but it does mean that if you are doing so primarily as an investment that yields large returns then it might not be the best choice for you.
Cheap Properties In Italy Are Not Always Good Value For Money.
While Italy has some of the most stunning properties you’ll see anywhere in the world, these tend to be extremely expensive and include palatial villas and houses which are out of the reach of most small investors! These types of property typically don’t make a good investment, especially if you have a realistic budget to work with.
At the other end of the spectrum you can certainly locate very cheap properties in Italy but there’s usually a catch. But remember that cheaper properties in Italy are not going to be anywhere near the major metropolitan areas. Whereas in other places, like Vietnam, Thailand, Georgia, Malaysia, Colombia or Ecuador, you can find cheaper properties in major metropolitan areas.
Many cheap properties in Italy are often unattractive, and even ugly, new builds thrown up on a budget between the late 1960s and the 1990s. These were built to provide low cost housing for low income families but are not the kind of thing you’d find in the investment portfolio of anyone apart from a slum landlord.
These poorly built, low cost properties do not usually represent a good potential return over time either as they are likely to need upgrades due to the strict environmental regulations in Italy as well as regular maintenance to repair the badly built structures.
In other cases, properties advertised at a very low price are often in need of serious renovation work to get them up to scratch. This means that you’ll have to plough a lot more money into your investment, over and above the sale price, before you can hope for any kind of reasonable return.
These issues are overlooked by new property investors but they can easily spell disaster in the medium to long term. As these properties continue to deteriorate they will lose market value and cost you money for repairs and other maintenance.
However, there are exceptions to this general rule. For example, even a poorly built apartment in an unappealing neighborhood could triple in value if the district is regenerated and large property management firms come in to buy up as much as they can in the area. This is a serious gamble though and without insider knowledge of future municipal plans making an investment on this basis is very risky and generally inadvisable.
Relatively Low Returns With More Regulations To Worry About.
While Italy may offer relatively low sale prices on property in certain locations the potential growth of the property’s value does not always look good. The Italian economy has been struggling through difficult times in recent decades with poor growth predicted for the future.
Italy has an aging population, low levels of savings, a sluggish job market and poor investment opportunities. On top of this endemic corruption throughout all layers of government has contributed to a less than rosy economic outlook for foreign investors.
These factors will certainly dampen the growth in the property market but another element to consider is that the global pandemic of 2020 hit the Italian economy particularly hard. This is because much of the economy relied on tourism, an industry that was one of the worst affected by the international travel restrictions and people’s nervousness about travelling to other countries.
Of course, recovery may be waiting around the next corner but from the point of view of property investment Italy probably shouldn’t be topping your list.
Another reason to think carefully about property investment in Italy is that the country’s famously bureaucratic municipal culture and heavy regulations all eat away at any potential returns you will receive on your investment. High taxes and increasingly strict environmental regulations that require improvements in home insulation and energy saving measures will also reduce your returns in the short and medium term.
Comparatively, other European and Eastern European nations offer far better prospects for property investment. Countries such as Georgia present a much better situation with more scope for future growth without the overly burdensome regulations and tax systems which cut into investment profits in Italy.
A Closer Look At The Italian Economy Going Forward.
The Italian economy has experienced unimpressive levels of growth since the 1960s. The nation’s rate of GDP growth averaged less than 0.6% over the 70 years since 1960. GDP dropped by 5% in the 1st quarter of 2020 and then reached a record low in the 2nd quarter of 2020 when Italian GDP growth hit -13%.
Of course, the global pandemic and the consequent collapse of the tourist industry were mitigating factors but this slump after so many decades of poor growth have left the economy in troubled waters. This is a situation that no foreign property investor looking at the Italian market can ignore.
On a countrywide scale, the general trend in Italy sees increasing numbers of people moving into the major cities in search of job opportunities. This has left many of the smaller towns and villages in dire straights at risk of becoming shadows of their former bustling selves.
This means that you can pick up cheap properties in rural parts of the country. However, local demand for renting rural properties is consistently falling; something which will limit your returns if you planned to rent the property.
On the other hand, as more people move into the cities there may be space for some growth in property prices and a consistent demand for rentals; which may push up your rental returns in the future.
The Italian economy does remain as the 3rd largest in the European Union however it’s stagnation of the last part of the 20th Century has left it with little prospect of impressive growth in the coming years. This is further compounded for property investors because of the better opportunities in nearby countries which are safe to invest in, offer higher returns and less intrusive government regulations and interference.
Research Before Buying Property In Italy.
Italy is a fantastic place to buy a lifestyle property; and whether you want to live there on a part time basis, as a full time Expat or a retiree, you can have an amazing standard of living at a relatively low cost.
However, when it comes to buying an investment property Italy is unlikely to be your best option. There are several nearby nations in Europe that offer far higher potential returns on properties that sell for a similar price. On top of this, other governments, in nations such as Georgia, are far less restrictive and do not tax you on your returns at such a high rate.
Therefore, although Italy is one of the best countries in the world to live in as an Expat the property market does not offer excellent investment opportunities. Of course, there are cases where you can achieve great returns on an investment in Italian property although to discover these opportunities you will need to undertake a lot of deep research and ideally have some solid local knowledge to back up your findings.
