Following the worsening of the international economic crisis, housing demand significantly dropped in Italy, but Italians continue to see property as a good medium-term investment.
The Italian property market is now suffering the consequences of the global economic crisis, but Italians still perceive housing as a reasonably safe investment and the sector is expected to recover in 2010. These findings come from the latest study by economic intelligence company Nomisma.
Nomisma researchers found that residential sale volumes decreased by 15.1% in 2008. However, the drop was particularly marked in the last quarter of the year, after the deepening of the financial crisis eroded consumers’ confidence.
This, together with the actual decline in wealth resulting from the crisis, caused a huge reduction in housing demand, which retreated to early Noughties levels.
The drop in demand was particularly noticeable among mortgage-funded buyers, partly because they suffered from a more difficult access to credit and partly because lack of confidence and decrease in perceived wealth more than outweighed the advantage of getting a mortgage at a lower interest rate. As a result, cash buyers now account for more than half of Italy’s property sales.
All this is likely to have an impact on prices. The Italian market never got as overheated as others did in previous years, and was never flooded with new-builds. This, together with the fact that Italian families traditionally have low levels of personal debt, helped housing values to hold even in the wake of the crisis. However, supply now vastly exceeds demand, which continues to decline, and this could exert a downward pressure on prices throughout 2009.
Nomisma expects that sale volumes will fall by another 8% to 10% in 2009, bringing prices down to 7% to 8%. However, the study found that Italians still see property as a safe asset in the medium term, particularly in this time of financial turbulence. Therefore, the report states, “if banks allowed greater access to credit, this could provide the additional liquidity required to re-start interest in property investment, both at individual household and at institutional level.”
The Italian government’s efforts to kickstart the economy through a package of fiscal incentives linked to housing development and renovation should also have a positive effect. Nomisma expects the property market to stabilise in 2010.
