words by Carla Passino
A performance analysis of the Italian property market for the last 25 years shows that values have grown substantially in real terms.
After years of boom, the Italian property market has entered a phase of gentle decline. Prices are expected to fall slightly in 2009, and sales have already gone down. But how much will this slowdown affect long term property values?
Rather little, if previous market patterns recur. With the proviso that past performances are never a guarantee of future ones, an analysis of historic data by estate agent conglomerate UBH indicates that Italian property prices are robust in the long term.
The UBH research department looked at property prices and sales volumes for the last 25 years. This year’s figures show that sale times are up (6.6 months in January 2009, against 5.2 in the same month of last year) and the gap between asking and sale price has become more substantial (14.1% against 11.3% last year). This follows on from last year’s market slowdown, which saw transaction volumes go down by an estimated 19.3% and prices by 6.8%.
But put these figures in a historical perspective and the property sector start looking a lot healthier. Over the last 25 years, sale volumes in Italy have grown hugely, and so have values. Last year’s transactions were 1 ½ times those of 1985—and nominal prices were three times as high.
Of course, Italy knew a period of high inflation during those years, but even taking that into account, real values still grew by a substantial 57%.
Even more interesting is the comparison with a past property slowdown—the one that started in 1992, which was widely considered one of Italy’s worst property crashes since the end of the Second World War. In that year, sales went down by 16.3%. Prices quickly followed suit, falling by 16.3% in 1993, 12.6% in 1994 and 5.5% in 1995.
Unlike now, the cost of money, and thus mortgages, remained high at the time, hindering recovery. And the top end of the market was badly affected, with a 13.5% decline in premium home prices between 1992 and 1993, against 1.2% in 2008.
Nonetheless, values bounced back—nominal figures started picking up in 1996, and, by 2005, prices had substantially overshot the 1992 ones in real, as well as nominal terms.
