An Italy real estate specialist suggests key rules on how to safely buy a home in Italy and make sure you avoid some blunders frequently made by investors
Britain's Royal Institution of Chartered Surveyors last year singled out Italy as one of the most advantageous countries in which to invest in property as its market has kept a stability not seen in the rest of Europe and the US. That is because Italy real estate prices did not rise precipitously as they did in other countries that saw a property bubble and so did not have as far to fall. In addition, Italian banks' conservative lending policies avoided saddling Italians with unaffordable houses. Only one in 12 Italians has a home loan, compared with one in five UK residents. To quote international realtors Knight Frank: "Historically, property prices in Italy have always held." In stark contrast, average prices in the US fell a record 18.2% in the year to November 2008, with Las Vegas values plunging by nearly 40%, according to the 20-city Case-Shiller index. Allied to Italy's enduring appeal and taxation changes that have reduced purchasing costs by 10-15%, there has rarely been a more opportune time to invest in the Italy real estate market. Yet as with any real estate transaction, especially in a foreign country, there are commonsense guidelines to follow to ensure buying your dream home doesn't become a nightmare. Especially if you plan to move to Italy and become a resident of this country.
Tuscany remains overseas buyers' favourite part of Italy. Yet other areas such as Abruzzo, Calabria and Sicily are far cheaper and also have breathtaking landscapes and beaches. Spend a few days at a time to see what areas you like best. Ensure you are within easy reach of local amenities, unless you deliberately want to be in splendid isolation. And when it comes to viewing properties, there is such a thing as too many. Trying to cram 40 visits into a weekend simply turns into a gruelling slog. And by the time you're on No 35, chances are you won't remember anything of the first two dozen.
Yet Tuscany's famous art cities of Florence, Lucca and Pisa, its beaches at Versilia and its scenic rolling hills mean it will always be in demand with property-buyers. And despite its high costs, there are affordable areas, with prices in Garfagnana in northern Tuscany and the Maremma in the south often half of what you would find in fashionable Chianti. A word of warning: as already mentioned, Italy's housing market has not suffered the freefall seen in some other countries, so expect discounts of no more than around 10% off asking prices.
If there is one occasion to be thankful for fastidious Italian law, it is this. All real estate agents must be professionally qualified and licensed, must be registered with a Chambers of Commerce and have indemnity insurance. Check their website and publicity material to ensure they belong to at least one of: AICI (Italian Association of Estate Agents); FIAIP (Federation of Professional Estate Agents) or FIMAA (Federation of Mediators and Agents).
Don't over-commit yourself. The idea of renovating a rustic ruin may sound romantic but are you prepared for the work and expense? Complete restorations can cost up to Euro 1,500 per sq m. Other common errors include buying property far bigger than you strictly need. A large farmhouse with pool and 5 hectares of olive groves and vineyards sounds fantastic, but don't ignore the maintenance involved.
Does the vendor have fully registered title and is he legally able to sell the house? Are there any mortgages, taxes, loans or utility charges hanging over the property that (under the Italian law of subrogation) stand to pass to the new buyer? Has the house, plus any later amendments, been built with appropriate approval of local authorities? Are there plans to build a new motorway just 500 yards away? Failure to perform these crucial checks could cause a buyer years of regret, hence the importance of hiring a reputable, independent English-speaking lawyer (avvocato) well-versed in the Italian real estate market to carry them out. If possible, use a lawyer recommended by someone you trust. Or consult a property finding company that offers a full legal service, such as The Property Organiser.
Once buyer and seller decide a price, the buyer deposits around 5% and makes an offer (proposta irrevocabile di acquisto) to reserve the property for around two weeks. If his surveyor and/or lawyer give the go-ahead, a preliminary sales contract (compromesso) is signed in which both parties agree a timetable and the buyer makes a second deposit, bringing his payments to 25-30%. Either side risks severe financial penalties for defaulting at this step. The final stage sees the final deed of sale (atto di vendita), signed in a notary's office. The buyer settles the outstanding sum with an Italian bank draft. Before the atto di vendita, therefore, he will need to have a fiscal code from the local tax office so he can open a bank account.
Fees and taxes will usually add 7%-10% to the cost of a resale property and 12-15% for a newly-built property. Typical add-on costs may include around 3% to the the realtor, Euro 500-1500 for a surveyor, Euro 150-200 per hour for a lawyer and up to Euro 5,000 for a notary. For newly built properties, 4% VAT is levied if within a year and a half the buyer registers for Italian residency, a fairly simple procedure. Otherwise the buyer pays VAT at 10%. For previously inhabited properties, the buyer pays 3% of the cadastral value if residency is registered for within a year and a half, otherwise 10% of the cadastral value is payable. Cadastral value is decided by the Land Registry based on factors such as number of rooms, location, floor area, etc. It is usually less than 50% of purchase price.
In 2009 the Sterling-Euro rate ranged from £1/Euro 1.06 at the start of the year to a £1/Euro 1.19 peak in summer. Therefore a British-based purchaser considering a Euro 350,000 apartment would have faced paying an additional £36,000 if he bought at the lower rather than the higher rate. This is why specialist foreign exchange firms are crucial. They can set rates for future currency swaps to protect you against volatile markets. They also have much better rates than a bank and can leave you up to £14,000 better off in a £350,000 transaction.
Do you plan to let out your property? If so, it is advisable to be close to transport hubs. Aim for 90 minutes at most from the nearest airport. In big towns and cities, bear in mind proximity to public transport as not all visitors will have access to a car. Villas and apartments near the beach always have superb rental potential. They also maintain their investment value over time because of limits on new construction in coastal areas.
Make an effort to learn some, even if you only plan on using your new home for a couple of weeks of the year. As a rule of thumb the further south you go, the less likely it is that people will speak a foreign language, And your efforts, no matter how rudimentary, will go down well with Italians.
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