Italy: falling property prices, but rising rents. Could this be the time to invest?

Real estate sales are on the decline, while rental prices are experiencing a surge, signaling a weakening trend in the real estate market. ISTAT’s data for the first quarter of this year reveals a notable downturn, with 210,691 notarial purchase and sale agreements and deeds of transfer for consideration for real estate units—a 5% decrease compared to the previous quarter and an 11% drop year-on-year. This downward trend is also impacting the rise in rental housing prices.

Across all geographical regions of the country, real estate is marked with a negative sign: the North-West at -11.3%, the South at -4.7%, the Center at -4.3%, and the Islands at -2.2%, with the exception of the North-East, which is experiencing growth (+1.0%). Examining the economic sector, there is an increase in the northeast and the center (+13.0% and +6.9%, respectively), while it remains essentially stable in the islands, the northwest, and the south.

The housing sector is particularly affected, reporting negative percentages nationwide, with peaks of over -16% in the north-west and center. In both large and small towns, housing sales are plummeting (-18.3% and -6.4%, respectively). ISTAT comments on this trend, stating, “In the first quarter of 2023, the real estate market continues and accentuates the downward trend already observed,” highlighting the contraction primarily driven by the housing sector, the driving force of the entire real estate market, following eight consecutive quarters of growth from the third quarter of 2020 to the second quarter of 2022.

The third Real Estate Market Observatory 2023 by Nomisma echoes this contraction, analyzing the performance of the 13 main Italian markets. The Italian real estate sector is expected to close 2023 with a sharp downturn compared to the previous two years. According to the report, the erosion of Italian households’ purchasing power and challenges in accessing credit have negatively impacted the sector’s prospects.

Cautious credit policies and a slowdown in demand have led to a -29% decrease in the volume of mortgages disbursed in the current year, resulting in a consequential decline in purchases and sales of around -13%.

The difficulties faced by families in purchasing homes have prompted a shift in interest towards the rental market. Over the past year, 7.3% of demand has shifted from buying to renting, exacerbating pressure on an already saturated sector and causing rents to rise by 2.1%. Noteworthy increases in individual cities range from 3-4% in Milan, Florence, and Turin to +5% in Bologna. This trend of rising rents is anticipated to continue in the coming months, according to the latest survey on the housing market in the third quarter conducted by Bankitalia, which polled 1,451 estate agents. The survey indicates that while real estate prices remained largely stable (61.3%) from July to September, there was an increase in the share of agents foreseeing a fall in prices, rising to 28.6% from the previous survey’s 25.5%.