10 Key Rules For Investing in Italian Real Estate
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.
1) CONSIDER DIFFERENT REGIONS Tuscany remains overseas buyers' favourite part of Italy.
Yet other areas such as Sicily, Abruzzo, Calabria and Le Marche 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.
2) BUDGET REALISTICALLY 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.
3) FIND A GOOD REALTOR This is one occasion to be grateful for Italian red tape.
All realtors must be professionally licensed and qualified, insured and registered at a Chambers of Commerce.
Check their website and letterheads to ensure they belong to one of the following respected organisations: FIAIP (Federation of Professional Estate Agents), FIMAA (Federation of Mediators and Agents) or AICI (Italian Association of Estate Agents).
4) DON'T TAKE ON TOO MUCH Don't over-commit yourself.
The idea of renovating an old rustic ruin may sound romantic but are you prepared for the work and expense it involves? Compete 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.
5) ENGAGE A LAWYER Despite facing a completely unfamiliar legal system in an unfamiliar language, a number of foreign buyers still cut corners by blustering their way through the Italian purchasing process without a lawyer (avvocato).
The inherent dangers of this approach are countless.
First, many end up signing documents they do not understand and then find themselves bound to an irrevocable legal commitment.
Second, it means a number of vital checks that a good lawyer would carry out instead go ignored.
They include ensuring the vendor has a registered title and is legally authorised to sell.
Where a property is jointly owned by a number of family members, a frequent occurrence in Italy, all must agree to the sale And the property and all subsequent alterations must have proper planning permission.
Also, Italian law means any loans, mortgages, utility bills, etc, relating to the house pass to the new owner, so a lawyer must ascertain that no such charges remain.
Try to hire a reputable, independent English-speaking avvocato who comes personally recommended.
Or consult a lawyers' directory such as hg.
com.
6) KNOW THE PROCESS Once buyer and seller agree 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.
7) KNOW YOUR ADD-ON COSTS 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.
8) USE A FOREIGN CURRENCY SPECIALIST Over the course of 2009, the Sterling-Euro exchange rate veered between a high of pound 1/Euro 1.
185 and a low of pound 1/1.
059 over the course of 2009.
Therefore, a Euro 750,000 home would have cost a UK-based buyer pound 77,250 more at the bottom of the market compared to its peak.
Hence, the importance of using a specialist currency exchange firm, who can set rates for future transactions and guard against currency changes.
They also offer much better rates than a bank that can add up to a pound 30,000 difference on a pound 750,000 transaction.
9) CONSIDER RENTAL POTENTIAL Letting out your Italian property is an obvious way to fund your investment.
But make sure you are within easy reach of transport hubs.
If targeting the non-Italian market, aim for a maximum 60-90 minutes from the nearest airport.
If buying in a large town or city, ensure buses and trains are within easy reach.
Properties near the coast will have excellent rental potential and will maintain their value because of stringent restrictions on new building in these areas.
10) TRY THE LOCAL LANGUAGE Try to speak some Italian, even if you are only going your Italian property for a couple of weeks of the year.
In general, the further south you head, the less likely it is that people will speak anything other than Italian.
Your efforts, no matter how clumsy, will endear you to the locals.
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.
1) CONSIDER DIFFERENT REGIONS Tuscany remains overseas buyers' favourite part of Italy.
Yet other areas such as Sicily, Abruzzo, Calabria and Le Marche 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.
2) BUDGET REALISTICALLY 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.
3) FIND A GOOD REALTOR This is one occasion to be grateful for Italian red tape.
All realtors must be professionally licensed and qualified, insured and registered at a Chambers of Commerce.
Check their website and letterheads to ensure they belong to one of the following respected organisations: FIAIP (Federation of Professional Estate Agents), FIMAA (Federation of Mediators and Agents) or AICI (Italian Association of Estate Agents).
4) DON'T TAKE ON TOO MUCH Don't over-commit yourself.
The idea of renovating an old rustic ruin may sound romantic but are you prepared for the work and expense it involves? Compete 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.
5) ENGAGE A LAWYER Despite facing a completely unfamiliar legal system in an unfamiliar language, a number of foreign buyers still cut corners by blustering their way through the Italian purchasing process without a lawyer (avvocato).
The inherent dangers of this approach are countless.
First, many end up signing documents they do not understand and then find themselves bound to an irrevocable legal commitment.
Second, it means a number of vital checks that a good lawyer would carry out instead go ignored.
They include ensuring the vendor has a registered title and is legally authorised to sell.
Where a property is jointly owned by a number of family members, a frequent occurrence in Italy, all must agree to the sale And the property and all subsequent alterations must have proper planning permission.
Also, Italian law means any loans, mortgages, utility bills, etc, relating to the house pass to the new owner, so a lawyer must ascertain that no such charges remain.
Try to hire a reputable, independent English-speaking avvocato who comes personally recommended.
Or consult a lawyers' directory such as hg.
com.
6) KNOW THE PROCESS Once buyer and seller agree 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.
7) KNOW YOUR ADD-ON COSTS 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.
8) USE A FOREIGN CURRENCY SPECIALIST Over the course of 2009, the Sterling-Euro exchange rate veered between a high of pound 1/Euro 1.
185 and a low of pound 1/1.
059 over the course of 2009.
Therefore, a Euro 750,000 home would have cost a UK-based buyer pound 77,250 more at the bottom of the market compared to its peak.
Hence, the importance of using a specialist currency exchange firm, who can set rates for future transactions and guard against currency changes.
They also offer much better rates than a bank that can add up to a pound 30,000 difference on a pound 750,000 transaction.
9) CONSIDER RENTAL POTENTIAL Letting out your Italian property is an obvious way to fund your investment.
But make sure you are within easy reach of transport hubs.
If targeting the non-Italian market, aim for a maximum 60-90 minutes from the nearest airport.
If buying in a large town or city, ensure buses and trains are within easy reach.
Properties near the coast will have excellent rental potential and will maintain their value because of stringent restrictions on new building in these areas.
10) TRY THE LOCAL LANGUAGE Try to speak some Italian, even if you are only going your Italian property for a couple of weeks of the year.
In general, the further south you head, the less likely it is that people will speak anything other than Italian.
Your efforts, no matter how clumsy, will endear you to the locals.
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