In 2009, Britain’s prestigious Royal Institution of Chartered Surveyors singled out Italy as one of the best places to invest in real estate, because the real estate in Italy was not undermined by cheap credit and has avoided the boom and bust seen elsewhere in Europe and the US.
To quote Knight Frank, “Historically, property prices in Italy have always held.” In stark contrast, average prices in the US fell a record 18.2% through November 2008, with Las Vegas values plunging by nearly 40%, according to the 20-city Case-Shiller index.
Changes in the Italian tax regime have cut buying costs by 10-15%, meaning there has never been a better time to buy Italian property. Yet as with any real estate transaction, there are commonsense guidelines to follow to make sure buying your dream home doesn’t become a nightmare. Here are the 10 most important:
1) LOOK BEYOND TUSCANY
There’s more to Italy than Tuscany — the country’s most popular and expensive region. Other areas — Calabria, Abruzzo and Sicily for example — offer equally spectacular beaches but with property values a fraction of Tuscany’s. Spend a few days in different areas to see what appeals to you. Find out how close facilities such as shops, restaurants, banks and train and bus stations are.
2) FINDING A REALTOR
Getting taken for a ride by some incompetent cowboy could prove costly. Genuine real estate agents must hold a professional licence, qualification and indemnity insurance, and be registered with a Chamber of Commerce. Their publicity material and website should show membership of one or more of the following: AICI (Italian Association of Estate Agents), FIMAA (Federation of Mediators and Agents) or FIAIP (Federation of Professional Estate Agents).
3) SET A REALISTIC BUDGET
The appeal of regions such as Tuscany is undeniable, thanks to its picturesque countryside and art cities such as Siena, Florence and Pisa. But Tuscany isn’t cheap, and Euro 75,000 isn’t going to get you that farmhouse on 10 acres — unless you’re happy to take on a restoration project. Another tip: when buying in Italy, don’t bank on negotiating 40-50% discounts — around 10% is the norm.
4) DON’T OVERSTRETCH YOURSELF
Frances Mayes’ bestseller, Under The Tuscan Sun, inspired a generation of UK and US investors to try renovating Italian countryside ruins. If doing so, it’s vital to be aware of the time, effort and money involved — up to Euro 1,000-1,500 per sq m for a complete restoration. Other common mistakes involve taking on property with far more bedrooms, outside land and facilities than you need. Remember, swimming pools and vineyards require regular upkeep.
5) KNOW THE BUYING PROCESS
Once buyer and seller agree a price, the buyer makes an offer with a deposit of around 5%. If the buyer’s surveyor, and/or lawyer, give the go-ahead, both parties then sign a sales contract (compromesso) and agree a timetable. The buyer puts down a second downpayment, taking his total deposit to around 30%. Pulling out at this stage carries severe financial penalties for both sides. The final stage sees both sides sign a final contract (rogito) in front of a notary. At this stage the buyer settles in full with the seller, usually via an Italian bank draft. He will therefore need to have a fiscal code from local tax authorities, permitting him to apply for a bank account.
6) GET A LAWYER
For most buyers, the Italian legal process will be completely unfamiliar, so hire an independent bilingual lawyer with expertise in the Italian real estate sector. At all costs avoid signing documents on your own without knowing what you are committing yourself to.
Some other things to consider: Are there are any unpaid mortgages, loans or other third-party claims on the house? Are there plans for a new highway just 400 yards away? Was the property built with complete planning permission (a problem in parts of Italy, but of vital importance when you want to sell)? These are all are vital background checks your lawyer should perform.
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 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) DON’T USE A BANK TO CHANGE CURRENCY
In 2009 the Sterling-Euro rate veered between a low in January of £1/Euro 1.06, and a high in June of £1/Euro 1.19. That means buying a Euro 500,000 home would have cost a UK-based buyer £51,500 more at the start of the year than in summer. Hence the importance of using a specialist currency exchange company, who can fix rates for future deals to safeguard against currency fluctuations. They have far better rates than a bank, and can in comparison save buyers up to £20,000 on a £500,000 exchange.
9) THINK RENTAL POTENTIAL
Do you plan to rent 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.
10) SPEAK SOME ITALIAN
Make an effort to learn some Italian, 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 endear you to Italians.