Despite the turbulent years, the allure of real estate investment remains steadfast over time. However, there is a new trend in Italy as the desire for new homes has seen a significant increase. The interest in newly constructed properties began to soar in 2017, with an average annual growth rate of 7.8% over the past five years. In 2022, new property transactions rose by 10%, and experts predict a further 2.7% increase by the end of 2023, while the number of transactions involving older homes is expected to decline by 8%.
Moreover, property prices are also on the rise, with an average increase of over 3% in the last two years. The upward trend is anticipated to continue in 2023, with an estimated growth of 4.6%. However, despite the strong demand for new properties, the supply remains low, accounting for only around 10% of the total housing market, particularly in large cities.
The New Property Market
According to Mario Breglia, president of Scenari Immobiliari, while introducing the First Observatory on Future Housing, created by the company in collaboration with Abitare Co. “ “around 74,000 new homes were traded nationally by the end of 2022, marking an increase of approximately 10 percentage points from the previous year. This surge can be attributed to the record-breaking growth of 34% in 2021, partly due to pandemic-related factors.”
The Most Interesting Areas of the New Constructions
The bulk of new constructions are concentrated in major cities, with Milan leading the way, followed by Rome. In these two cities alone, there are 17,400 new homes for sale, accounting for 75.7% of the total new properties available in the 11 main Italian cities (totaling 23,000 new homes). Florence ranks third, offering 1,450 new units for sale, while Catania is at the bottom of the list with only 200 new homes. Napoli offers 450 new units, while Turin boasts double that number with 900 new properties available for purchase. Bari and Bologna offer 750 and 850 new homes, respectively, significantly more than Genoa, which has only 400 new properties on the market.
The suburbs witness the highest number of new constructions at 63.5%, while the semi-central areas account for 25.5%, and the central areas just 11.5%. On the other hand, the city centers of Rome, Milan, Bologna, Naples, and Venice are less involved in new residential initiatives- a situation that comes as no surprise. “In particular, in Milan, the development of new construction sites is characterized by limited and rare initiatives in the city center, often through the complete redevelopment of existing buildings with different uses, extending towards the suburban areas,” explained Francesca Zirnstein, General Director of Scenari Immobiliari. She further added, “There are also major construction projects in areas transforming the city’s landscape, linked to urban regeneration efforts, such as those involving railway stations.”
Price Differences between New and Used Homes
Breglia highlights that the average price difference between new and used homes in the 11 major cities analyzed in the study is 37.4%, translating to a difference of €1,800 per square meter. This indicates that new homes are approximately one-third more expensive than used ones. The price discrepancy is most pronounced in Milan, where the price difference reaches nearly €3,400 per square meter, or 43.2%. Florence follows closely with a 36.5% difference, and Rome is in the third position with a 33.9% gap.
Addressing the Italian Real Estate Market and Bridging the Gaps
Breglia stresses that Italy’s supply is too low, especially when compared to the average of other major European cities, which hovers around 20% of the total housing supply. “The prevalence of highly fragmented ownership structures in the residential sector is the main factor hindering the implementation of a pipeline for potential new construction operations,” explained Marco Daviddi (EY). He elaborated that in Italy, there are areas where operations can be carried out, closely related to urban regeneration themes, but they often involve complex urban planning procedures, as they always involve changes in land use, such as railway stations, unused public real estate assets, and disused office buildings, among others. “We have around 8 million square meters of properties with these characteristics that could be subject to regeneration projects,” estimated Daviddi, emphasizing that bureaucracy remains the fundamental challenge.
Another possibility lies in the optimization of public real estate assets. “In our country, we have approximately 31 million square meters of residential properties largely owned by municipalities. Defining mechanisms for efficient management, even just a 5% improvement on this stock, could release 1-2 million square meters that could serve as a catalyst for more extensive urban regeneration projects. These projects aim to bring new products to the market, capable of addressing the emerging needs expressed by a demand that struggles to find desired solutions,” added Daviddi.
Market Players and the Future
“At this moment, our approach is that of observers,” responded Giovanni Benucci (Fabrica Immobiliare sgr), adding that there are several factors impeding progress, such as rising material costs, inflation, and increasing interest rates. “This creates an unfavorable environment for the development of new initiatives,” Benucci continued. He clarified that out of the approximately 5.5 billion euros they manage, around 25% has been invested in the residential sector, covering various aspects like multi-family homes, student housing, senior housing, and assisted living.
The problem lies in the fact that institutional investors seek residential income properties. However, “the Italian tax regulations make it impossible for this type of investment because the taxation system for residential properties is poorly constructed,” stated Benucci. Consequently, it is no surprise that there is a shortage of housing options for students. The macro-environment does not favor new developments, leaving Italian institutional investors, who are patient and less opportunistic or aggressive compared to international investors, unsupported and left outside the door due to a flawed regulatory system.
On the other hand, Generali, an operator with an extensive history in the residential sector, has undertaken numerous residential development initiatives in recent decades. However, over the past five years, the group has reassessed this specific sector and is now making a comeback. Mavilo Colianni (Generali Real Estate) explained that the company currently holds real estate assets worth around 8.2 billion euros, representing approximately 11% of the group’s entire wealth. Generali primarily invests in newly constructed or regenerated buildings, focusing on properties rented out to the younger generations, including students, workers, and families – the so-called multi-family product. These investments span not only major Italian cities but also other key European cities.
Colianni concluded by stating the reasons driving their increased investment in this sector, especially in residential income and built-to-rent properties. The resilience of the product, its less cyclical nature compared to other asset classes, its alignment with demographic and social trends, and its reduced product volatility all play crucial roles. These aspects translate to stability in cash flows and high liquidity for long-term institutional investors, in addition to the extensive diversification opportunities this product offers compared to other asset classes.
(Article excerpt from We Wealth magazine, June 2023)