In a Nutshell: Low prices, beautiful scenery, amazing culture, and very active tourism make Italy a top choice for international real estate investing.
Politics
- National politics is leaning right based on latest voting.
- Immigration, national debt, and unemployment are the biggest issues.
- Currently unable to form working government.
The trend is that Italy is becoming a problem for the Eurozone. It has an ineffective national government, increasing debt that is already way beyond what is allowed in the EU, and growing financial problems as Italy is back in recession.
Tourism accounts for 18% of Italian GDP. Italy is the 5th most visited country in the world and gets over 50 million tourists a year. Locals are not benefitting enough and are often resentful of the tourist crowds.
The website GlobalEconomy.com gives Italy a Government Stability score of .56, where -2.5 is weak and +2.5 is strong. Italy has had several dozen governments since the end of World War II, so overall, it is not a very stable government.
Economic Outlook
Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with high unemployment.
In general, the Italian economy is not growing very fast. Average growth from 2001 to 2007 was 1.2%. Since then, it has been even worse. GDP is around 2 trillion $US. Italy’s economy grew 1.6% in 2017, but only .9% in 2018. The country entered into a recession as of the end of 2018, with the 4th quarter growth at -.2%. 1st qtr 2019 growth was .1%. As of April, 2019, unemployment was 3rd highest in EU at 10.2%. Only Spain (14%) and Greece (18%) were higher.
The economy is poised to stagnate this year, weighed down by languishing domestic demand and slower growth in the EU. Political and fiscal uncertainty and feeble credit extension will likely depress investment, while consumer spending will be constrained by muted productivity growth and weak job creation. The risk of turbulence in the financial markets clouds the outlook. The organization ‘Focus Economics’ projects growth of 0.1% in 2019, which is unchanged from last month’s projection, and 0.6% in 2020.
In 2018, Italian debt was 132 percent of GDP. Japan is the only country with a higher debt to GDP, at 254%. EU debt restrictions call for debt to be at or below 60% of GDP. (Just for comparison, in 2018, U.S. debt was 106% of GDP)
The EU is more worried about Italy leaving the EU than the British exit, because Italy also is part of the Euro currency. It is a very real possibility that Italy could leave the EU. The far right political party (the League), is advocating to leave if the EU does not make substantial changes.
Historical Real Estate Prices
The market outlook is improving. After the 2008 financial crisis, house prices fell 1.9% from 2008 to 2011, and then fell another 13.5% from 2011 to 2014. From 2015 to 2018, housing prices increased 2.9%.
Long term rents are low and do not offer very good returns to investors. ROI is only 2 to 4%, and that’s before taxes and maintenance costs. There are also a lot of requirements when renting that make it hard to increase the rent.
Italian Ownership laws
No restrictions on foreign ownership in Italy. As long as your home country allows Italians to own real estate, then you can own Italian real estate
Short Term Rental Regulations
There are many national and local regulations and it is constantly changing. These are the current National Regulations.
- Must register with Police and get access to Allogiati Web
- Must submit guests passport or ID to Allogiati Web
- Must collect guest passport and information
Renovation Challenges
There is a never ending supply of old abandoned houses that can be bought and renovated. Italians do not like older buildings and have no desire to fix them up. They want newly built homes or apartments.
Most people say it’s cheaper to buy a place already fixed up than to make the renovations yourself.
From reading the experiences of other expats renovating a house or apartment, it’s pretty tough. Workers are not reliable, many aren’t very good. Costs will always be much higher than expected. Even simple repairs can get nasty as you expose what’s under the walls. It’s not going to save money. You should only do it if it’s just something you think you will enjoy doing. It’s imperative to hire a good geometra. These guys are the general contractors but also know Italian building requirements, can do engineering and permitting, etc.
There will be many regulations you will need to follow. It’s advisable to utilize a lawyer to make sure prior renovations were properly done, and that your own planned renovations are properly permitted. Typically, you need
- Planning Permission
- Building Regulations Approved
- Notification of Neighbors
- Notification of Permission from Others
Italian Tax Laws and Fees When Acquiring and Renting Property
Fees to buyer when purchasing a property:
- 7% registration tax for non residents on declared value of property New properties don’t have registration tax, have VAT tax
- 1% Land Registry tax for non residents
- 1% Cadastral tax
- 10% VAT tax for non-residents when buying a new property
- 1 to 2.5% Notary fees
- 1 to 2 % Legal fees
- 3 to 8% Agent fee shared between buyer and seller
- Offers must include a 1% amount as gesture of good faith. Offer to purchase is binding on buyer, but not seller!
Taxes on rental income (calculated on 70% of gross rent)
Foreign residents are only taxed on income derived within Italy
- Up to 15,000 Euro: 23%
- 15,001 to 28,000 Euro: 27% on amount over 15,000
- 28,001 to 55,000 Euro: 38% on amount over 28,000
- 55,001 to 75,000 Euro: 41% on amount over 55,000
- Over 75,000 Euro: 43% on amount over 75,000
- Regional tax on income of 1 to 2 %
- Municipal and provincial surtaxes of up to .8% may be assessed
Capital Gains are not assessed if property is held over 5 years. For assets held less than 5 years, capital gains is taxed as ordinary income at the rate of 24%.
Property Tax is .4 to .7 of fiscal value, (much less than actual value). Local Property Taxes (only if house is not main residence) is .2 to .76 of property value, payable twice a year.
U.S. Tax Laws
- Income from properties in countries outside the U.S. are taxed the same as income sourced from the U.S.
- Selling a property from abroad incurs same US capital gains tax as property in U.S.
- If it is your primary residence, you can exclude some or all of the capital gains depending on tax status and length of ownership, same as how this is calculated for a primary residence in the U.S.
- You cannot do a 1031 exchange between a U.S. property and a foreign property.
- You can take a foreign tax credit for any capital gains paid in the country where your property was located.
- If real estate is held through another entity, then tax form 8938 may be required.
Banking and Finance
It is possible to open a bank account. You need to show your passport, proof of address, and Codics Fiscale (Tax Code). This you get from Agency of Revenue, or Agenzia delle Entrate. Usually can get it the same day you apply. Most expats choose a non-resident bank account, which pays a little interest on the account.
If you have one or more bank accounts in Italy with deposits totaling $10,000 or more, you must file form 114 (FBAR). If you have over $50,000 in Italian foreign assets, other than real estate, you may need to file form 8938 (FATCA). See my blog on US Tax Laws.
You can buy checks, 1 euro for 10 checks. Must be written in Italian and use proper form of dates. (day, month, year). You can bring in and take out up to 10,000 Euro without declaring it. A U.S. citizen can get a loan in Italy but its cumbersome and many banks won’t allow it. The interest rate is much lower than the U.S.
- Approval rate 80%
- LTV 50% to 60%
- Adjustable and fixed are offered
- Loan can be in euros or dollars
- Interest rate 1.7 to 3.6%
- Loan duration between 10 and 20 years
Other Resources
WWW.GATE-AWAY.COM
Property search website for Italy. Easy interface to search for properties for sale all over Italy. First saw it referenced in International Living
WWW.GLOBALPROPERTYGUIDE.COM
Lots of good statistics for many countries
WWW.TRANSFERWISE.COM
Information on lot’s of different countries – geared towards expats.
WWW.ICLG.COM
lots of info on real estate taxes and law in Italy
WWW.GLOBALECONOMY.COM
Economic information on almost every country in the world.