In light of 10-year BTPs yielding 4 percent in this market environment and the new green homes directive, is the brick (still) a profitable investment?
We Wealth asked Tecnocasa, idealista, Reopla, World Capital Group, and Barnes, and each identified investment opportunities in each segment–residential, box, vacation home, office, and luxury real estate. Our question is “certainly simple, but the answer is complex.” Indeed, in light of both high rates and the risks on the horizon of seeing rising expenses to make buildings less energy-intensive, the picture from a year ago has changed considerably. However, they explain, the market slowdown may be making sellers more willing to discount, so investors may find good buying opportunities in potentially profitable areas.
Especially now, real estate is an excellent form of investment to defend the capital. Indeed, high inflation suggests real estate is one of the best uses. And by real estate, they mean not only the house (small, vacation, or luxury) but also garages and stores, which are attractive real estate assets for investors, mainly due to attractive gross returns.
Example No. 1
The purchase of a one-bedroom apartment of 65 sq. m.
The income-generating formula appeals to Italians. The latest Tecnocasa data show that 17.5 percent of purchases made through their network are for real estate investment, which is again close to pre-covid levels. “During 2022, the rush to real estate was also driven by the return of tourist flows that have revitalized short rentals,” explains Fabiana Megliola, head of the Tecnocasa group’s study office. However, she then points out, “Of course, when choosing to make this type of investment, the location must also be considered. Generally, especially if the goal is to make income, one prefers areas with high rental demand, such as university areas, which guarantee continuity in rents. If, on the other hand, you are aiming for capital appreciation in addition to renting, you choose areas affected by redevelopment.”
How much can a one-bedroom apartment of about 65 square meters yield?
“Nationally, the average rental yield of a one-bedroom apartment with a rent-free contract is around 5.1 percent gross. And in university areas, for example, where you rent by the bed, the yields go up and can touch as much as 10 percent gross annually (see table),” Megliola concludes.
The table below considers the hypothesis of 4 beds (Source: Tecnocasa group)
Example No. 2
Boxes as a form of investment to employ 20 to 50 thousand euros
From the latest survey (2023) by idealista on residential purchases and sales by Italians, the garage represents the most requested appurtenance by home buyers. In the majority of cases, those who buy a garage or parking space do so to use it, but there is a fair percentage of those who buy it to put it to income because the gross annual returns today reach close to 8 percent.
“Going into detail on returns, the best place to invest in a box is Bari, which guarantees an average annual gross return of 7.7 percent, followed by Rome (7 percent) and Milan (6.7 percent). Naples is less profitable (4.9%) due to the high cost of boxes and car costs, an average of 48,500 euros,” explains Vincenzo De Tommaso, head of idealista’s study office.
Yields in 12 of the major Italian cities
(Source: idealista)
What factors to take into consideration?
“The choice of the box presupposes the evaluation of an area with a reduced number of parking spaces compared to the housing density and possible construction of new boxes or new parking spaces that would increase the supply, with a reduced effect on rents,” answers De Tommaso who concludes by saying that “investing in a garage can be a valid solution for investors because the capital to be used for the purchase is reasonable (between 20 and 50 thousand euros in the large cities analyzed), with maintenance costs and taxation much lower than an apartment or a store, for a respectable return.”
Example No. 3
Vacation homes: low volatility and high returns, why invest in mountains
“Mountain homes are showing rising sales prices and attractive returns from short-term rentals while facing low market fluctuations-an excellent opportunity for a diversified investment.” Speaking is Patrick Albertengo, ad of Reopla, who explains that–according to their survey–at the top of the list of the main Alpine resorts, in terms of maximum sale prices for high-end or newly built apartments, “is Madonna di Campiglio, with values reaching 15 thousand €/sqm. Another location at the top of the ranking is Cortina d’Ampezzo, where the price of an apartment in the center can easily exceed 10 thousand euros per square meter. In contrast, in destinations such as Sestriere, Cervinia, and Livigno, the value of an apartment in the center can easily exceed 5 thousand euros per square meter.”
What returns are we talking about?
“If it takes at least €850,000 to buy a 100 sq. m. property in Courmayeur, Reopla’s analysis shows that the average short-term rental income could be around €250 per night; assuming the property is rented for 200 days per year, the gross gain would be 5.8 percent,” says Albertengo, who then concludes by saying: “The return is even higher in Sestriere: with the same investment and a requirement of €450,000 to purchase a house of the same square footage, renting for 200 nights at an average rate of €150 per night, the gain could rise to 6.6 percent.”
Example No. 4
The store in Milan (but also in Rome and Florence)
The commercial sector continues to represent a safe haven and valuable investment asset, which has proven to be more profitable over time than other types of investments, such as monetary investments. This is confirmed by surveys conducted by the research department of World Capital Group, which show (see chart) that over the past 15 years, real estate returns in the retail sector, along high streets and secondary streets, have been on a stable trend.
“If a private investor had capital available to invest and chose to focus on an income-producing store in the city of Milan, he or she could have the opportunity to access solutions with average gross yields of 4 to 5 percent for high streets and 5 to 7 percent for secondary streets,” says Andrea Faini, CEO of Wcg, who then adds that “the retail market represents an interesting investment pole, especially for certain activities, such for example, gdo, pharma, but also clothing.”
But not only that, when we talk about a real estate investment, in addition to outlining the type of business, the choice of location is crucial. “Lombardy, more specifically the city of Milan, is confirmed as the most attractive location for investors, especially in areas affected by redevelopment. Rome and Florence follow,” Faini concludes.
Comparison of the yields of Italian government bonds with the yields of high street and secondary street shops
(Source: Wcg)
Example No. 5
Luxury real estate in Rome: first rent, then buy
The luxury market knows no crisis. “There are several locations where it pays to buy, in art cities like Florence or Venice or the Milan of finance. A special mention should then be made of Rome, which is experiencing a new real estate renaissance, driven by the investments of large hotel groups and the important events scheduled in the coming years, such as the Jubilee and the likely Expo 2030.” Giovanni Gargano, the CEO and managing partner of Barnes Roma, said this, outlining the opportunities there are in the Italian premium market, particularly in Rome.
“What attracts most, especially foreigners, is owning a piece of history. In addition, Rome, compared to other world capitals, still allows people to buy luxury properties at low market values,” continues Gargano, who explains that to secure a luxury property in Rome, such as a renovated three-bedroom apartment in the historic center, requires an initial capital of at least 1.5 to 2 million. “In this context, we appreciate a growing demand for luxury rental properties: the user is often foreign and of excellent economic capacity, who intends to move to Rome for some time by requesting a medium-short term contract, preparatory to a future purchase. This type of lease, for example, can be considered low-risk. Very profitable is, finally, short rent since it requires a well-maintained property in a high-end location,” Gargano concludes.
Comparison between the most profitable areas of Rome
(Source: Barnes)
