“If someone had invested 100,000 euros in 2012 by buying a property, they would now have an asset worth 131,000 euros in Milan, but only 74,000 euros in Rome, compared to an average of 84,000 euros in the other 18 Italian regional capitals,” said Antonio Intini, Chief Business Officer of Immobiliare.it, during the CvRealEstate event titled “Secured Credits between Market Price and Judicial Price,” which took place on September 27, 2023, in Milan at Le Village by CA.
As known, the real estate market presents different dynamics depending on the sector and location. Over the last 10 years, Milan has not been the only regional capital to generate positive returns. “Bologna and Florence have also done well, but for different reasons,” added Intini. “The real estate market in Bologna has risen due to the increase in population resulting from students, while Florence has grown—and continues to grow—due to tourism and its greater attractiveness compared to other cities in Italy.”
Bonds to Real Estate (Btp verso mattone)
In a particularly adverse context like the current one, heavily influenced by a series of factors including the ongoing geopolitical crisis, the surge in inflation, and interest rates that have pushed BTP yields above 4.5%.
Which sectors and cities are worth investing in? “Looking at the real estate cycle, we have actually returned to prices from 20 years ago, so excluding Milan, Bologna, and Florence, we are at the minimum prices of the beginning of the century. Property transactions have returned to a higher value than the minimum of 10 years ago, and there is still an upward trend that can be exploited. Of course, monetary policies and other conceptual factors introduce a level of uncertainty that weighs on the current market, but there is still room for growth. As for the estimates for the current year, property transactions are decreasing, but 2023 will still be a year of price growth (we expect a 2% increase in 2023). The underlying trend is that prices always follow the trend of property transactions with a lag of two or three years, so there is still a bit of a long-term wave of price growth, which is, however, beginning to taper off or slow down,” Intini explained.
Milan vs. Other European Capitals
“In Milan, it is true that prices have grown by over 40% compared to 20 years ago, but despite claims of a real estate bubble and excessive price growth, the city has added services, hosts internationally significant events, and offers a much higher quality of life than just a few years ago, so it is natural that the real estate market has followed suit. In fact, according to UBS research, Milan is still listed among the markets at ‘fair value,’ so absolutely not in a bubble but also not overpriced. If you compare it to other European and international cities, Milan is on par with them, despite having a relatively sustainable price level,” explained Intini.
Milan: An Unsustainable City for Residents
However, there is a drawback. “When comparing housing prices to average incomes, there is a fundamental difficulty in buying because average incomes have not kept pace with property prices. So, many areas of Milan (especially the city center) are not affordable for many. According to some of our simulations, the minimum gross family income needed to take out a 25-year mortgage for a three-room apartment which is around 80-85 thousand gross euros,” Intini explained, pointing out that two factors are at play: higher prices, requiring larger mortgages, and higher interest rates, which have increased mortgage payments and the capital portion that needs to be financed.
For those living in Milan, the city is becoming less sustainable compared to four or five years ago.
Other Real Estate Sectors Apart from Residential
“There is a big question mark regarding office spaces, which are going through a period of significant restructuring but probably also defining a new paradigm in the real estate sector, while logistics, especially in large cities, has grown and continues to grow very well,” replied Intini.
