Prices have started decreasing in urban outskirts and semicentral areas but this correction will help the market reach a new equilibrium, according to Italian property group Ubh
The Italian property market is undergoing an adjustment phase which will eventually see it reach a new balance. This is the conclusion reached by the latest report from Italian property conglomerate Ubh.
The company estimates a decline in sales volume for 2008 of about 13%—with the year ending on a total of 680-700,000 sales, on par or just above 2001 levels.
This drop is partly caused by the rise in interest rates and stricter criteria adopted by Italian banks when granting a mortgage—both of which have contributed to flattening demand from low income buyers. Further up the income scale, explains Alessandro Ghisolfi, who heads Ubh’s Research office, “the demand from families who are looking to replace their property is facing some difficulties, as people are disconcerted by the trends in property prices, which are only now adjusting after the euphoria of the last few years.”
Prices of resale homes in urban outskirts or semicentral areas have decreased by an average of 6.8%, notes the Ubh report, while those of city centre houses, and those of premium properties are flat year on year. Naples, Palermo, Rome, Messina and Milan are the cities that saw the greatest price decline, whereas Padova, Venice and Trieste saw the smallest ones. Naples, Milan, Florence, Palermo, and Rome also experienced the greatest differential between asking and sale price—anywhere between 14% (Rome) and 17% (Naples).
But the drop in prices is not necessarily a signal of impending doom, says Ubh. “The positive element derives precisely from this value adjustment process, which will give seller and buyer the opportunity to close a sale more quickly,” says Ghisolfi. “The feeling is that, in 2009, property prices will look for a new market equilibrium, certainly lower than at the beginning of 2008. Sale volumes, given the current credit conditions, will be closer to the 1990s number than the figures of the last few years. In short, it will be a year of looking for a new balance, which will not damage the market.”
A centrally-located 100 square metre resale flat in good condition now costs an average of €950,000 in Rome, €900,000 in Milan and Venice, €700,000 in Florence, and as little as €300,000 in Trieste.
New builds values, by contrast, remain stronger throughout Italy because demand still overshoots supply.