Forte real estate downturn in the Italian market: forecasts for the end of 2023.

In 2023, the Italian real estate market experienced a strong decline both globally and nationally. According to the PwC Global & Italian M&A Trends in Real Estate study, the situation in the global and national real estate markets is particularly unfavorable, with the decline continuing steadily. In particular, a 15% decline in investment values and a 13% decline in real estate sales were recorded in 2023.

The following are more details of a study conducted to better understand the situation in the Italian and global real estate markets.

The scary signals are already starting to show, especially from China.

After a significant drop in the shares of Country Garden Holdings (a huge Chinese''real estate, which lost 17.4% of its value on the Hong Kong stock exchange, affecting the Hang Seng Index), there is a risk of spreading the impact to the Chinese real estate market and its global impact. As it turns out, a serious ongoing decline has already been recorded in 2022, which continues into 2023. In more detail, the real estate market had a value of $351 billion in 2022, which already constituted a decline of 37% compared to the previous year. Especially this decline was registered in the second half of the year, mainly due to the increase in interest rates by banks and government agencies.

The situation in Italy

As well as at a global level, so the Italian real estate market registered a decline in the second''half of 2022 and the first half of 2023. Although the Italian real estate market is often difficult to interpret due to its pronounced regional segmentation, it is possible to identify general trends regarding its development.

One of the key topics discussed by many analysts is the prospect of a further significant decline in the overall real estate price index in Italy in the near term due to the evolution of the credit market. During 2023, the volume of real estate transactions declined by more than 10%. A decline in real estate transactions that could continue for the rest of the year.

According to a study by PwC Global & Italian M&A Trends in Real Estate:

• Office logistics and asset class stand out as''the most developed and demanded by investors. In particular, logistics did not register a significant decline, remaining fairly stable with 540 million dollars;
• The last months of 2023 are expected to see renewed growth in the hospitality sector in Italy. This sector is currently valued at 400 million dollars;
• The luxury market is also attracting particular investor interest, especially in rentals in prestigious shopping streets and luxurious historic cities.

The reason for the decline in the residential real estate sector is mainly due to the interest rate required by the bank at the moment, likely to be above 4% as ECB interest rates are set at 4.25%, which''significantly higher than just three years ago, when they hovered below 1%. In fact, with the same credit rating, loans have become much more expensive and therefore the bank can lend smaller amounts for real estate purchases, which reduces real estate transactions in this sector, as is already happening.

It should also be noted that there is another factor, although invisible, that has a significant impact: inflation.

In specific terms, there may be an increase in so-called 'necessity sales', where those who need to sell quickly and are having difficulty lowering the price realize a property at a better price. Obviously, these considerations must be weighed against geographic and demographic estimates, which vary from region to region.

In general, we can expect to see an increase in the number of properties coming up for auction. There is also a shortage of modern and innovative offerings in the Italian market due to the halt in construction that has characterized the last''decades. At the end of 2022, the share of transactions between individuals regarding new housing was nationally around 74 thousand, up 10 percentage points from 2021. The market, however, remains constrained compared to growing demand.

Supporting the sector are interventions from large investors who not so long ago discovered rental apartments not only as a new asset class to rely on, but also in others, such as student residences and retirement homes. These are represented by numbers that are still insignificant.

Prices for real estate in Italy, obtained from Immobiliare.it, In July 2023, property sale prices were highest in the Trento region (in Alto Adige), amounting to € 3,142 per square meter. On the contrary, for''Properties offered for sale in Calabria require only € 929 per square meter, which is the lowest value in the whole of Italy. In the same month, rental property prices were highest in the Valle d'Aosta region with € 17.57 per month per square meter. The lowest average prices were in Umbria with only € 7.23 per month per square meter, the lowest value nationally.