The Italian real estate market continues to face challenges. What to expect after the Evergrande incident?

The Italian real estate market is often difficult to interpret due to its vibrant regional segmentation. Despite this complexity, it is possible to identify general trends in the development of the sector. One of the main 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 development of the credit market.

Analysis of the real estate market in Italy

The decline in real estate volume for the full year 2023 is of particular concern and could continue for the rest of the year. At the same time, data presented by FABI at the end of June showed an increase in the amount of unpaid payments by Italian families, which brings the amount to around 15 billion euros, marking a particularly difficult credit situation. Complicating the situation in the Italian real estate market, similar to the global situation, is the announcement of the bankruptcy of Evergrande, a large Chinese real estate company with strong international connections. Briefly, an already difficult situation has been further complicated by recent developments.

Trends in the Italian real estate market

In the course of 2023, real estate purchase and sale transactions fell by more than 10%. According to data published by Idealista, the real estate market in Italy has a pronounced segmentation depending on the region. At the overall level, there is a monthly increase of 0.1% in July, resulting in an annualized change of +1.8%, so there are no particular declines in the price level. On the contrary, in Lombardy there is a noticeable increase.

The impact of the credit market on Italian real estate

Although the web is awash with questions like "does it make sense to buy a house right now?", the general trend indicates a rather anomalous situation, especially when analyzing the credit market. The interest rate demanded by the bank at the moment is likely to be above 4% as ECB rates are at 4.25%, significantly higher than just three years ago when they were less than 1%. In total, with equal credit terms, the loan has become much more expensive and therefore the bank can lend smaller amounts to buyreal estate, which leads to fewer transactions in the real estate market, as is actually happening. It should also be noted another factor, although invisible, has a significant impact - inflation. A family or individual should consider the increase in running costs.

The possible implications for the real estate market in Italy

In conclusion, the percentage of buyers choosing bank lines to purchase real estate could potentially decrease, reducing demand, and in Italy, especially with the actual application of the also discussed excess profits tax.

The Evergrande bankruptcy and its implications

Evergrande declares bankruptcy: a problem that goes beyond China. In addition to the technical difficulties associated with the default of the Chinese real estate giant, it is important to note that this company represented and represents the very core of the Chinese real estate market, as well as one of the major global economies. Evergrande's bankruptcy alone could have potentially negative consequences for the national economy and, more broadly, set off a chain reaction on a global level. The beginning of the Chinese giant's crisis goes back to 2021, when many companies representing the Chinese real estate market (about 39% of them) declared bankruptcy. In the current situation, Evergrande is once again putting the markets in considerable anxiety, as even President Biden has called it a "ticking time bomb" that could potentially affect the entire global economy. This is because of the possible implications for the Chinese economic system itself, which, given its scale relative to other powers, could cause serious economic and worldwide complications.