Italy’s positive property cycle, which saw prices rise by an average of about 6.5% a year between 1997 and 2006, has now come to an end. Demand is contracting, with sales volumes down by an estimated 14%.

* Luxury property for sale abroad

The national market trend, chiefly shaped by Italian demand for primary homes, often in urban areas, is seeing reduction in demand, a lengthening of sale times, an increase in supply and a wider negotiation margin for buyers. But premium second homes are performing slightly better. For the best properties— which Fabrizio Savorani of estate agents’ association FIMAA defines as ‘the most attractive resale
homes situated in a panoramic position or by the sea, with easy access to the beach, a marina or the ski slopes; and new builds, particularly bright and airy ones with large outdoor areas’—prices have risen by an average 3.9% in mountain resorts and 3.4% in seaside ones.

Established second-home destinations remain the winners. According to FIMAA, fashionable resorts, such as Cortina d’Ampezzo in the Dolomites or the Cinque Terre in Liguria, have recorded price increases of 4% or above. New builds in
Italy’s top second-home locations, such as Porto Cervo, Santa Margherita Ligure, Capri or Forte dei Marmi, now cost well beyond €10,000 per sq m, and in Portofino, resale homes command a staggering €18,000– €22,000 (the national average is €1,580, according to the Agenzia del Territorio).

So, despite the slowdown, Italy appears more solid than other economies. ‘Although the credit crunch has created a distance between demand and supply, Italy has elements that help it defend its property values over time,’ says Guido Lodigiani of agents Gabetti. ‘Many buildings are protected by the Belle Arti [listing authority], in many places there is great attention towards landscape conservation, and, although there is now a supply surplus nationwide, in areas loved by foreigners, such as the Lakes, there are physical constraints that limit the availability of properties for sale.

‘Being within the Eurozone gives Italy exchange-rate stability, and the country’s historic, cultural and architectural heritage gives some guarantees over the solidity of property values.’

According to property intelligence company Scenari Immobiliari, the Italian market performed better than those of the other four biggest economies in the EU (Britain, Germany, Spain and France) and is likely to close with an annual increase in turnover of 0.9%, against increases of 0.7% in France and 0.5% in Germany, and drops of 1.1% and 4.7% in the UK and Spain. The Knight Frank Global House Price Index also shows that Italian prices are more resilient. In the second quarter of 2008, the Italian house-price inflation rate was the same as the previous year’s, with a 5.4% annual increase, which is far higher than in countries such as France (3.2%), Spain (2.4%) and the UK (–3.9%), not to mention the US (–16.8%).

Bill Thomson of Knight Frank comments: ‘We still have good demand for the right thing, with lots of picky buyers who aren’t in a hurry to make up their minds, but are still of the view that Italy is a pretty stable place to invest their money, both socially and economically. Sr Lodigiani adds: ‘The emotional attachment and the perception of property as a safe investment haven’t changed. In Italy, homes have kept their characteristics as a sought-after ‘shelter’ asset.’

* Luxury property for sale abroad