Cool Venice is the hottest spot in the Italian property market. According to independent research company Scenari Immobiliari, house prices in the city recorded a whopping 9.1% increase-against a national average of 6.2%-between March 2003 and March 2004.

Although Venice has risen to the top over the past 12 months, the local market has been booming for the past five years. ‘The trend in prices has been very positive, recording yearly increases of 7% to 8%,’ says Alessan-dro Ghisolfi, who heads the research department of estate agents Gabetti. ‘Activity seems to have stabilised towards the tail end of 2003 and in the first two months of 2004. Prices have reached a more stable level, but, in Venice, they remain on average higher than in other Italian cities.’

It is rare to find a smallish flat by the Lagoon for anything less than ?4,000 per square metre, and larger flats and houses sell for ?3,200 to ?3,500 per square metre. ‘Prices have doubled,’ says Gianluigi Fusato of estate agents Grimaldi Immobiliare. ‘A flat we would have sold for 300m Italian lire in 1999 will now go for ?300,000, which is roughly 600m lire.’

Property as investment

A renewed attention to investing in property is the driving force behind this exceptional growth, in Mr Fusato’s view. ‘A low rate of return on state bonds and the uncertainties of the stock exchange have attracted people back to bricks. A flat in Venice can yield some 4% a year in rent at the same time as increasing its value by 5 to 7%.’

Add to this low interest rates, affordable mortgages and the spending power of foreign buyers, who account for a significant proportion of local activity, and it is easy to see why prices continue to climb apace.

Demand is particularly strong for the prestigious boroughs of Dorsoduro, Santo Stefano, San Polo and Cannaregio, where houses can command as much as ?4,650 per square metre. Properties on the second or third floor are particularly sought-after, especially if they afford views over the canals, and come with suitable price tags. Grimaldi (00 39 041 5207123) are asking in the region of ?1.5m for a 200sq m flat on the second and top floor of a historic palazzo close to Campo Santo Stefano, which has views over the belltowers of Venice from its roof terrace.

Today, buyers’ interest also stretches to the once unfashionable borough of Giudecca. ‘Over the past few years, a lot of work has gone into regenerating the Giudecca, which once was a blue-collar neighbourhood’ says Serena Bombassei, president of Venice Real Estate. ‘Activity is especially lively in the Zitelle area, where the Hotel Cipri-ani is situated and Elton John recently bought a place.’

Mirroring this newly found interest, prices in the Giudecca have shot up to some ?3,500 per square metre.

Supply remains tight

Overall in the city, supply remains tight because few vendors are coming to the market. ‘People who do not have to sell their properties tend to let them out because the rate of return on lets, especially short ones, is very good,’ Miss Bombassei says.

Buyers often have to settle for properties that require renovation. Prospective purchasers considering repair work must add a further ?1,500 per square metre to the price tag and, if looking at listed houses, must comply with the requirements of Italian planning law.

Major work requires a special permit, but minor changes can be carried out straight away. Listed properties also take longer to exchange hands because a 60-day notice must be given to the Soprintendenza delle Belle Arti (the city’s office in charge of monuments and fine art). During this period, the Soprintendenza has a right to buy the property at the same price that the prospective buyer has agreed with the vendor, although this pre-emption clause is rarely exercised.

But the favourable fiscal regime applied to Venetian listed properties compensates for these inconveniences. Historic buildings fall into a lower stamp duty band and-if bought to let -buyers owe tax only on the property’s presumptive cadastral income rather than the full amount of the rent. That said, prices for listed palazzi are steep.

Venice Real Estate (00 39 041 521 0622) are asking ?5.9m for a listed ‘luxurious residence’ in the Canna-regio borough. It extends over some 860sq m across the ground floor and first floor of the 19th-century Palazzo Sernagiotto. On the first floor, a 90sq m terrace gives splendid views of the Grand Canal and the Rialto bridge, and a large garden at the back allows unusual privacy. Venetian living rarely came more opulent.