Many foreign investors are interested in purchasing a property in Italy and from a legal point of view, buying a house in Italy is quite safe. However, there are some points that must be taken into account before jumping into the acquisition process. Also, what available visa options are there for those interested to live in the country?
HOME “CHEAP” HOME: HOUSES FOR SALE AT 1 EURO, IS IT TRUE?
Since 2016 a growing number of small towns in Italy have started to put abandoned properties on sale for just 1 euro. The programs attracted worldwide attention and the interest of many potential buyers. The goal of these programs is to resettle the town and stimulate the local economy. Details of the programs vary depending on the town but in most cases the purchaser is required to submit a renovation plan which must be completed within a set deadline. Despite the bargain price, only a few hundred buyers have so far been awarded a property. One of the reasons these programs were not successful amongst non-EU investors is due to the fact that the purchase of a property does not automatically grant a resident visa in Italy.
FROM RAGS TO RICHES: WHY NOT BUY A CASTLE?
Have you ever dreamed to own a palace and dine in a dining room with a huge fireplace and trophies on the wall? Your dream could become affordable because there are plenty of historical buildings on sale in Italy. Some properties are privately owned and have been owned for centuries by the same family. In recent years, however, due to the increasing costs of maintenance, cuts in government subsidies to maintain historical properties and an increase in property taxes, many of these properties were put on the market. Many historical and valued buildings are also owned by the state which has started a program to sell it or lease it. Many of the assets (which include palaces, villas and hotels) need to be redeveloped but several are in city centers and attractive locations and prices can be lower than market prices.
CAN A FOREIGNER BUY?
As a general rule, Italian law permits the purchase of real estate by foreigners. However, can be a few exceptions for foreigners coming from countries that do not grant reciprocity rights to Italian citizens, such as countries that do not allow Italian citizens to purchase a property.
WHAT VISA OPTIONS ARE AVAILABLE?
While the purchase of a property does not automatically grant a visa, it is still possible to obtain a kind of 'retirement visa' (residenza elettiva) by proving a passive income, which can include pensions or savings while a salary or compensation for work is usually not taken into account, of at least 31,000 euros per year. Consulates have full discretion to request a much higher income, and they usually do. Certainly, if the applicant has purchased a property of value there is a higher chance of obtaining the visa. However, the deciding factor shall be the ability to prove a steady wealth, with appropriate documents, such as bank statements and tax returns.
Another option could be the investor’s visa. To qualify as an immigrant investor, a foreign national must invest the following: at least 2 million euros in Italian government bond, funds to be kept for a period of at least two years; at least 500,000 euros in equity instruments of a company based and operating in Italy or 250,000 euros in case of a start-up company, or at least 1 million euros in philanthropic funding supporting projects of public interest in the field of culture, education, immigration, scientific research, recovery of cultural assets and landscapes.
WHICH IS THE STANDARD PROPERTY PURCHASE PROCESS?
If you are using a broker, the first step is to make sure to agree to the brokerage fees and sign an engagement letter where all terms and conditions are clearly set forth. Once you have selected a property, you will be asked to sign a binding proposal which must be accepted by the seller. Simultaneously with the proposal, the buyer is generally asked to pay a deposit to the broker or directly to the seller. The deposit will be lost if the buyer decides to cancel the deal, but if the transaction is cancelled by the seller, the latter should refund double. The safest option for the buyer, is to request that deposit is paid into the escrow account of a notary. If the proposal is accepted by the seller, it is common practice to sign a preliminary agreement (compromesso) and for the buyer to pay a further deposit (10%-20% of the price) and to set a date for the closing. Also, in this case, it is advisable that the deposit is paid in escrow to the notary. The notary will carry out a mandatory legal and administrative due diligence while the buyer should carry out a technical due diligence to confirm the structural conditions of the property and whether any substantial renovations or repairs are necessary. The price is to be paid at closing, but the seller can wire the funds in advance to the notary and upon execution of the transfer deed, the notary will transfer the price to the seller. In this way both parties are guaranteed.
IS MY PURCHASE SAFE AND GUARANTEED?
The purchase of real estate, from a legal standpoint, is very safe in Italy, as a notary (who is a public officer under Italian law) will intervene in the acquisition procedure. Notaries act on behalf of the government and not on behalf of either the buyer or the seller and they are completely neutral. Italian notaries perform more duties than those normally associated with notaries in other countries. Notary public must carry out a legal and administrative due diligence on the property to make sure that the seller has the full title on the property, the property is free from mortgages, liens or other burdens, and it is compliant with building and safety regulations. The Notary’s due diligence does not include any checks on possible structural defects and it is therefore advisable to appoint a specialized technician for this purpose. As additional guarantee, if you buy a property under construction, the builder - until closing is finalized - must provide a bank or insurance guarantee equal to price paid. The buyer is therefore protected against the builder bankruptcy or failure to complete the project. The seller is liable for major defects of the property until 10 years after the closing.
WHERE TO BUY IN ITALY
Italy is the third most popular tourist destination in Europe. Many foreign buyers purchase a property with the scope of deriving an income from short rentals to tourists. Buying a residential property in the historical center of one of the main cities can be expensive, but there are surely more opportunities to rent it. Gross rental yields in the historical center of Rome, Milan, Venice and Florence, range from 2.4% to 4.4%. If you have a lower budget, you can take into account a property in regions such as Abruzzo, Molise, Calabria or Sicily or the less expensive parts of more famous and expensive areas such as Tuscany or Lake Como. Generally speaking, northern Italy tends to be the most expensive part of the country, and the further south you go, the lower the house prices are. But there are many exceptions to this rule, for example Capri Island, Amalfi Coast or Puglia.
WHAT’S THE EXPECTED IMPACT OF COVID 19?
The 2020 coronavirus emergency has hit the Italian society and its economy hard. It is early to assess any impact on the residential real estate market. According to Nomisma, there will likely be a sharp drop in the real estate market for residential homes - between 50,000 and 120,000 fewer sales. As to prices, in the three years of 2020, 2021 and 2022, prices could decrease on average between 3% and 10%. On the other hand, due to the limited mumber of properties available in historical centers of the main cities as well as in prestigious tourist locations (where it is not possible to build or expand any new property), prices of residential real estate will most likely remain steady. The expected reduction of tourists and international students will pose a risk to properties destined to short term rentals and student housing.
INCENTIVES FOR RESTRUCTURING WORKS
In order to protect and boost the construction industry, the Italian government has taken several measures. For example, “Decreto Rilancio” (which can be literally translated as Relaunch Decree), included the increase of deductions applicable to renovations, ensuring a strong leverage for investment. Specially, in the case of renovation works for energy efficiency (ECOBONUS) and seismic risk reduction work (Sismabonus), the deduction will be increased to 110%. In addition, the possibility of assigning credit to financial intermediaries is also given to the end of favoring the energy requalification of the buildings to become more eco-sustainable. Investors can also take advantage of the new flat-tax regime for new residents. In fact, individuals transferring their tax residency to Italy can take advantage of a flat tax regime (100,000 euros) on their foreign income.
BETTER SAFE THAN SORRY: USEFUL TIPS FOR BUYERS
Before purchasing a property in Italy, the following points should be checked beforehand:
PRICE: Make sure that the full price is declared in the transfer deed and do not accept any “side agreement” proposed by the seller. If you declare a lower price in the deed, in case of your next resale at market price (higher than the one you have declared) you are subject to pay a capital gain (“plusvalenza”) on the difference between the purchase price and the sell price.
LANGUAGE: If you do not speak Italian, it may be necessary to have an interpreter who assists you while signing the contract with the notary; typical fees might be around 1000 euros.
BROKER: Sign a clear engagement letter if you use a broker, with detailed terms and conditions, be careful in granting exclusivity and set forth an expiration date. Standard brokerage fees range from 1% to 3%.
DEPOSIT: Don’t pay any deposit before the “compromesso” (preliminary contract) is signed. If you are asked to pay a deposit upon submitting your proposal, ask to pay into a notary’s escrow account.
PRELIMINARY CONTRACT: The “compromesso” (preliminary contract) is not mandatory, but it is strictly recommended so that the buyer can verify in advance all relevant aspects regarding the property. Therefore, despite being subject to a 200-euro registration fee and a proportional fee on the deposit (0.50% on the amount, which will be detracted from final taxes) it is definitely worth doing it.
CHECK BUILDING CONDITIONS: You may want to get the building inspected or surveyed by a professional (such as architect or geometra) to check whether there are substantial renovation or repairs to be carried out. Unless you agree on specific warranties in the contract, the sale is usually made “as is” and you have limited recourses against the sellers, unless you prove that he acted maliciously.
ESCROW PAYMENTS: Notaries are allowed by law to receive and keep in deposit (in a separate escrow account), any sums which the buyer is requested to pay (generally 10% advance deposit and the balance of the price payable at closing). Transferring the funds to the notary is definitively safer and advisable, rather than wiring the funds to the broker or to the seller.
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