Passage to Italian real estate

The volume of real estate transactions in Italy showed ?a significant increase in 2014 ?and in the first half of 2015. ?The main deal so far in 2015 ?is Qatar Holding’s investment ?in the Milan Porta Nuova project, but considerable funds have also been invested by other major foreign investors in other deals. 

The main reasons investors have once again started to see Italian real estate as attractive are competitive prices, low interest rates, and the high ?level of liquidity in the market. The general expectation is ?that this trend will continue ?into 2016, at least for primary properties and in the two main markets of Milan and Rome.  

But let’s not forget the radical legislative reforms, enacted by the Italian parliament over the last couple of years, which have filled the gap between Italy and other more mature markets.

Among these reforms is the revolution of the Italian banking system. Under the so-called Decreto Competitività, securitisation vehicles and ?Italian insurance companies are now allowed, subject to certain conditions, to lend to borrowers other than individuals and micro-enterprises. 

The tax treatment of financing transactions has ?also undergone something of ?a revolution. The ‘substitute tax’ ?(a tax applied on medium and long-term bank loans at a fixed rate of 0.25 per cent of the loan amount, absorbing higher indirect taxes than would otherwise be due in connection with the creation of mortgages and other securities) has been extended to loans provided by EU insurance companies and Italian securitisation vehicles and to secured bonds. The substitute tax now also absorbs any transfer taxes in the event ?of syndication of a loan, thus increasing market liquidity. ?In addition, a specific withholding tax exemption ?has been introduced regarding interest payable on medium and long-term loans to ?EU banks and other types ?of debt investors.

These changes have resulted in significant progress being made in opening the Italian market to alternative lenders, which could disintermediate ?or create synergies with banks. Although the Italian real estate market continues to be very much dependent on bank financing, alternative lenders may play an active role over the next few years in contributing to market liquidity and in allowing investors to obtain higher loan-to-value levels and higher returns on their investments.

Furthermore, the Decreto Sblocca Italia liberalised Italian lease law regarding commercial lease agreements with an annual rent exceeding €250,000 (with the parties now free to opt out of the lease law provisions). It also simplified the legal requirements applicable to Italian listed real estate companies (known as ‘SIIQs’), to make them more flexible and competitive with other EU real estate investment trusts, and facilitated the integration of SIIQs and real estate funds.  

The message is clear: ?Italy is experiencing a positive momentum that investors should take advantage of.

Emanuela Da Rin is partner and head of the real estate focus team at BonelliErede www.belex.com

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