In its latest property market analysis, Henderson Global Investors examines the prospects for the Italian property market.
Two decades of anemic economic growth, the absence of meaningful structural reforms and notorious dysfunctional politics do not help Italy's reputation as an investment destination. Additionally, the global recession has earned Italy a membership in the infamous 'Club Med', alongside the struggling economies of Greece, Portugal and Spain.
With regard to the property market, the critical view on Italy from outside is completed with reference to weak rental growth, below average building quality, high tax rates, inefficient bureaucracy and unsatisfactory market transparency. As all of this is indisputable, it is very easy to ignore Italy as a property investment destination.
However, Henderson asks whether there is more to Italy than meets the eye and concludes that international players may be missing a trick.
The paper outlines a number of reasons why we should sit up and take the Italian property market seriously:
- Italy is core Europe: For example, it is the seventh biggest global economy and has been part of the European Union since its foundation. It has a broad based economy with an export industry almost on par with France and well ahead of that in the UK
- Despite high debt to GDP ratio, bond investors have historically been less nervous about Italy because the public debt level has been almost stable for 10 years and is forecast to increase only moderately
- The high government debt is counterbalanced by low debt levels in the private sector; in fact, Italian households have the lowest consumer and mortgage liabilities of all Western Europe
- It boasts a relatively resilient banking system
- Economic strength in Italy is regionally divided and as a result country level economic figures are heavily diluted and therefore often misleading
- As at mid-2010, distressed sellers are nowhere to be seen in Italy, yields for prime products are hardening and rents are close to bottoming out
- In commercial property, use of debt has remained conservative
- It benefits from equity rich domestic investors
- Property capital values have avoiding exaggerations in either direction.
Stefan Wundrak, European Research Manager at Henderson Global Investors, commented: "It becomes obvious that a closer look at the Italian economy reveals a rather more differentiated picture often missed by international observers. As far as the property market is concerned, inside and outside views on Italy can be widely divergent. Foreign players mainly see risks, whereas locals praise the achievement of relative market stability.
"Investors who stick to the caricature of the Italian economy and property market are quite likely to miss a trick."
Source: Henderson Global Investors