The Italian market is weak, but could be on the cusp of improvement. Unemployment stands at 12.4%, while youth unemployment is much higher at over 40%. While 2015 is likely to see further price falls, a modest improvement in economic performance may put a floor in price falls next year, starting with prime markets and major cities and encouraged by a cheap euro.

A mortgage guarantee scheme launched in January aims to stimulate the lower end of the market. Transaction levels are already recovering in the major cities.

The Italian market is underpinned by an exceptionally high rate of owner occupation, with 75% of the population living in mortgaged or outright owned properties, compared to 67% in the UK and 64% in France. By contrast, the rental market is small and low-yielding. In spite of weak domestic market conditions, a weak euro is attracting US and UK buyers to the second-home hotspots of Tuscany, Umbria and the Italian Lakes.

Germans are the dominant international buyer group, accounting for 45% of non-Italian buyers across the whole country, according to Scenari Immobiliari. American buyers are returning having largely withdrawn from the market in recent years. Interest has also picked up from British buyers, along with those from Scandinavia, Switzerland and Benelux countries. Russians, previously active in coastal resorts such as Forte del Marmi have largely disappeared given issues in their home market.

Italy’s prime, second-home markets are some of the world’s most desirable, characterised by their built heritage and natural beauty. In Lake Como’s rarefied residential market traditional properties with lake views are in limited supply and have continued to trade well when they become available, sustaining prices.

History, heritage and the natural environment will sustain Italy’s appeal as an international destination for retreat property over the longer term even if some domestic real estate markets continue to languish.

^{Source: Eurostat, OECD}

Milan

Milan, alongside Rome and Venice is one of Italy’s most expensive cities. Prime property in Milan is concentrated in the city centre neighbourhoods of Quadrilatero, Palestro, Castello, and Manzoni, and characterised by elegant historic buildings.

Much of Milan was destroyed in WWII, so property here, in what is left of Milan’s historic centre, is in especially high demand and especially rare. As Italy’s fashion capital, Milan offers extensive luxury retail, but it is also a major financial centre and home to Italy’s stock exchange.

According to Nomisma, property prices in Milan fell by -1.6% in 2015. This is slightly better performance than Rome and Venice (-3.4% and -2.7% respectively) over the same period. However, the rental market is strong by Italian standards, although yields are relatively low, between 3% and 4%.

Venice

Venice remains a sought after destination for its exceptional and unique characteristics.

Its real estate is highly prized and integral to the city’s character. Buyers in Venice are often familiar with the city and invest in a property to occupy for part of the year themselves whilst renting it out at other times, often during the peak summer tourist season, when the city is at its busiest and rents are highest.

The resident population is now outnumbered by the number of visitors the city receives daily, which is estimated to exceed 60,000. Rentals are underpinned by solid tourist demand, and yields of 5% are achievable.

Venice is also a popular second home destination for Italians, who make up approximately a quarter of the market. Other major buyer groups include the French and the British.

Tuscany & Umbria

Properties in Tuscany have seen price falls of between 15% and 30% from their former highs, but most would-be vendors have ‘held tight’, so few properties have traded. The Chianti represents the classic Tuscan landscape of rolling hills and cypress trees and residential properties come at a premium here.

This visually stunning region is the most internationally invested, with some high profile sales of vineyards to Russian buyers in recent years, although the Russian market is less active at present.

Tuscany offers strong potential for holiday rentals with both rural and city properties in high demand from tourists. Birthplace of the Renaissance, Florence is the region’s major city and is one of Italy’s most visited.

Tuscany is governed by strict planning laws which have helped maintain its character, but also mean that modern properties are rare. Early foreign investors in the region did well with farmhouse conversions, but such opportunities are now few and far between.

Umbria lies directly to the south of Tuscany, and was a little later to receive wide scale foreign investment than its neighbour. Characterised by hill towns, there are many opportunities for restoration of historic buildings, and prices are lower here.