What does Italy’s referendum mean for its property market?

Campania, Amalfi Coast, Italy
Campania, Amalfi Coast, Italy

At the weekend, Italy voted “No” in a national referendum, forcing its Prime Minister to resign.

The referendum was to decide whether the government should introduce a reform to its constitution. PM Matteo Renzi wanted to implement major reforms to speed up the country’s famously slow government process, changing the Senate’s size and powers. He promised to resign, if Italy voted against the reform, which effectively turned the vote into a referendum on support for his government.

Yesterday, Mr. Renzi officially stepped down from his post, with President Mattarella now set to appoint a caretaker government to lead Italy until its next scheduled general election in 2018. Populist party the Five State Movement is calling for a snap election, campaigning on a promise to hold a referendum on Italy’s membership of the euro, should they ever come to power.

With political uncertainty on the cards, what does the referendum result mean for Italian property?

One of the most immediate effects of any uncertainty can be found in a country’s currency. Indeed, the euro fell to a 20-month low against the dollar in the immediate aftermath of Italy’s vote. However, the single currency then rebounded to a two-week high, as experts suggest that the result had already been priced in by a market that anticipated the result.

For domestic buyers, the referendum could lead to tougher economic conditions, with the country still suffering from high youth unemployment and some debt-laden banks potentially facing a state bailout.

“After the resignation of Prime Minister Matteo Renzi, the uncertainty may [tighten] the families access to mortgage credit if the spread starts to grow,” Vincenzo De Tommaso, Communications Manager for idealista Italy, tells TheMoveChannel.com. “In this scenario, we can foresee the growth of rentals, while house sales should decrease both in prices and volume of transactions.”

On the international stage, though, the mood is optimistic that business will continue as normal.

Indeed, the euro’s existing weakness against the US dollar has seen a wave of American buyers take advantage of more affordable conditions for purchasing prime property in the last year.

Diletta Giorgolo Spinola, head of sales for the Rome and Florence offices at Sotheby’s International Realty, does not expect this trend to change any time soon.

“Italy has always had a lot of changes in government,” she comments. “Our stability is different than in other European countries. Politics do not affect our trophy assets.”

“Whilst the political fallout will be felt most keenly inside Italy, the factors that drive the majority of property purchases coming into the country are primarily lifestyle driven,” agrees Rupert Fawcett, Head of Knight Frank’s Italian department. “As such, these factors will remain the same and will continue to drive the market going forwards.”

While mortgages may become more expensive and pressure may fall on smaller Italian banks, the prime market will also be less affected by this, as many international investors in the country’s high-end property are cash buyers.

One knock-on impact that could be a factor for buyers to consider is property supply, although this, too, is not disastrous news.

“In times of uncertainty Italians tend not to put their properties on the market,” adds Fawcett. “As such the supply of quality properties coming to the market will most likely not change dramatically, meaning prices will be protected.”

Italian portal Gate-away.com shares the optimistic outlook, noting that the consequences of Renzi’s rout seem not to have directly influenced the Italian property market so far.

“Gate-away.com activities are running at the same pace of the last months and we are registering a rising interest in house hunting in Italy, in spite of the political uncertainty,” MD Simone Rossi tells TheMoveChannel.com. “Italy’s power of attraction should be safe for now, whereas something could change next year about overseas enquiry trend for Italian properties. It might depend mainly on the delicate balances towards European Union and the new election coming.”

On TheMoveChannel.com, meanwhile, investor appetite has not diminished for Italy’s real estate, with the country becoming the third most popular destination on the site in August 2016. It has remained in the Top 10 since, confirms our latest Top of the Props report. TheMoveChannel.com’s latest Hotspots Index, which covers searches in Q3 2016, ranks Florence, Rome, Terni, Verona and Sorrento as the most sought-after Italian locations.