Let's face it, we Italians have always liked it invest in brick. According to the findings of Bank of Italy, “only” housing wealth corresponds to 50% of gross wealth of the families of the Peninsula. In addition, Italians are at the top a European level in the classification by population with home ownership. But is it a good deal?
Is the house a good investment?
In a comparison with different asset classes, it seems so. Starting since 1988 in Italy i house prices increased by an average of 4,8% per year against the yield of 6,6% of a bond index, the 7,0% of a stock index and 10,3% of a basket of stocks in the real estate sector (REITs). If we leave since 1972, the average annual return rises to8,9% for the homes, 8,8% for shares and 11,9% for REIT shares. In short, investing in one's own home has yielded an interesting return on average. This, however, is about the past. It is not possible to know how it will go from today onwards and, moreover, even looking at the last few decades, It could have been done better.
What are the prospects in Italy?
The scenery
According to the report,
price index of the Bank for International Settlements (BIS), in Italy house prices began to feel the effects of the crisis starting from 2008 and, after having stagnated for a few years, are now 12% lower than the pre-crisis peak . All in all, it's not a dramatic drop, compared to -50% in the US (at the worst of the crisis).
However, given the slow recovery of the economy, the high unemployment rate and the results of the Bank of Italy's housing market survey, prices seem set to fall further
Ratings
The International Monetary Fund (IMF) has just launched a project dedicated to monitoring the
global real estate market. According to the two classic valuation measures (Price-to-Income ratio and Price-to-Rent ratio), the prices of the Italian real estate market seem in line with the fundamentals
, although not particularly convenient.
Is it worth buying a house?
Invest in real estate
it is not an investment like any other. Beyond the financial aspect (“Will prices increase in the future?”, “Am I paying the right price?”), real estate investing also brings with it other considerations of a more personal nature: “Do I intend to live there?”, “Do I want to spend part of my life there?”, “Do I decide to buy a house for my children?” or "is it just an investment that allows me to park my liquidity?".
When you find the home of your dreams and are in a position to be able to afford the expense, the price may be less relevant. When you decide to do it, however, we advise you to keep these four risk factors in mind
.
1. Idiosyncratic risk and poor information
Both the IMF and the BIS have come along to provide us with aggregate data on the housing market, but the
market fragmentation and the scarce information circulating on the quality of real estate makes this sector particularly difficult to analyse
. Think of your city: from one district to another the prices can be very different and, often, this divergence is linked to such specific factors (of the district) that a "normal" investor has difficulty realizing it.
2. Liquid assets
How long does it take to sell a house? Normally
a few months, even when you quickly find a buyer. Without thinking that, in times of crisis, it can take several years before you get rid of a property, on which you have to pay taxes and maintenance costs
.
3. Costs
Buying a house costs money and not just for the initial investment. In addition to the start-up costs (notary and management fees), management costs (chores or condominium expenses) must be added, without forgetting the taxation. Italy has a tax burden on the house which is lower than the European average
but, given the trend of recent years, it may well grow in the future.
4. Diversification
Usually buying a house requires a
huge expenditure which, compared to one's total assets, can represent a good portion of them, concentrated on a single or a few assets.
In short, if buying a house is the dream of your life (and we can help you with the free Objective Casa portfolio) or if you have found one that meets your needs, the pure financial aspect is not the only thing that matters in a real estate investment .
However, if you don't need to buy a house and you only think about the financial aspect, there is a way to avoid these risks: invest in ETFs or traditional mutual funds.
For this reason, we at Advise Only have created Objective Real Estate: an investment portfolio that allows you to invest in the subject by assuming less risk, making the investment more liquid and more diversified.
