Real estate in 2023

Will 2023 be the year of the "brick dance" or not? Many, paraphrasing Rita Pavone, are wondering whether real estate, and in particular residential real estate, at the half-year mark just ended, will remain a passion for Italians, that is, whether it will still be attractive or lose some of its appeal. And whether prices will remain stable or register new variations.

A legitimate question in light of market trends and monetary policy stance with interest rate increases that will not be final given the new July hikes already announced. Not to mention the uncertainty that characterizes the economic and geopolitical scenario. Factors that make mortgage payments even more difficult to sustain for many families.

To answer the initial question, it is necessary to start with data. Bricks and mortar in 2022 showed not only resilience but also great resilience: 780,000 purchases and sales testify to the sprint that real estate put on in the year just ended.

But 2023-which may be remembered for the rise of stock markets (which secured double-digit returns in the first half of the year) was not born under the best star for the sector, which is likely to see a slowdown. An independent player like Scenari Immobiliari estimates a decline of about 7 percent to 726,000 transactions while Nomisma sees as much as -14.6 percent to 670,000.

On the other hand, after the post-pandemic exploit, the Italian real estate market has to deal with an adverse scenario again. The protraction of the war, on the one hand, and the severity of the monetary policy measures decided by the ECB, on the other, concur - Nomisma warns - to outline a picture that is anything but favorable, confirming the fears that surfaced at the end of 2022.

Against this backdrop, a settling is expected, which some experts believe is necessary, especially on the price front, which nationally rose 3.1 percent.

"The year 2022 was certainly a year that demonstrated a remarkable resilience in the real estate sector, a boost that is currently seeing a slowdown given the macroeconomic environment in which inflation and increased rates dictate more cautious behavior and in which a 10 percent reduction in residential purchases and sales compared to the previous year is already clear," comments Maria Ameli, head of corporate, real estate & art advisory at Banca Generali.

Data in hand making access to credit more impervious is not only the increased cost of financing-with rates rising on average from 1.93 percent in May 2022 to 3.79 percent in February 2023-as much as the changed perception about the future creditworthiness of many of the potential borrowers.

All this has an impact on housing demand, whose mortgage dependence has been an established factor for a majority share of the population for some years now. The result - after the 2021-22 biennium - is therefore a significant decline in real estate purchase intentions and loan applications. A decline that, according to Nomisma, depends not only on household confidence indicators, albeit declining from the highs reached in September 2021, but also resulting from the tightening of customer selection criteria.

Also weighing on the Italian market is the scarcity of modern and innovative supply, due to the halt in construction that has characterized the last decade. So much so that the International Monetary Fund has pointed out the poor quality of properties and their age, as 60 percent of the assets are over 45 years old.

Italians' interest in new housing, however, is growing and in several cases becoming more concrete. At the end of 2022, the share of transactions between private individuals related to new homes stood at about 74,000 nationwide, an increase of about ten percentage points over 2021. The market has thus held (2021 had marked a growth over 2020 of 34 percent, with 67,500 exchanges), but supply remains subdued compared to a rising demand. Although construction sites are still experiencing delays due to slowing material supplies and rising raw material costs, a report compiled by Scenari Immobiliari with Abitare Co shows that the market for new homes is growing steadily in Italy and will fare better than the market for used homes in 2023.

In this scenario, prices are holding and, indeed, continue to rise. While nationally those for "new" have risen by 3.1 percent, with an average increase of more than three percent in the last two years that will drag on into 2023, they are expected to rise by 4.6 percent. This is due in part to the interest that even young people continue to have in the new market. Widening their gaze, however, many experts expect a slowdown in the medium to long term.

To date, in fact, prices seem to be holding up partly because no one wants to sell off their homes, but if the picture-as is possible-should change, a sales spiral would be set up that would also affect price trends. In short, the trend seems to indicate this: in fact, the share of operators expressing judgments of stability in real estate prices fell in the fourth quarter of 2022, although it remains a majority.

The balance between judgments of rising and falling prices has returned to negative for the first time since the second quarter of 2021. However, the gap between those who think for the coming months and over a two-year horizon that prices will decrease and those who think prices will increase has risen considerably.

"In such a context, it is certainly important to be selective in investment choices, orienting oneself to quality products and turning to professionals in the sector. Banca Generali, in this particular scenario and in support of clients with complex real estate assets in terms of type and size, is including new partners in order to further expand and strengthen its real estate services offering, with the aim of better targeting real estate investment choices and to respond even more punctually to clients' specific needs," Ameli continues.

What is noticeable is that currently the focus of activities is increasingly shifting toward the analysis, management, and disposal of assets other than residential, such as tertiary, commercial, and hotel accommodation, and this certainly requires specific skills and qualified stakeholders.

"It is precisely at these junctures that the role of the bank, with the rich ecosystem of partnerships linked to it, is a real added value in supporting clients. In addition, the growing awareness of eco-sustainability, energy efficiency, technology and home automation will certainly be a relevant factor in real estate transactions, and these types of properties, suitably upgraded, will most likely be considered excellent investment opportunities. With the right strategy, in fact, the real estate sector continues to offer attractive investment opportunities and should undoubtedly figure in any well-balanced and diversified portfolio, and our goal is to be able to position ourselves as a reliable and referral partner for our clients."