Italy real estate market

Look around in Italy and define your budget

Foreign purchasers in Italy have generally looked for country properties. Tuscany has been popular with the international jet set since the eighteenth century when British Lords and gentlemen set forth on the 'Grand Tour', and remains a big favourite with foreign buyers. You'll find no bargains there - "Chiantishire" has been too popular for too long; in fact Tuscany is one region that has seen property prices increase over the last couple of years. But if you want to stretch your budget a little, Lucca has prices that are 20-25% lower than Florence, and is a more livable town, while nearby Bagni di Lucca, Barga, and the Garfagnana Valley offer a slightly wilder landscape and charming hill towns the equal of anything you'll find around Florence.

The lakes of northern Italy are another perennial favourite. 75% of the interest in properties here comes from international buyers, not just the Brits but also Germans, Swiss and Americans. Here again, there are local differences - Lake Como, the best known, is the most expensive, while Lago Maggiore is slightly cheaper. Even Como has its micro-markets; the south end has better access to Milan, and the west is sunnier, leaving the northern and eastern sides rather less desirable (and cheaper - also without the tourist and celeb buzz you'll get around Bellagio). €4.5m gets a sizable waterfront property with its own moorings; apartments run from €100,000 upwards.

For prices 30-40% cheaper, look at Lake Trasimeno, in Umbria, a more off-radar area. A small townhouse might cost €150,000, while villas with pools sell around the €400-500,000 mark.

If you have a more limited budget but love Italian country life, Abruzzo is a great choice - further south, and with much cheaper prices than Tuscany. You'll pay around half the price for the same type of property. For instance, renovation projects regularly appear at under €25,000, while €350,000 should be enough to buy a fairly large country house, and a townhouse would cost only a third of that.

What else does Italy have to offer?

Heading even further south, Puglia is now coming on the radar for foreign investors - in fact, at the moment foreign buyers are more in evidence here than they are in Tuscany. It's a historically impoverished area of the country, compared to the commercial and industrial heartlands of the north, but it's now making good money from tourism and its untouched old town centres have real appeal.

While most of the beehive style trulli have now been restored, big farmhouses can be found around the €350-400,000 mark - or you could plump for a townhouse in a town like baroque Lecce or pretty Ostuni.

Italy has a few very special micromarkets. For instance, the island of Capri is a law unto itself; the Italian Riviera in Liguria, particularly the villages of Cinque Terre, is another. But what you won't find in Italy is the kind of big resort and mass tourism developments you'll see in Spain or Portugal.

If you're looking at big cities

If you want to buy in a big city, whether as a pied-a-terre for yourself or as an investment, then your main choices are Milan, Rome, and Florence. In Florence, apartments in the historic centre cost well over a million euros, and there is not a good supply of new build anywhere near the centre.

In Milan, on the other hand, there's a huge amount of new development particularly in up and coming suburbs like Cascina Merlata and Nuova Bovisa. Old industrial areas like shipyards and steelworks are being redeveloped to bring new apartments on stream. You'll pay over €10,000 a square metre in the centre, but in areas like Navigli (which some people rate the friendliest and most characterful area) this can fall to below €6,000. Milan may not have all the art and history of Florence, but it's Italy's fashion capital as well as its financial centre.

And in Rome? A two bed apartment in the historic centre could cost you from €700,000 to €1.4m - though you'll be able to walk out of the door and see the Pantheon or the Trevi Fountain. For the same money, you'd be able to get a small villa or townhouse in one of the small towns surrounding Rome, for instance in the Castelli Romani (where the Pope has his summer holidays).

Things to consider before your investment

However, investors should be warned that yields on rental property in Italy are low. In Milan, which is seeing strong demographic growth and has a low unemployment rate, low yields reflect the safety of rental investment - larger properties make just 2.2% gross, while smaller flats get 3.4%. At the net level, yields will likely come in about 2% lower after the costs of agency fees and maintenance, which leaves little margin for the investor.

In Florence, on the other hand, rental yields are approaching 5%, while Rome is closer to 4.5%.

We should point out that by looking only at the three top cities, buyers might be missing something. Bologna, home of Europe's oldest university, is much loved for its bar culture and fantastic food, while Turin is the birthplace of the slow food movement as well as a centre of nightlife and home to amazing baroque architecture - and both are fantastic locations for gourmets and culture vultures alike.

International buyers should be aware of two schemes recently introduced for foreign property buyers.

The 'flat tax' introduced in 2017 is targeted at ultra High Net Worth individuals, and allows foreigners who take Italian residency to pay a flat €100,000 tax for the first five years, no matter how great their global income. At the top of the market, for properties worth €10m plus, agents are saying that's led to a 10-20% increase in inquiries.

For retirees, a similar scheme has been announced with a special 7% tax rate on on all foreign income (including your pension) for first six years. But this only applies in the southern provinces Puglia, Abruzzo, Molise, Basilicata, Campania and the island of Sardinia.

As far as practicalities go, you'll find some English-speaking estate agents and lawyers everywhere, but there's much less support for international buyers outside the major centres of interest. Italy has a notary-based transaction system, similar to France, where the notary works as an impartial processor of the transaction for the state, not for either one of the parties to the deal - so you may find it worthwhile instructing your own lawyer.

Note that the costs of property transactions are relatively high, adding up to between 10% and 20% of the property price.