Buying Property In Italy

Buying Property In Italy

The first aspect of the real estate market in Italy to consider is its incredible diversity. From the mountainous north to rural Southern Italy, there is something for every budget and every taste. Ultra-modern urban apartments, medieval castles, and everything in between are available in Italy. There are also major price differences between the country’s wealthy, world-class cities and its less developed regions.

Italy is an attractive option for real estate investment because of the combination of quality and affordability. Few other developed countries offer so many beautiful and diverse real estate possibilities at such reasonable prices.

That said, buying an Italian property can be a long, frustrating process. Assume this from the start and you’ll be much better off.

For the most part, Italy does not restrict the purchase of real estate by foreigners.

However, in some rare cases, you may encounter what are called pre-emption rights on agricultural land, which could complicate the purchase.

The Buying Process

Before you begin the property purchase process in Italy, you’ll need to find a registered real estate agent. By law, brokers or agents also known as mediatores are required to be registered with the local chamber of commerce and hold a special identification card or patentino di agente d’affari in mediazione.

A notary (chosen by the seller) will oversee the entire transaction, including performing preliminary due diligence on the property.

You can hire a licensed attorney (avvocato) to provide you with legal advice and guide you through the process, including negotiations and the preliminary contract, but it’s not required and the notary will serve much the same purpose.

You’ll also have to enlist the services of a surveyor or geometra to ensure that the property is physically sound, habitable, and meets all of the municipality’s building requirements.

Before you can purchase property in Italy, you need to obtain a tax number. If you plan to purchase property in your name, you’ll need a codice fiscale. If you’re purchasing through a corporate entity, then you’ll have to get a VAT number or partita IVA.

When you’ve decided on a property that you’re interested in purchasing, then you’d make an offer along with a good-faith deposit (the amount will depend on the purchase price, but you can typically assume 1%). The proposal is binding only for the buyer—the seller may continue to entertain other offers. If you don’t want to be left hanging for an indefinite amount of time, put a time limit on your offer. Once accepted, the offer is binding for both.

After the purchase proposal is accepted, the agent or notary can begin drawing up preliminary contract or compromesso.

With the compromesso, a deposit of 10% to 20% is made. If you decide not to purchase after this point, the seller keeps the deposit and can pursue legal action; if the seller backs out, he’ll owe you twice the deposit paid.

The agreement is then registered at the local tax office by your real estate agent or attorney.

Next comes the preparation of the final deed or rogito. This usually takes six to eight weeks.

If you will be absent at the closing or present but are not fluent in Italian, you’ll need a procura (power of attorney) to act on your behalf. Or, if the notary allows it, you can appoint someone to translate the title deed into English, allowing you to sign the deed.

After the completion of the sale, the notary will register a certified copy of the deed with the land registry (catasto) and the local tax office. The notary will also pay any taxes that are due, including the registration tax or stamp duty (imposta di registro), cadastral and land registry tax (imposta ipotecaria e imposta catastale), and a mortgage duty tax, if applicable. All this usually takes about two weeks.

The entire buying process from offer to closing will take 90 days minimum.

Transaction And Holding Fees

Transaction costs and taxes are high in Italy… The tax for transfer of a resale property isn’t too bad, but the sales tax for new properties can be staggering if you’re a non-resident and/or buying what’s considered a luxury property.

*An insider tip for taxes: If you are seeking residency in Italy, complete that process at least 18 months before buying to reduce your tax burden.

Local property tax (IMU) is liable on the cadastral value of the property plus 5%, then multiplied by a coefficient corresponding to the type of property (for residential buildings, this is 106). Typically the range is between 0.40% to 0.76%, depending on the property location.

Rental income is taxable for non-residents, calculated as rental income less a 30% deduction for repair and maintenance. Standard income tax rates will apply, which range from 23% to 43% depending on the amount.

Capital gains tax will only apply to property held less than five years. If you are subject to it, the amount will be the sale price less costs of acquisition. The amount is taxed as income, which could be anywhere from 23% to 43% depending on the price.

Special Notes

Pre-emption rights, mentioned above, are one of the quirks of Italian real estate. Here’s how pre-emption rights would work in each case:

• Agricultural land. If you were purchasing agricultural land, farmers currently leasing or neighboring farmers would have pre-emption rights over the land. That is, these parties would have to be given a chance to exercise their right to purchase the land.
• Tenanted property. If you were purchasing a property that currently has a tenant, the landlord would have to give the renter the opportunity to purchase the property at the same terms or conditions.
• Property with historical or architectural significance. The state or public authorities will have pre-emption rights over any property that is determined to have historical or architectural value.

While the real estate agent is responsible for handling this part of the process, it’s important that you make sure they’ve complied with this legislation, as this could result in you losing your property on a technicality. The only legal recourse you’d have would be against the seller—and you don’t want to have deal with the Italian courts.

Money you bring into Italy for the purchase of real estate should be officially documented so that the capital from a resale can be taken back out of the country.

Buying an old home to renovate is a popular idea for expats moving to Italy… If you’re renovating the property, get everything in writing, such as time and cost estimates. This will be useful leverage if the contractor becomes slow or uncooperative. The last thing you want is to end up in court—the average duration of a civil suit is seven years. You should also check with the local government about work permits, costs, and restrictions.

Get a close, thorough look at property before buying. Often, Italian realtors don’t publish good photos because they don’t want you to see how much work the property needs. Old buildings are charming and quaint, but they also tend to fall apart. Contract a good surveyor who knows the area and how to negotiate the local red tape. This will cost you, but it’s worth it. Regardless of how cheap the property is, make sure that, after renovation, your investment is still cost-effective.