luxury home in Milan

In September 2023, the average cost per square meter to purchase a house in Italy stands at €2,122. However, if we consider Milan, prices soar to over €5,300 per square meter.

These figures have been revealed by the monthly Observatory of the Italian real estate market by Immobiliare.it Insights, pertaining to property transactions in September 2023. There are no significant variations in house sale prices across the entire national territory.

The national difference is 0.2% compared to the previous month (3.2% compared to the same period last year), with a slight variation between the Northern regions (0.6%) and the Central-Islands area (-0.2% and -0.1%). The average price per square meter on a national level reflects vastly different scenarios. While in the Central-Northern regions, prices comfortably exceed €2,000 per square meter, in the South and Islands, they stabilize between €1,300 and €1,500.

In August, there was a nearly 9% drop in real estate supply in all regions, particularly in the Northwest and Center with a -10%. In September, the situation changed drastically, with a national average growth of over 9.1%. The areas that had experienced a significant decline the previous month are the ones that show the most recovery: Northwest (+10.5%) and Center (+10.1%), followed by the South (+8.1%), Northeast (+6.9%), and Islands (+6.5%). A similar trend is observed in demand: in August, due to seasonality, there was a sharp decline, while in September, there is a recovery, with peaks of 25.2% in the Northwest. The national average surpasses 20%, precisely 21.3%.

Demand is growing everywhere, albeit less markedly in the Islands, where it stands at 8.2%. Average rental prices show a trend towards stability, with slight increases in both major cities (+0.4%, at €3,250 per square meter) and smaller centers (+0.2%, at €1,797 per square meter) – the latter being those with fewer than 250,000 inhabitants. The most noticeable aspect emerges when analyzing demand and supply: there is a clear difference between major cities and smaller centers. In cities, there has been a rush in sales contracts, with a demand growth of 33.4% compared to August, although there is a decline of -4.1% compared to the same period last year. In smaller centers, there is an increase of 11.6% (-0.3% compared to September 2022). Simultaneously, supply has also expanded: +20.8% in centers with over 250,000 inhabitants and +6.4% in those below this threshold.

Milan reaffirms itself as the most expensive city in Italy. To purchase a property, one would need €5,301 per square meter. This is the first time that the €5,300 threshold has been surpassed, given that in August, the price was €5,271 per square meter. Bolzano secures the second spot with €4,657 per square meter, slightly lower than the €4,684 per square meter in August, followed by Florence with €4,125 per square meter (compared to €4,130 in August). Among provincial capitals, Catanzaro is the least expensive, at €988 per square meter.

Owning a luxury residence in Milan can be a stroke of luck: in these cases, it’s a small treasure to be carefully managed, whether you choose to sell or generate income. According to Nativo, a company specialized in luxury short-term rentals, the latter option is preferred by luxury homeowners in Milan. According to co-founders Sara Lini and Adriano Frigoli, here are the reasons why more and more luxury property owners in Milan prefer renting over selling. According to Nativo’s data (Nativostay.com), over 30% of luxury property owners who approach them are considering both selling and renting, but almost all of them opt for renting after a thorough analysis of the market and economic factors. In short, the key factors that often determine the choice between selling and renting a luxury home in Milan are: inflation growth, difficulty in finding viable alternative investments – both in the real estate and stock markets, and government bonds – rising mortgage rates, and the increasing demand for luxury rentals influenced by events like Brexit or the introduction of a flat tax, as well as more fluid lifestyles that require greater mobility.

The reasons for choosing to rent a luxury home in Milan are diverse:

Protection against inflation: Firstly, the luxury rental sector represents a protected segment within the real estate market. A luxury property is considered a solid asset against inflation and an option that safeguards long-term investment returns.

Difficulty in investing sales proceeds: Currently, there are no convenient and alternative solutions to invest the liquidity generated from selling a luxury property. The instability of the stock market, compounded by geopolitical factors and rising commodity costs, makes residential real estate investment in Milan more profitable compared to other options, such as government bonds. For example, renting a two-bedroom apartment in Milan with an open-ended lease averaging a gross annual yield of 5.5% for the owner, which proves to be more lucrative than government bonds, generating revenue of 3.75%.

Limited supply of luxury properties: Another aspect to consider, for those who temporarily leave Milan but intend to return, is the difficulty in finding a luxury property in the city. Demand consistently exceeds supply, and many properties are owned by families who do not require liquidity, so those who own a beautiful apartment often hold onto it.

Olympic Games effect: Additionally, the Olympic Games effect should not be overlooked. Many believe that prices will continue to rise at least until 2026, which is why they choose to generate income from their assets until the market reaches its peak.

ECB interest rate hikes: Looking at the economic context, the European Central Bank’s tight monetary policy has led to a significant increase in mortgage interest rates. This means that those who purchased a property in the past at lower rates would end up paying much more if they decided to purchase another one, consequently losing the advantage of the previous rate.

Growing rental demand: Other factors influencing the choice to rent instead of selling involve the growing demand for rentals from high-spending foreigners, making this segment particularly lucrative. Many of Nativo’s tenants come to Italy to take advantage of the flat tax, while others arrive after having lived in London for an extended period due to Brexit. In general, it’s becoming increasingly clear that Milan is attracting a great deal of talent, including successful executives and entrepreneurs, which naturally drives strong demand for luxury rental properties.

Greater flexibility: Lastly, changing lifestyles and work patterns make it challenging for property owners to predict where they will live in the future. Flexibility becomes a crucial aspect, and renting offers the opportunity to keep options open for potential future use of the property.