Foreign buyers push up prime sales in Milan
The city’s cosmopolitan feel attracts overseas buyers but locals are being priced out
After spending three months cooped up in a one-bedroom apartment during Milan’s first lockdown, Giovanni and Silvia Porzio needed to get out. “We had never both stayed at home all day before the lockdown situation. It made us realise that we didn’t have enough space to live together peacefully,” Giovanni says.
Trying to sell their home in the middle of the pandemic, the couple assumed real estate prices would be crashing. But less than two weeks after putting the flat on the market, it sold for £400,000 — 25 per cent more than they had paid for it in 2017.
“We were afraid that the pandemic would make prices decrease and make it not profitable for us, so it was very surprising that we sold it high, and we sold it very quickly,” Giovanni says.
Since 2017, house prices in Milan have shot up, driven by the city’s increasing appeal to wealthy international buyers who have been lured by relatively low property prices and a new flat tax regime for rich foreigners. But while international demand is leading to more luxury developments, locals are finding themselves unable to move up the property ladder.
And although prices have continued to rise throughout the pandemic, experts warn there are cracks under the surface. With Milan now in its second lockdown, the effect of the crisis may yet be to come.
According to data from the Italian real estate website Immobiliare, average asking prices in Milan this September were €4,756 per sq m, up 6 per cent from January this year and a rise of 29 per cent since 2016.
“The big difference is that Milan used to only attract business, it was not considered an international city for real estate. Those were the ‘art’ cities: Florence, Rome, Venice,” says Diletta Giorgolo, head of Italy sales at Sotheby’s International Realty. “But there has been a very big change in new demand from international buyers, because now people know it for fashion, shopping, entertainment.”
Two glitzy new districts built to serve this demand are Porta Nuova in the north of the city — home to the Bosco Verticale (Vertical Forest), two tower blocks draped in thousands of trees, shrubs and plants — and CityLife in the west, where some buildings were designed by Zaha Hadid.
In the first quarter of this year, asking prices for prime properties — those in the top 5 per cent of the market by value — were up 4 per cent year on year, according to Knight Frank.
Julie, who has lived around the world for her job and now owns an apartment in Porta Nuova, made the move to Milan in 2017 and has since noticed a change in the city as more international buyers have followed in her footsteps.
“I definitely hear more English on the street, and I was so shocked because a local café here used to only have the local Italian newspaper, and more recently they started having the international New York Times and Financial Times,” she says. “That made me realise: ‘Wow, there must be the demand.’”
Maurizio, a Brazilian in his seventies who only wanted to give his first name, is one of these recent buyers. After ruling out the UK and the US because of Brexit, Trump’s presidency and both countries’ handling of the pandemic, he turned to Milan for a second home, where he paid €3m for a 250 sq m apartment in a boutique building in the Risorgimento neighbourhood.
“For Milan this is a very high price for an apartment, but it’s a 20-minute walk to the Duomo; it’s in front of a park and you have a 360-degree view,” he says. “It’s still a cheap place to buy compared with the rest of Europe, and it’s becoming increasingly cosmopolitan.”
In a sign of how substantially demand has risen for luxury homes, COIMA, the developer behind the Bosco Verticale, is marketing its penthouse apartment this autumn for the first time since the building was completed in 2014.
Manfredi Catella, chief executive, says the decision was made now that prices in the tower blocks are above €10,000 per sq m, and the neighbourhood is “established”. The price of the apartment has not been set, but the developers are looking for more than €15m.
Meanwhile, Sotheby’s says that despite the pandemic it has sold more top-tier properties this year than last year, with US buyers replaced by those able to avoid quarantines and travel bans, such as the French — until they went into their second national lockdown at the end of October.
Then, at the beginning of November, Italy placed Milan under a “red zone” lockdown for at least two weeks, closing most non-essential shops and urging residents to stay at home. House viewings are still allowed as long as they are socially distanced, but people cannot enter or leave the “red zone”, meaning overseas buyers are unable to view properties.
“For the international buyers this winter will be difficult,” Giorgolo says.
Some Milanese might welcome fewer international buyers, whose influx has been blamed for preventing locals from buying. Despite the gains the Porzios made on the sale of their flat, they had to move a few streets away to afford to upsize.
“It’s becoming a problem for people to change their homes, because now you have to consider buying a smaller house or going to an area of town that two years ago you wouldn’t have even considered living in,” says Ricardo Ferrão, co-owner of the Italian Style Real Estate Agency.
But, Porzio adds, deals can still be had if you know the city well. “If you just cross one street you can find a good deal because that street is not too trendy,” he says. “Just a 500m walk away we could find a price per sq m much lower, and we could buy a 100 sq m flat at less than €600,000. If we stayed in the very same street it would have been €800,000.”
Although prices continued to rise during Milan’s first lockdown in March, experts warn it is too early to think they are safe from the effects of the pandemic — and that the middle market is likely to suffer, as financial inequality widens.
“In Italy and especially in Milan, the effects of the 2008 crisis were very delayed, you didn’t have a major break in the sales and the prices, they held for a couple of years — it wasn’t until 2016 when we got the lowest prices of all,” says Ferrão.
“Right now we are experiencing the highest prices ever — in a year and a half, despite Covid, the prices rose a lot. But not everything is roses. If we look at the number of houses sold, right now we have almost 27 per cent fewer sales in the second quarter of 2020 compared to 2019.”
Giulio Pascazio, chief executive of UniCredit Subito Casa, a real estate company that is part of the Italian banking group, says this is the first sign that prices will drop in the future.
“First you see a decrease in transactions and then after at least three quarters you see a decrease in prices,” he says. How soon — and how severely — that happens will depend on this winter, and the severity of the second wave of the pandemic.
“It’s important to see how long the winter lockdown will be, and if there will be a total lockdown,” says Giorgolo, referring to one that is more severe than the current “red zone” limits. “When people have to close their businesses again, then the mid-market will suffer,” she adds. “The mid-market has a big question mark.”