Transcript – TL;DR
Peter Harper: Hello, and welcome to the Three Pillars podcast. I’m Peter Harper, the managing director and CEO of Asena Advisors, If you’re not familiar with the business, we’re multifamily office advising foreign family offices and private clients on US direct investment in mergers and acquisitions. In this episode of the Wealth Management series, we’ll be discussing investing in Italian real estate with our special guest, Monir Di Guilmi. Monia, it’s great to have you here with us today. It’d be great if you could introduce yourself and tell our listeners a bit about yourself and your business.
Monia Di Guilmi: Hello to everyone. My name is Monia Di Guilmi. I am Italian and I have been working as an international real estate agent for the past 10 years. I found that Abruzzo Property nine years ago, in 2012, and since then we have been working with foreign clients from all over the world, the mainly from the US to buy properties in Italy, especially in the central regions of Abruzzo and Molise. They are on the west coast of Italy In the past few years, the international press and also many TVs like the BBC or CNN, have been broadcasting and talking about Abruzzo region. Abruzzo is considered the new Tuscany of Italy. And we have been helping clients to purchase their properties in this part of Italy.
Peter Harper: It’s fantastic. A lot of our listeners are interested in learning about is just generally information. For those folks out there that have been to Italy a number of times, maybe on vacation, and they’ve fallen in love with the region and they think they might like to buy real estate there. What is the sort of general process that you know, as they’re kind of starting to try and educate themselves on different regions and what markets make sense for a lifestyle and maybe for investment? How do you generally start that process with your clients?
Monia Di Guilmi: Ok. Well, generally the first thing to do is starting to look online and find the properties. Obviously, if the client has no idea at all of where to buy in Italy, because Italy, it’s a big country. Well, they can start looking at the map and decide if they prefer to buy in the north of Italy or in this center or in the south. The south and the north are two completely different parts of Italy. I would say the climate is different and the prices of houses is different and the center is in between. So it’s really a compromise. It’s also very easy to travel to the north to the south from the center of Italy. So when the clients started to go online and find suitable properties, what is possible to do is to start to contact real estate agents. It’s important to find an English speaking agent because obviously, unless the buyer doesn’t speak Italian, it would be harder to communicate. And it’s also important to find a trustworthy agent. And then the negotiation will start. So through your agent, you can start a negotiation on the price of the house you have selected. Usually here in Italy, the prices of houses are negotiable, so it’s possible to try to place an offer and see how far it can get. And then the process is, to buy a house, is usually three or four months.
Monia Di Guilmi: And when your offer has been accepted, then we start to work on what is called the preliminary contract. The preliminary contract is a pre agreement where the buyer and the sellers states all the terms and conditions of the sale or purchase for the buyer. It’s very important to know that the preliminary agreement is a binding document – is a binding contract. The buyer is required to pay a deposit that is usually 10 percent of the price of the property, and if it pulls out, you will lose its deposit. So it’s very important to understand this point. In case the sellers pulls out, he has to pay double the deposit Many clients we deal with felt a little bit uncomfortable to send a deposit, but this is how it works in Italy. And the preliminary contract it’s an official document because it’s registered at the tax agency. Your broker for you, or yourself if you are physically in Italy, you can register this contract. And so it’s something official.
Monia Di Guilmi: After usually two or three or four months, in some cases from the signing of the preliminary contract, it’s possible to complete the purchase in front of a notary. Here in Italy, to buy a house, you have to sign in front of a notary. You don’t need a lawyer. Like in the US, or in the UK, but you will need a notary. A notary in Italy is a public officer, so you work for the government. But in the cases of property transactions, he works for the buyer; the buyer pays the notary. The notary has a university degree in law and then a further specialization in purchase matters. It’s important, if you don’t speak Italian, that you find an English speaking notary to address the question in English. Your broker should be able to provide the details of some English speaking notary. It’s also important that you find an English speaking notary because at the end, when you will have to transfer the money for your house, you will send the money to the escrow account of the notary. if you decide that you don’t want to transfer the money to the escrow account or the notary, you can come to Italy, open a bank account, transfer your money from your US account your to your Italian bank account, and then you can issue bank cheques for the sellers.
Peter Harper: This is super helpful. So just to recap, you’re saying that the really the only role of attorneys or advocates in this process is really the notary section, right? So when someone gets set up, they’re working with you, they’ve found a property, they’re negotiating and they’re signing off on this preliminary contract that’s binding, do they involve attorneys at that legal representative entity at that stage? Normally, when they’re going to the final stage that they’re dealing with attorneys, what’s the general practice?
Monia Di Guilmi: It generally is only at the end, because the preliminary agreement is written by the realtor, so it’s written by the broker and also the broker at this stage of the signing of the preliminary contract will send to the notary all the documents related to the house so that the notary can start all the legal checks and also will provide an estimate to the buyer and estimate related to the taxation he has to pay for the purchase and also the legal fees. So before committing with the signing of the preliminary contract, the buyer already has a complete knowledge of all the costs involved in the purchase.
Peter Harper: Okay, as a buyer, you’re paying some notary fee. What percentage of the transaction do you have to pay in taxes?
Monia Di Guilmi: It’s not a percentage of the price of the property, but it’s a percentage of the assessed value of the property. It’s might seem difficult, but it is not because every house and even every plot of land in Italy has an assessed value, a value that the government has given to that property in order to calculate taxation. This is for obvious reason because a property can be sold or purchased at any price and the government doesn’t charge the taxation according to the price you pay, but in accordance to the assessed value. So, for example, you can buy a house that is on the market for $200,000 and you can place an offer and buy it for $150,000. The government will still charge the taxation according to the assessed value, not to the price you pay. So in Italy, if you buy as a main residency, so the house where you will spend 185 days a year, you will pay the two percent. And I think it’s also important to know that regarding taxation in Italy, if you buy us a main residency, you don’t have any annual property tax because the government in Italy does not tax your main house. Everyone needs a house to live. So your main house is not taxed by the government.
Monia Di Guilmi: On the other hand, if you buy a holiday home or a house as an investment, the government will charge a property tax that is called the IMU. I M U, and this tax is usually approximately 600 US dollars a year. But it will obviously change according to the value of the house, the size of the house and the location. So usually it’s around 600 dollars, but it can be a little bit more or slightly less, according to the house. And always also regarding taxation it’s important to to know that here in Italy, if you buy a house and you sell it after five years from the purchase, you are not charged any capital gains tax. So this is a great advantage if you decided to buy a property that is low cost. So a property that maybe needs some restyling or some cosmetic works, and then you do the work. You enjoy the house for five years or even longer. You can even rent it. And after five years, if you resell the property at a higher price, you will not be charged any capital gains tax.
Peter Harper: is that is that regardless of whether you’re a resident of Italy or not. So the folks that are, say, buying a house in Italy is a second home or third home.
Monia Di Guilmi: Yes, is regardless. Everyone, even if it’s a holiday home or a house for investment, will not be charged any capital gains tax.
Peter Harper: So that’s that’s great incentive. I think what I’m hearing is a lot of the things that you’re putting out there that you’re talking about is actually very similar to the to the US. So for the most part in most, states within the US, they’re their broker representative. I mean, some people will still have an attorney involved there’s no legal requirement to do that. And then you have this idea of the escrow agent that has some similarities to to what you have as far as the notary, albeit that you generally find the escrow agents in the US are far larger. And even when you when you talk about transactional tax, a lot of it’s a regional thing. But there are a lot of counties around the US that will charge a percentage of the assessed value as far as the transactional tax, as well as your property tax. So then I think there is a lot of similarities. We’ve spoken to some other folks on this show about France, and it seems as though France has a lot more other differences maybe their challenges might represent challenges for Americans. Monia in your experience, then given that that it’s not necessarily normal for buyers to have an attorney representing them, just how important is the role of the broker in the transaction, right? I imagine it is. It’s it’s a very critical relationship because if you don’t have that person who understands the nuances of the region as well as things for foreign buyers, that’s when you can maybe end up making major mistakes. I’d be interested to hear your view on that.
Monia Di Guilmi: Yes, obviously, it’s very important that the buyer is able to find a broker that is trustworthy and speak English. Here in Italy. there is a big difference in comparison with the United States the broker represents the buyer, but also represents the seller. So the broker will have a portfolio of properties and the he will represent both the seller and the buyer for the matter that the broker has to have all the documents related to a house, a house that is selling. I know that in the United States it works differently. So the buyer contact the broker and the broker can contact many other brokers to propose properties. Here in Italy, this is possible, but usually the broker will propose the houses of its own portfolio, and it’s also possible to collaborate with other brokers but is not so usual. And how to find a broker that you trust if you are abroad, if you cannot travel to Italy, or if you rely just on the internet, I think that now it’s possible to to find a broker checking the reviews. There are pages like Google Business or Trustpilot or even Facebook, where it’s possible to read the reviews of the company. And I also advise the buyers to try to contact some of the person who have left the reviews because sometimes a review can be fake. So it’s good to start a communication with someone who has already bought a house from the same broker.
Monia Di Guilmi: And then obviously start to make phone calls. And sometimes also the feeling is important. If you have a good feeling towards that broker, maybe you are already in a good in a good position. And we had, in the past couple of years, we had the many clients from US that bought remotely. So they just had the video tour on WhatsApp – so a video call. And they bought their houses without coming to see the houses just through a video call. This might sound a bit crazy or a bit uncommon, but they did. And because we had the travel restrictions, they even bought through the power of attorney. So they gave me power of attorney to purchase a property that they saw just on a video call. And this summer, U.S. clients started to travel again to Italy, and they saw their houses and they were all happy. So I think, yes, it’s important to find the broker that you really trust when you are buying abroad.
Peter Harper: And Monia, just to close, I think it’d be great just to hear your predictions for the market. I mean, is it a hot market at the moment for Italian real estate? Prices going up? What regions do you see that are where people are excited about them the most? What’s your prediction and what do you think? Where do you think prices and the market generally is going to go over the next 12 months?
Monia Di Guilmi: Well, I think the recent big difference amongst regions. Prices have dropped approximately 8% in the last couple of years, so now we hope that prices will start to increase a little bit and the economy started to be better in summer 2021. So probably prices will start to increase a little bit. So the difference was that while the price of the houses started to drop, the prices of houses for rent for tourist renters – so in the tourist location, close to the beach, close to the mountains, summer houses or winter houses – those prices have a rise of 30%, probably because during COVID we couldn’t travel abroad or many Europeans couldn’t travel in places like Mexico or Thailand, and they came to Italy. So now I think buy a house that you can rent to tourists is a good opportunity because it’s a good moment to to buy because prices are still low and rentals have increased a lot. And regarding the area, I would say it’s very important to understand the purpose of the purchase. So if it’s to retire, so obviously it would be better to buy in a small town or not in a big metropolitan city. And if it’s a house to rent for holidays or an investment it’s nice to find the summer location that it’s known but not too expensive. Like, for example, Tuscany, everyone knows Tuscany. But the prices are so high even now, even with COVID that maybe it’s better to find a region that is not so famous and can provide better opportunities. I would say, like Abruzzo also, because it’s considered the new tourist destination. The prices of properties close to the beach tend to be high in comparison with prices of houses a little bit more inland – let’s say, 30/35 minutes drive from the beach. And where to buy is always a matter of also budget. And if the client has a unlimited budget, you can buy obviously everywhere if the budget is limited. It’s obviously good to find the some buyer’s market.
Peter Harper: Brilliant. Well, Monica, thank you very much for taking the time to join us today and give us insight into Italian real estate. for any of our listeners, if you wish to learn more about Italian real estate or wealth management in general. Visit our website Asena Advisors.com. That is AsenaAdvisors.com And thanks again and for those hunting for Italian real estate. Happy hunting.
Monia Di Guilmi: Thank you, and thank you for the podcast.