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Renovation: a 50 billion euros potential market

A million houses ready for renovation can be a driver for recovery and a great investment opportunity as a renovated home can see its value increased by up to 35%

by Simona Storchi

Residential property for renovation makes up a potential market of over a million houses, for an estimated value of over 50 billion euros. With a total of over 123 million square metres of empty houses, the renovation market may well drive the building industry’s recovery.
According to Scenari Immobiliari’s first Report on housing renovation, 19% of housing sales in Italy already concern houses in need of remodeling (Naples has it at 25%) whose value after renovation increases by up to 35% in some areas of the country.

The number of houses to be renovated exponentially increases if one is also to take into consideration existing housing units in need of upgrading, entailing investments for an estimated total 50€ billion.
Making the existing housing supply as attractive as it used to be means higher quality of life for the people inhabiting the houses, improved environmental impact, and considerable energy saving; but at the same time it is a form of investment: a nicer and more functional home is indeed worth more.

The analysis was carried out in collaboration with Paspartu Italy. The added value gained through redevelopment is calculated by considering a 60 sqm old apartment (listed according to prices to Feb 2017)  located in a semi-central area in the main Italian cities, where the market is most dynamic, and a similar renovated apartment in the same area. The envisaged construction work includes demolition, removal and construction of partition walls, plastering and smoothing, flooring and wall coating, house decorating and plumbing, heating, the electrical system, masonry works, air conditioning, fixtures and materials.

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The capital gain thus calculated (i.e. the percentage increase of a house including renovation costs) can account for as much as 35% of the purchase price in some areas. Overall, the semi-central areas of the 104 provincial capitals of Italy have registered an average 10.7% capital gain and a 14,000€ net profit, considering an average redevelopment cost of 31,000€ and a 31% discount. Thus the average cost of a house which is about to be upgraded settles around 100,000€, while a renovated home is worth 145,000€.
The Italian ten cities where renovating a home creates the highest value are Rome, Venice, Florence, Naples, Bari, Milan, Bologna, Brescia, Catania and Genoa, with capital gain oscillating between 20% (Rome) and about 12% (Genoa).

Mario Breglia, in charge of Scenari Immobiliari, believes that “the future of Italian housing market lies in residential property renovation. Redeveloping also means contributing to the recovery and improvement of small and medium towns across the country. From upgrading single housing units until redeveloping entire residential areas, remodeling is one of the main issues the Government has been focusing over the last few years. The tragic events that recently hit Central Italy (and that had previously hit the Emilia region), have brought up the urgency of making all buildings earthquake-proof  (through the Casa Italia plan).

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In this context, several actions have been set up at governmental level: funding of slum upgrading; revision of the legislation limiting consumption of soil so as not to damage the building industry; modification of the building Consolidated Act; and the introduction of tax incentives through the 2017 Stability Law. In particular, in 2016 about 1.4 million people claimed tax credits for home improvement and about 330,000 for energy requalification, total investments amounting to 28.2 billion (source Cresme – Symbola),  12.3% more than the previous year.
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One way to buy buildings for investment is through foreclosure. Proceedings can vary between 18 and 24 months, to a maximum of 15 years, with an average length of 5-6 years. During the first few months of the year, foreclosure sales rose by 10% all over the country, amounting to 33,000 active procedures. “Foreclosed buildings – reads the Report – are flowing onto the real market, offering interesting possibilities”. According to Scenari Immobiliari “most purchases are still made by foreign investors, and it is only now that some servicers have decided to manage this kind of resources”. But analysts warn that putting a property up for auction when its value has fallen by over 50% is not enough’. The lot needs to increase its value, home improvement now accounting for about 40% of total investments in the whole building industry. “Buying a house at an auction is not a guarantee that its future sale will be a profitable one; it must be upgraded before it is put on the market again”.

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