Luxury Residences Report - I half 2020 - Press release
EXCLUSIVE RESIDENCES: THE MARKET IS IMMUNE TO COVID-19
TheObservatory of ResidencesEsclusive published by Tirelli & Partners Società Benefit with data for the first half of 2020 was presented today. The report analyzes the highest segment of the housing market for the city of Milan. Exclusive residences are defined as homes located in these areas:
- Quadrilateral
- Old Town
- Brera - Garibaldi
- Magenta
- Venice - Manin - Giardini - Duse
- Residual zone (residences that match the above parameters but are not located in the above zones)
That meet one of these requirements:
- Purchase and sale value per square meter greater than 7,000 euros or total value greater than 1 million euros
- rent exceeding 200 euros/sqm per year or total annual rent exceeding 40,000 euros.
Report adjustments due to health emergency
The first half of 2020 includes the three months of almost total closure due to the health emergency. Clearly, referring to a half-activity interval, the indicators for the period can only mark a negative figure. Therefore, certifying what is self-evident seemed unnecessary to us. Therefore, the entire confinement period between Feb. 24 and May 17 was expunged from this survey. In this way, the report represents a snapshot of how the market moved during the three months in which business could be conducted regularly.
Quality supply is increasingly scarce
In a market characterized by a very limited stock of residences for sale, the health emergency and related precautions have caused a further reduction in the number of available homes. Milan is thus confirmed as a market governed by sellers and their expectations and not a "buyers' market" as is the case in most other Italian cities and in major cities around the world. The average absorption index, i.e., the proportion of houses sold to those on offer, is still growing and exceeds 23 percent. In Brera, the most in-demand area, it even reaches 49%. Demand is many times higher than supply: it is firm, but very selective and rewards only quality properties. In June, the qualitative survey conducted with our clients showed that today the following are decisive, in order of importance: the availability of a private outdoor space, panoramic and far-reaching views-possibly over greenery, a larger overall size, brightness, proximity to essential stores, silence and tranquility, and the availability of spaces dedicated to home working and exercise.
Changes in asking prices are minimal (+0.4 percent fromthe previous six months). Average discounts remain stable at around 6%, but for quality residences the closing price often does not deviate from the asking price. Average selling times drop further to 6 months (they were 6.8 in the previous six months),but the best homes sell much faster, in one month or frequently even less.
The most expensive properties: prices and areas
In the semester - or rather in the quarter of full operation - the most significant sale was in Brera; all the most important residences that were sold had terraces!
Leases: stability and good prospects
The rental market shows two opposite trends according to contract duration. While the short term suffers a lot from the very strong restrictions to travel, the segment with longer durations confirms an absorption index around 30 percent, with the average discount decreasing again and reaching an all-time low of 5.5 percent. The average lease time increases fractionally, but remains under 7 months. On the rent front, average rents are stable, while the gap between maximum and minimum rents widens.
Forecast
Making predictions regardless of the health situation is useless. The assumption of a new total blockade of activity would impact all sectors and have highly negative social and economic consequences.
The scenario hoped by all is that the "new normal "will continue its course. COVID-19 will continue to impact people's lives and the economy, but the hope is that the mode that has been generated after confinement will continue its course without upheaval.
In this scenario, further consolidation of the market for exclusive residences can be expected. The quality of supply will continue to dictate prices, rents, timing of sales and discounts.
What has quality will continue to meet firm, solid, selective and international demand.
What has less will continue to suffer, and the price correction will not always be enough to increase attention to the product. Indeed, it is clear that the economic impact of COVID-19 will gradually widen and that bangs of demand for exclusive residences will be forced to abandon their investment projects or at least make decisions to abandon them due to the worsening economic outlook.
We expect a consolidation of the investment demand component. Real estate in addition to preserving capital value offers attractive returns compared to other asset classes.