Luxury Residences Report - I half 2021 - Press release

EXCLUSIVE RESIDENCES: A HEALTHY MARKET, BUT ALSO AN UPHILL CLIMB

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TheExclusive Residences Observatory published by Tirelli & Partners Società Benefit with data for the first half of 2021 was presented today. The report analyzes the highest segment of the real estate market for the city of Milan.

Buying and selling

The first half of 2021 still sees a very active demand for purchases on all levels of the exclusive residences segment, both in the "low" range (up to 2M€) and - and even more so - in the Top range (over 5M€). In both cases, demand far outstrips supply, further invigorated by the gradual removal of restrictive measures imposed during the pandemic and, above all, by the brightening of the economic outlook and scenario in the short and medium term. "A large number of requests remain unanswered due to a supply dynamic that is still insufficient in quality and quantity, which dilutes search times by holding back potential double-digit growth in the number of transactions. Despite all this, the absorption index is still growing by one and a half points compared to the second half of 2020 and stands at 25.6 percent," commentsGabriele Torchiani - senior partner in charge of the Observatory.

Exclusive residences in Milan continue to be a "sellers' market" in which sellers of high-end homes price and buyers, fearful of losing the buying opportunity, adjust to the demands. Overall, there is less negotiation and the average discount applied to the asking price falls slightly again to5.4 percent.

Average sale times also decreased, dropping to 4 1/2 months, but there are many purchases and sales that take place very quickly, as in off-market transactions, which generally take less than 20 days. "The tendency of many exclusive residences to bypass the "official" market through negotiations handled as "private placements" with highly motivated buyers has been further consolidated in the six-month period," says Marco E. Tirelli. " The homes that appear on the official market visible through portals are very often second-rate homes, which deadens the home search experience."

For the first time in two years, the average stock times of unsold properties also drop - albeit fractionally, by half a percentage point - mainly due to two factors:the closing of some negotiations on "long-stay" homes on the market and of average quality, at prices reduced compared to the owners' initial expectations, and the withdrawal from the market of the most "difficult" pieces, with no real prospects for sale other than related to changes of use. However, the absolute value of inventory time remains just under two years, a figure that at such an effervescent time in the market certifies the strong attraction of demand toward product quality.

Trends in asking prices show a fractional growth of 0.2 percent in the overall average. As in the previous survey period, the average changes recorded are very low. In a market with the supply and demand characteristics we have highlighted, one might expect a much more robust rise in asking prices. However, it should be remembered that the race to the top has already had very significant effects: starting in 2015 (the year in which there were the first signs of recovery post sub-prime crisis and potential Italian default) average asking prices rose by 9 percent and actual selling prices by as much as 21 percent, due to the concomitant reduction in the average discount. Significant price increases actually took place for Top residences (>5M€), a segment in which closing negotiation prices grew a lot, reaching demand values in the semester that had never been recorded before. "It is clear, however, that when the Top segment is absorbed in the general survey(> €1M), the explosive effect on prices is diluted due to the small number of annual purchases and sales it expresses," comments Torchiani.

In the six-month period, a record sale in the Magenta area brings the total amount of the three largest transactions to close to €31 million, the highest value ever in Milan, which beats the record set only in the previous six months.

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Leases

The rental market in general did not particularly shine during the period, being somewhat congealed both by the difficulties in travel and commuting protracted into late spring and by doubts about the job prospects of potential tenants induced by the health emergency. On the supply side, the incremental effect related to the entry of properties that had shifted from short term (a market zeroed out by Covid) to traditional rental in recent months has ended. In addition, there is some rigidity on the part of the owners of these homes in accepting long contracts in the face of the potential upswing in affluence related to business travel and college students. With this in mind, it is not surprising that the percentage of houses rented during the period remains essentially stable compared to the previous six months, standing at 30.4 percent.

Average lease times rise slightly to 6.4months. The variance in this figure is very high, between houses that are rented in significantly less time and those that are not perfectly ready to live in, for which the rental process is much longer and with little likelihood of success.

The average holding time of unrented propertiesdecreased slightly during the six-month period, partly due to some properties being diverted to sale. The stock still lasts 11.5 months on the market, as it includes homes that require extensive renovations, for which the market shows almost no interest.

The average discount obtained in negotiation goes up by 0.2 percent compared to the previous six months, but it remains a figure confirming that for the most desirable houses, one can only ask for a rounding up considered fair to close the negotiation. In the face of perfect houses in areas with low supply, the rent agreed upon in contract is almost always equal to that requested.

On the asking ren ts front, there is a minimal decrease of a quarter of a percentage point for the average value, again resulting from little turnover in supply, which has seen the best homes leave the market. A similar but more pronounced trend (-0.52%)is shown by the average minimum rents, and in this period-for the first time since 2016-the maximums also show a negative sign (-0.17%), albeit almost insignificant.

Forecast

In buying and selling, with very strong, dynamic, but selective demand, the real driver of the market will continue to be the quality of supply. However, given the thinness of the stock with this characteristic, in the second part of 2021 we cannot expect any shocks in market indicators, but we expect a consolidation of the current trend.

For leases, the qualitative indications we have been able to record since last summer show that the most likely scenario will be for a robust market recovery during the second half of 2021, with significantly rising demand driving the increase in the number of leases, at rents that will confirm current average levels.