Luxury Residences Report - II half 2020 - Press release
EXCLUSIVE RESIDENCES IN MILAN: MARKET ACCELERATES DESPITE COVID
TheExclusive Residences Observatory published by Tirelli & Partners Benefit Society with data for the second 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 dwellings located in these areas:
- Quadrilateral
- Old Town
- Brera - Garibaldi
- Magenta
- Venice - Manin - Giardini - Duse
- Other zones (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.
"Starting in the second half of 2020, we have completely revised our Observatory. There is a completely revamped layout, but most importantly we have multiplied the quantitative information for each of the market indicators. In the 60 pages we have included more than 85 tables showing at a glance the trend of indicators in the last10 semesters or 10 years on an annual basis," says Gabriele Torchiani - senior partner in charge of the Observatory.
Buying and selling: demand continues to exceed supply
In a market dense with critical issues at the global level, Milan's strong attractiveness at the national and international level (Brexit and Flat tax)keeps very high the pressure of demand on supply, which is increasingly rarefied: never have so few new houses appeared in a six-month period on the "official" market. Despite the economic uncertainties and the outlook related to the evolution of the pandemic-related scenario theaverage absorption ratio, i.e., the share of houses sold compared to those on offer, is still growing and exceeds 24 percent. The highest absolute values are recorded in Brera and Magenta. Demand is mighty, decisive, but very selective and in all areas of the city it rewards only quality properties.Especially in the top end most transactions take place "off-market," as "private placements" by real estate agencies dedicated to their best buyers.
The average discount applied to the asking price falls again and stands at 5.8 percent. Average time to sale falls below 5 months, but there are many sales that close in less than a month. For homes transacted off-market, the selling time approaches the technical time it takes to conduct one or two viewings, prepare the proposal and obtain acceptance. Typically, between 10 and 15 days pass, and the offered price is equal to the asking price. In a market polarized by the quality of homes, it is not surprising that the average time unsold properties remain unsold instead continues to rise, breaking through the 2-year threshold. Homes with insufficient quality remain unsold, especially in prime areas. "Those who have a choice today choose quality and do not compromise," says Marco E. Tirelli.
The trend in asking prices is essentially stable, with a fractional decrease of 0.22% in the overall average. The average changes recorded are very low due to the low renewal of supply, the downward trend is due to two concomitant factors:the fast exit from the market of the best pieces - ideally with the highest prices - and the steady reduction of asking prices for unsold houses, a very relevant phenomenon in this semester as well. The gap between maximum average prices (those of houses in the first quartile, thus those with the highest overall price) and minimum average prices (those of houses in the fourth quartile, thus those with the lowest overall price) is still growing. "In some areas these two indicators have a completely divergent trend," Torchiani says. "For example, in Quadrilateral in the last 10 years the former have risen by 9 percent while the latter have decreased by as much as 28 percent."
The podium of transactions in the semester: prices and zones
In the six-month period, the three most significant transactions all occurred off-market. The amount exceeded €27 million, the highest value ever.
Leases: stability and good prospects
The rental market remains active, both in the local component, which includes those struggling to find a suitable solution in purchase, as well as those from outside the city(Italian and non-Italian). The potential remained partially untapped due to difficulties in travel and commuting. Despite a slight slowdown in activity in the last two months of the semester, the percentage of rented houses shows an increase over the previous semester, standing just above 30 percent.
The average rental time is reduced slightly(about 15 days) to 6.2 months. Many houses are rented in significantly less time, not infrequently within three weeks of appearing on the market; the average value is affected by the presence of apartments that are not perfectly ready to live in, for which the rental process is evidently longer.
The average discount drops by an additional half a point compared to the previous six months, down to 5 percent, a rounding that is considered fair to close negotiations, although for the most desirable houses and under concurrent multiple offers, the contractually agreed rent is very often the same as the asking rent. At the annual level we have the lowest average value ever recorded by this Observatory.
On the asking rents front, there is a slight decrease for the average value, again resulting from the low turnover in supply, which has seen the best homes leave the market. Average maximum rents show a very slight positive sign, while minimum rents show an opposite negative sign, confirming that it is quality that is increasingly making the difference.
Forecast
In a "new normal" scenario of gradual emergence from the emergency we can expect further consolidation of the exclusive residence market in terms of buying and selling. The quality of supply will continue to dictate prices, 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 price correction will not be sufficient to attract potential buyers.
In the rental segment, the most likely scenario is one of substantial market stability during the first half of 2021, with demand that, although growing in some areas, will struggle to turn into an increase in transactions due to the scarcity of quality supply especially in the city's most valuable areas. In terms of the number of leases and rents, we expect a confirmation of current levels.
"I am particularly proud of the work we have done in preparing the new Observatory," Marco E Tirelli points out , "which allows us to deliver to our clients and the real estate community a report with information that we have never before made public. For this reason, the Observatory will not be downloadable from the website, but can be requested free of charge by sending us an email."