• The European real estate market rebounded rather quickly after the halt caused by the COVID-19 pandemic. Interestingly, Italy saw the largest increase in investment volumes.
• Work and cultural reasons, a desire to diversify one’s investments, and seeking new sources of income are key drivers behind continued interest in foreign real estate.
• Investing abroad doesn’t have to be a shot in the dark: relying on trusted professionals and experienced local intermediaries is essential.
• How do you apply for a mortgage, make payments, and understand the taxes involved? Here’s what to keep in mind when investing in property overseas.
• From Greece to Turkey, Spain to the UAE – let’s explore the most attractive countries for real estate investments, both in and beyond the EU.

International Real Estate: stops and starts

Data confirms that the European real estate market, frozen during the pandemic, bounced back with a peak in 2022. This exponential growth later slowed by 1.2% over the course of the year, though the trend varies across countries. While major European economies such as France, Germany, Spain, and the UK are seeing modest performance, Italy is expected to close 2023 with a 3.6% increase and over €144 billion in revenue. These figures come from the European Outlook 2024 report by Scenari Immobiliari¹, presented by the Independent Institute for Research and Studies last September. Despite an overall economic slowdown, forecasts for the European real estate market in 2024 remain positive, with projected growth of 2.9%.

Why buy property abroad?

The swift recovery of the real estate market post-pandemic has prompted many Italians to consider investing abroad. The motivations vary: job opportunities, tourism, the dream of retiring in a more affordable and pleasant climate, or simply the desire to diversify one’s portfolio and generate income. Buying property abroad can offer substantial returns, especially if it’s rented out (in large cities or tourist destinations) or sold later at a profit. This is referred to as capital gains. One major reason behind this potential lies in the fact that property taxes abroad are often lower than in Italy.

Key factors to consider before investing abroad

Buying real estate in a foreign country is no small feat. That’s why it’s crucial to work with professionals who are well-versed in real estate and asset management. Local intermediaries also play a key role by providing detailed insights about the market and investment location. These professionals can help:

• assess the actual tax advantages and the cost-benefit profile of the investment. This means evaluating the ratio between the capital invested and the net annual rental return, after deducting expenses and taxes. To determine whether the investment is worthwhile, this value can be compared to the average return of the stock market. If investing the same amount in stocks would yield a higher return, then a real estate investment may not be advisable.
• Identify potential risks, such as high maintenance costs, trouble finding tenants, or depreciation of the local currency.

Mortgage and payment methods for property abroad

Let’s go a step further. If you plan to take out a mortgage to purchase a foreign property, there are specific requirements. Italian citizens must own a property in Italy to use as collateral and show proof of income in the country. Mortgages can last up to 40 years and typically cover up to 70% of the property’s value for employees, and up to 50% for the self-employed or business owners.

When it comes to payments, it’s recommended to open a local bank account. While international wire transfers are possible, they tend to be more expensive than domestic ones, largely due to unfavorable exchange rate markups applied by banks. Additionally, it’s illegal to take more than €10,000 in cash out of Italy per person without declaring it², which complicates cash transactions for high-value purchases.

Tax considerations

Let’s talk taxes. What taxes does an Italian citizen have to pay when owning real estate abroad?

• IVIE: the tax on the value of properties located abroad. It’s calculated by halving the cadastral value of the property and multiplying it by 160.
• IRPEF: income tax, based on the average market value of the property

If the property is rented out, some deductions may apply. For example, renovation costs and any taxes paid in the foreign country can be deducted from the rental income received.

Where is it worth investing in Real Estate in Europe?

Dynamic real estate markets, countries with a lower cost of living, or those experiencing rapid economic growth are some of the main factors to consider when choosing where to invest abroad. Let’s take a look at the most promising real estate markets in Europe right now.

• Greece: the severe economic crisis that hit the country about fifteen years ago led to a drop in property prices of up to 30%, even in tourist destinations like the islands. The recovery has been slow, so it’s important to keep in mind that it may take several years to profit from reselling a property.
• Spain: since the 2008 crisis, Spanish property prices – down by as much as 30% – have never returned to their pre-crisis levels. In addition, mortgage rates average around 1.5% (fixed), and the cost of living is generally lower than in Italy. Particularly attractive destinations include
• Barcelona and Madrid, Andalusia and the Costa del Sol, as well as the Balearic and Canary Islands.
• France: across the Alps, the market can fluctuate significantly – even within a single year. For this reason, investing in France, especially in Paris, can be profitable even in the short term, provided the timing is right.
• United Kingdom: the UK market has recently seen a sharp rise in property values, particularly in cities like London, Manchester, Cardiff, and Edinburgh. While purchase prices are high, transaction and registration costs are generally lower than in Italy.

And what about Portugal? For years it has been a top destination for thousands of retirees, both Italian and foreign, thanks to generous tax breaks and a high quality of life. However, as of January 1, 2024, the special tax regime for foreign retirees moving to Portugal will come to an end. While the country still holds strong appeal in the real estate sector, this change is worth considering. Lastly, according to some analysts, other European countries offering attractive opportunities include Croatia, Albania, Germany, and Hungary, as well as Estonia, Romania, Bulgaria, and Poland.

Investing outside of Europe

Expanding our scope, here’s a brief – though inevitably partial – overview of some of the top non-European countries for investing in the real estate market abroad.

• Turkey: a cost-effective option for buyers, thanks to a low cost of living and ongoing economic instability that continues to keep property prices down.
• United Arab Emirates: a rapidly growing market, largely due to the absence of income taxes. As a result, investors only pay property taxes in Italy, not locally.
• United States: although property prices range from mid to high, the legal and regulatory framework is highly favourable to investors.
• Australia: the country is expected to see property values rise by 10% by the end of 2024, offering strong growth potential.

According to analysts, other non-European countries that may be of interest to Italian investors include the Dominican Republic, the Philippines, and Thailand.

NOTE
¹ European Outlook 2024, Scenari Immobiliari
² If you exceed the €10,000 threshold, you must complete a cash declaration form and submit it to the appropriate authorities when entering or leaving Italian territory.