Buying a house in Italy
Since buying anything involves its own peculiarities, before buying property it is good to know before you buy a property, that some processes are not obligatory but are useful.
If the fundamental phase needed to buy a house in Italy still means the title deed, there are other phases that are not indispensable for safeguarding the parties in question.
The phases of buying a house in Italy
Depending on who comes to be involved in the purchase, whether private or real estate companies, certain phases are normally registered in property sales:
- Due diligence
- The acquisition proposal
- The preliminary contract
- The power of attorney
- The title deed
If the case in question is an agreement between private parties either a acquisition proposal for a house or a compromise could be bypassed, with a consequent increase in risks, either for the seller, since the buyer could cancel at the last minute, making a budgeted sale disappear, or for the buyer, since the seller may not respect verbal agreements.
Due Diligence means the survey on a property when it becomes subject to a hand-over.
Potential risks linked to the purchase must be identified. Due Diligence consists in a survey of the urban surroundings, construction and installations.
It can thereby be worked out if there are obligations, if the seller has complete ownership of what he is selling, or if collateral security exists.
A key passage during the purchase of a house is negotiation, useful for finding an agreement between those who want to sell and those who want to buy.
The objective is to reach an agreement.
Negotiation can happen either if a stipulation is maintained between independent parties or in case of a mediation on the part of the real estate company.
Negotiations can be about the price, but also the amount of the deposit, possible work to be done before the release, the date of the title deed before the notary or even the date of delivery.
The agreement therefore must be favourable for all parties in the case therefore, unless it is only laid out going upwards that a margin for talks does not exist, they should all begin with the prerequisite that in some ways should end up as a compromise.
One piece of advice for those buying is, before bringing a negotiation to the table, to get an idea of the area’s prices, so that you can make an appropriate offer.
By presenting a purchase offer the buyer is committing to buying the house on the conditions agreed upon with the seller and is offering the price that is agreed, which may not be how much is asked for by the owner of the property.
Usually the buyer’s purchase is understood to be valid for fifteen days, as is specified in the proposal, to give the seller time to accept or refuse the acquisition proposal.
If the seller accepts the offer, the buyer is obliged to honour it. If the response comes “out of time” obviously it ends every commitment.
An advance sum can be linked to the offer, but it is neither obligatory nor is it an obligation for the seller.
The preliminary contract
In case you choose to agree upon the sale of paper, you can stipulate a “compromise” or “preliminary sale”.
The standard model must bring back the information of the buyer, of the seller and of the property up for sale. The details then change depending on the situation.
It is important to trust an expert to make the compromise because it is data that will be successively brought back into the title deed, that is to say the final sale document.
According to the stipulations of the compromise, the buyer normally pays a deposit of at least 10% of the value of the property.
When the sale is successful the down payment is deducted from the payment of however much is owed.
If the buyer does not carry the acquisition to its end, the down payment is not returned and makes up compensation for the seller.
The sale however could not end up being successful through the fault of the seller, in this case the buyer would have the right to be reimbursed with a figure that is equal to twice the down payment.
The Power of Attorney
The Power of Attorney is an act meaning that a subject is represented by another to whom is conferred the power to act on their account in the fulfilment of acts and activities.
The Power of Attorney is an indispensable instrument for those who live abroad and want to carry out business in Italy, but it is revealed to be comfortable also in case of unforeseen obstacles because it allows the stipulation of the contract in expected times, even in the absence of one of the parties.
The Power of Attorney can be general, if the representative takes indefinite charge of the management of all the matters of the one being represented, or special, if it is created to successfully conduct a particular affair. In this last case, the actual effects cease once the matter is concluded.
The special Power of Attorney aimed at the sale of a property consists in a written private deed or public act. In both cases it must be the notary that validates it.
When the person who wants to be represented is a part of a marriage with common property the signature of the spouse is also needed to make the power of attorney valid.
For Italian citizens resident abroad there is the possibility of authenticating the power of attorney at the Consulate of the state in which they reside, provided that the document is written in Italian.
In case the document was written in the language of the country of residence, the validation is initially up to a local public notary, then to be sent to a notary in Italy, with an attached translation.
The title deed
To conclude the purchase the parties must sign a document called a title deed.
It is authenticated by a notary, who checks the cadastral data of the property and verifies that there are no obstacles to the sale (collateral, obligations/duties, irregularities…).
The same notary will prepare to register the act at the Agenzia delle Entrate and transcribe the change of property at the Land Agency.
Boccadutri International Law Firm can help in all phases of acquisition and sale of a house, from the writing of the contract to the title deed, paying attention to the regularity of transactions.
Buying a house from the contractor
If you choose to buy a house from the contractor you are favouring the purchase from an appropriate provenance, because a new house guarantees installations that are regulated and secure, but with many of them unfamiliar, especially linked to the times of creation.
The biggest fear is that the contractor might lose however much is paid as a deposit.
It is good to know that this possibility could more likely not be realised thanks to Italian law, which provides a similar scenario in legislative decree no. 122 of the 20 June 2005.
According to the law, the construction company is supposed to leave an insurance guarantee equal to the amount of all the expected sums, which might serve as safeguarding in case problems at the expense of the construction company should happen.
This bank guarantee will be extended to other potential sums before the delivery of the property.
With this document in hand the buyer can at any moment ask the bank (or insurance company) for possession of their own money.
Another deed provided by the d.l. 122/2005 is the ten-year posthumous policy, created by the construction company on the day of the title deed, which safeguards buyers from potential construction deficiencies.
It is valid for ten years, effective from the day on which work is officially concluded.
Residential property leasing
The ability to stipulate a lease contract for the acquisition of a first house has existed in Italy since 2016.
The leasing company, whether it be a bank or a holding company, buys the property chosen by the client, about which the person involved must form a dialogue with them in order to be available. Paying a monthly rent for a given period, you have the ability to redeem the property in the end (which in the meantime is being used).
Residential property leasing has many similarities with a mortgage but the monthly payment is less of a burden, as opposed to the final one that then serves to ransom possession of the property.
To gain access to the lease you need to have an annual income of less than fifty five thousand euros and be considered solvent by the bank. The maximum final payment can easily be financed just like any other loan.
The residential leasing formula allows the direct purchase from the contractor only if the property is already finished and ready to be lived in.
Any sort of tax or spending linked to the property will be at the expense of the one who signs the leasing contract even if, until the release of the maxi payment, the company stays in possession of the property.
When the lease contract reaches its deadline, the user will be able to redeem ownership of the property, paying the price established in the moment at which they signed the contract.
Rent to buy
Since 2009 it has been possible to use the formula of Rent to Buy in order to own a property.
It is about the possibility of purchasing a property after a period in which its lease has been paid.
Depending on the type of contract chosen the transfer is not obligatory. The contractual duration is often fixed at 3 years, it being understood that the buyer has the right to pay in advance of the date of the deed as much as they want.
Even in this case the Italian legislator has intervened to safeguard the parties in case they choose to adopt this formula, borrowed from the English-speaking world.
Decree 133/14, converted into law 164/2014, calls for a series of regulations for those contracts that bring into immediate concession the enjoyment of a property, granting the tenant the right to acquire it within a certain time span.
Until the moment of the title deed, the ownership of the property stays with the seller. If you choose Rent to Buy, the signing of the contract, a document will be signed for the rent and a preliminary agreement that would regulate the future sale.
Rent in this case will have a higher lease than average since a part will go to the down payment on the price of the property.
Both contracts will have to be registered at the Agenzia delle Entrate and the preliminary agreement have to be signed at the Land Registry so as to safeguard the buyer in case of the failure or death of the seller, or in case of a successive foreclosure.
A Rent to Buy formula could be chosen without the obligation to buy, in this case because of law 164/2014 for the tenant, the owner has the right to win back the apartment, and to hold back the rent paid (this happens unless there is nothing different set out in the contract).
If the owner fails to comply with the agreements, the tenant may return the part of the rent deposited as an advance payment, plus the legal interest.
The contract is concluded early in case of a missing payment of at least a twentieth of the total amount owed.
This figure may vary if it is established as such in the contract.
Ownership reserve clause
The possibility of acquiring a mortgage, the so-called “ownership reserve clause”.
In this case a real sale contract is stipulated and the buyer takes full possession of the house, committing to paying in instalments the figure stipulated for the sale.
In this situation, ownership remains with the seller so that they are not paid all of the established sum.
In case the buyer does not honour a contract, the seller can request its resolution, but will have to restore the sums that have already been received, except for a portion by way of compensation, plus the reimbursement is up to them for the use of the property on the part of the buyer.
This formula can replace the mortgage and must be explicitly agreed upon between parties, which will be put into writing in the notary deed of sale.
Dealing with the deed and its effects, they will be paid the levies relating to the sale straight away. In addition, all the costs relating to the property being bought will be transferred at the expense of the buyer.
Applying for a mortgage
Those that are not capable of paying the full price of the apartment that they intend to buy can ask to be funded by the bank through a loan.
However, it is good to know that banks give out loans only to those who are capable of showing that they have been allowed to do so.
Through a series of documents the applicant will have to demonstrate that they have an economic and income situation that is compatible with funding.
The documents necessary for the credit Institutions to make an evaluation are:
- Registry documents
- Documents relating to income
- Documents relating to the property that is to be bought.
Considering that it is not necessary for the bank to finance the required amount it is always good to point out in the preliminary purchase contract a resolved clause connected to the obtaining of the mortgage.
If it is specified that the agreement is only valid if the bank grants the necessary amount, the possibility of losing however much has been paid so that a deposit is not risked.
Once the signed licence has been received by the bank the type of it can be chosen, considering that you can chose between one at a fixed rate and one at a variable rate.
Notwithstanding that some banks grant the subrogation of the loan, that is to say the capacity, even during construction, to transfer the loan from one credit institution to another, so as to get more advantageous conditions.
There exists the possibility of cancelling the loan in advance, depositing in one solution the entire amount that remains to be paid. Otherwise you can reduce the amount charged by effecting early loan payments.
The loan on the principal residence produces a discount on the taxes equal to 19% of costs and interest sustained through the year, for a maximum of €760 or €490, if the amount destined for construction or restructuring is being dealt with.
If you find yourself in difficulty with the payment of the mortgage, you can, before reaching the sale or purchase of the property, find a compromise with the bank.
In this case the solution can mean the loss of a job in some cases, suspending payments for a long period, or renegotiating a lower mortgage payment, by extending the duration and increasing the interest.
If a foreign citizen were to buy a property
A foreign citizen can also buy a house in Italy. If they do not regularly spend their time in Italy they can proceed with the purchase through an international agreement or if in their country of origin there exists a condition of reciprocity with Italy (that is to say if an Italian citizen can buy a house in that country).
If the foreigner has regular vacation authorisation, but has obtained this for less than three years, they can proceed with the purchase, notwithstanding the existence of the condition of reciprocity, if their vacation residence has been released for reasons of work, family, studies or other particular motives.
If they are an EU citizen, a member of the EFTA Countries, the European Free Trade Association (Iceland, Liechtenstein, Switzerland and Norway), a stateless or political refugee, in case they have been residing in Italy for more than three years, can effect the acquisition without limitations.
First house tax breaks
In Italy it is possible to enjoy a simple fiscal regime and to pay less tax when a “first house” is bought.
This tax break is also available to foreign citizens buying a house in Italy. To access this you need residence in the property’s Commune or establish this within eighteen months.
The residence that is to be considered a “first house” cannot fall into the “deluxe” category.
The expert real estate lawyers at Boccadutri International Law Firm help foreign clients in the purchase, sale, real estate evaluation and in the establishment of property funds through the arrangement of a company’s structure, due diligence activity, consulting contract and the lease concession.
You can contact our lawyers here.