Buying property in Italy: the pitfalls
Buying a house in Italy can be insidious even for Italians, because of the amount of paperwork and documents required to carry out the purchase.
A key aspect of the whole property purchase process for a foreign buyer is the language.
Finding an English-speaking notary in Italy is not a common procedure, that’s why you have to rely on a team of Italian real estate agents to better understand the whole intricate process and dodge many misunderstandings that could cost you a lot…
In this article, we are going to see in detail the buying and selling process of a property in Italy and which are the risks, cavils, and possible problems in which you may bump into.
The preliminary risks of buying a property in Italy: what to watch out for before the purchase
Let’s start with the very first choice you’ll be facing: should you buy from the owner, the agency, or the developer?
Purchase from the agency
If you buy the property from a real estate agency you’ll be dealing with additional commission costs of 3-4% of the total cost. For instance, if the house is purchased for a total of 200.000 euros, about 8000 euros are destined for the agency.
Purchase from the owner
Buying directly from the owner of the house has its pros and cons. The major pro is being able to avoid all the agency’s costs. But the cons regard the bureaucracy management, which is complicated.
Purchase from the developer
Buying a property directly from the construction company will allow you to customize it completely. You can choose materials and the arrangement of the interior. On the other hand, the company could go bankrupt and the construction could never be concluded.
To avoid this kind of problem, Italian law comes with a guarantee for the buyer. We are referring to the 112/2005 act, according to which the developer is bound to provide the buyer with a surety agreement when signing the preliminary contract. The agreement can be both a bank guarantee or an insurance bond, and it’s released on the sale value. Doing so, the sum of money granted and to be granted to the construction company is guaranteed. Once the work is finalized, the company must release an insurance policy that covers for at least 10 years the damages of the total (or partial) ruin of the property and the possible flaws of construction.
Important: the contract between the buyer and the developer must be stipulated as an official act, under the control of a notary.
Apartment or independent house?
Are you considering buying an apartment in an apartment building? In this case, you need to take into account the administrative expenses of communal areas and common charges.
Advice: call the house manager and ask if all the residents are up to date with the payment of the expenses. If there’s someone that cannot pay the common charges, in the worst-case scenarios, you’ll be the one that will have to bring those costs in line.
What area to choose
The choice of the best place to buy your house is another risk to keep in mind. Always try to get in touch with someone that knows the neighborhood and take a look at the municipality’s projects for the redevelopment of the territory, you could find some proper gold mines.
The risks in the phase of buying and selling an Italian property
Later on, once you’ll have chosen the property you want to buy, you have to make sure that:
- The property has zoning, building, and cadastral compliance;
- The seller is the actual owner of the property and there are not any other owners;
- The property deed is safe (pay attention to donations and inheritances);
- There aren’t dangerous liens, such as a judgment lien;
- The common charges are the ones indicated;
- In the case in which you are buying an apartment in an apartment building, make sure to know the improvements to implement in the building and that there aren’t any possible compulsory work scheduled in the immediate future.
Compulsory documents for the property verification phase
To prevent the risks listed in the previous paragraph, you have to retrieve the following documents:
- Cadastral plan. It’s the planimetry of a property and it’s filed at the cadastre of Agenzia delle Entrate (the Italian Revenue Agency). It’s the representation of the apartment according to the State and the revenue agency needs it to calculate the taxes that the owner has to pay (along with the information registered in the cadastral certificate.)
- Cadastral certficate. It’s another document released by Agenzia delle Entrate that states the property cadastral information. The revenue agency needs it to calculate the taxes that will be paid and provides other information such as: the property’s surface area, the cadastral category if the property has residential or commercial use, the construction paperwork, and the updates regarding the property.
- Latest building/zoning permit;
- Property deed (final deed of sale, usucaption, inheritance, gift);
- Mortgage certificate;
- Potential certifications for the implants;
- Energy Performance Certificate;
In the case of an apartment in a building:
- Latest memorandums of the complex meetings;
- Apartment building regulations.
The buying and selling process itself: problems and solutions
At this point, you can proceed with the actual purchase. One thing that you might not know is that this phase can be divided into two separate moments:
- Purchase Proposal
- Purchase Proposal
The first phase consists of the stipulation of a document that contains the purchase proposal that the buyer wants to submit to the seller. The owner has up to two weeks to approve or reject it. The buyer has to deposit a down payment, which is an advance payment as a guarantee to cover a non-fulfillment of the contract.
If, after accepting the proposal, the buyer were to change their mind about purchasing the house, the down payment would NOT be returned. In the same way, if the owner of the house were to change their mind after signing, they will have to pay the buyer double the down payment.
When the owner accepts the purchase proposal the next step is the stipulation of the compromise. With this document, both parties compromise to carry on the selling process and the buyer can solicit a mortgage.
Legal documents required for purchase of property in Italy
Before the compromise exchange, the buyer must obtain an Italian social security number: codice fiscale.
The real estate agent and the lawyer can help go through this process. Our advice would be to request further fiscal consultancy to understand the pros and cons of becoming an Italian resident and how to carry out the property title transfer.
In addition, if the property requires renovation works, which are subject to local zoning norms, it’s better to keep in mind that the permits can take a long time (sometimes one year, sometimes less), which is why it’s recommended to involve a surveyor in the purchase process.
A useful tool for foreign buyers is the special proxy: Procura Speciale. The special proxy is a legal document in which a person, called a principal (mandante) appoints another person (usually a legal representative) to act in their name and on their account. In this way, the client is not required anymore to be physically present when finalizing the various legal steps. The proxy can be signed in Italy or abroad – in front of a foreign notary or an appointed solicitor (for the UK, Ireland, or Australia), which has to verify the signature of the principal.
The mortgage and the compromise
How to make a purchase proposal without having the liquidity assets to pay?
According to article 1353 of the Italian Civil Code, it’s possible to stipulate a contract putting as a condition its potential termination in case of an uncertain future event, which is obtaining the mortgage. Banks control that the property is compliant before granting the mortgage. So, you will have to include the clause for the ineffectiveness of the buying and selling obligation to protect yourself in the case in which the bank won’t grant you the mortgage.
A potential problem with buying a house in Italy concerns the grant of the mortgage. Banks proceed on their own to control the properties and the documents that regard them. If there is a discrepancy and you don’t notice it in time, the bank appraisal will be able to tell and the lending institution won’t distribute the mortgage lien.
So, make sure to state in the document:
- The recipient and the owner of the property;
- The lien situation;
- The identification of the property;
- The property deed;
- The payment method
- The planimetry
- The offer price
- The time needed for the deposit
- The commissions for the real estate agent and the deadline by which you will have to pay them.
Lastly, if everything went well and the property and the owner have passed the controls, you will proceed to the actual purchase, called the final deed of sale (rogito).
Final deed of sale
This phase requires the presence of a notary. His role is to make sure that the buying and selling process is being carried out without violating the rights of both parties and in full compliance with the law.
It has a cost (if it concerns the purchase of the first house it’s minor due to tax relief). The higher the cost of the property and the loan, the higher the cost for the notary. Keep in mind that stamp duties, mortgage certificates, and VAT taxes on the payment are included in the notary price.
When it’s time for the notarial deed, all parties involved in the sale must be physically present: the seller, the buyer (or whoever represents them with power of attorney), and the notary.
According to the law, the deeds must be drafted in Italian, but in case one of the two parties is not an Italian native speaker, the contract can be requested to be written in both languages. During the final deed of sale, the notary reads the contract to make sure that both parties are in agreement on what is reported in it. Lastly, the economic transaction takes place, which can be withheld on a bank account owned by the notary as a guarantee of the total deposit when the contractual terms are fulfilled.
According to the current Italian legislation, the properties purchased less than 5 years prior and already on sale are subject to a tax on capital gain applied on the difference between the selling price indicated on the deed (final deed of sale) and the price of purchase indicated on the deed of sale. The capital gain represents the profit that the owner benefits from selling the property at a higher price compared to the purchase. Starting January 1st, 2020, and according to the 2021 Budgetary Policy (Legge di Bilancio), the tax on capital gain is 26% (it was 20% until December, 31st 2019). This tax is applied only on the sale of private property. However, article 68, clause 1, of the Italian Consolidated Text on Income Taxation (Testo Unico delle Imposte sui Redditi), adds the possibility of deducting from the capital gain evaluation the inherent costs, which means subtracting all the expenses that were covered to buy the property. These costs to consider may include the taxes paid for the purchase, the notarial costs, the real estate agency cost, as well as all the expenses covered for the improvements and renovations, as long as these can be documented through traced payments and the related fiscal invoices. There are some exceptions in which this tax doesn’t have to be paid: when the properties have been inherited or gifted (if 5 years have passed since the purchase of the property by the taxpayer).