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LEGAL VANTAGE

3 Things to know before buying an italian luxury real estate

Beyond residential, prospective buyers are also studying the market for possible investment opportunities

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SINCE the European housing crisis in 2008, the Italian high-end real estate residential market is booming thanks to recent tax reforms that the Italian government put in place to attract foreign ultra high net worth individuals.

In the last few years, Italy approved several measures to attract wealthy individuals, highly respected professionals, funds, corporate managers, sport and music celebrities looking to acquire property and live in Italy - a haven when it comes to lifestyle, art and food.

The number of foreign residents in Florence, for example, has increased considerably between 2012 and 2016, and likewise in Milan. Due to the new tax legislation, people who have not lived in Italy for nine out of the last 10 years can apply to pay a fl at tax of 100,000 euros (S$151,666) per year on all their income generated outside of Italy.

The system can be extended to family members for an additional 25,000 euros per year per dependent person. Beyond residential, prospective buyers are also studying Italy's high-end and luxury real estate market for possible investment opportunities.

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As predicted, the new tax regulations have had an impact on the luxury real estate market and demand for such properties in key locations, such as Rome, Venice and Florence, is expected to increase dramatically. So, what should individuals looking to buy into the high-end or luxury real estate segment in Italy take note of?

ACQUIRING RESIDENTIAL REAL ESTATE IN ITALY

Buying property in Italy, luxurious or otherwise, is not necessarily more or less complicated than buying a property anywhere else in the world. Once a prospective buyer is able to accurately comprehend some legal concepts peculiar to Italy, which may not have any corresponding equivalents in the common law system, it would be relatively easy to understand how the system works. Simply put, the acquisition of a residential property is usually constructed in three steps:

• The first step is to prepare a non-binding letter of intent, sent by the prospective buyer to the seller, which simply indicates interest in the property at a certain price and a willingness to sign a preliminary contract within a given period. A deposit is usually paid by the buyer at this stage.

Before signing the preliminary agreement (the second step), the prospective buyer should appoint a local surveyor to carry out all the necessary searches on the property. As an example, a full survey may include: 1) owner's title; 2) easements (rights to use the property), right of way, or any other third-party's rights, over the property; 3) pre-emption rights (the contractual right to acquire a property over other prospective buyers); 4) charges, mortgages or other encumbrances; 5) building compliance with local legislation; and 6) planning permissions, if needed.

• The second step is the signing of a preliminary agreement, which is an ''agreement to agree'', similar to an ''exchange of contracts'' with binding effects. Upon signing the preliminary contract, both parties are bound to execute a further and defi nitive contract where the buyer promises to purchase, and the seller promises to sell the property if the required conditional clauses are met by the parties before the signing of the defi nitive contract.

Between the execution of the preliminary agreement and the completion of the purchase, the seller remains, technically, the owner of the property. Therefore, the preliminary agreement does not prevent the seller from selling the property to a third party.

However, the buyer may want to protect his position by registering the preliminary agreement with the Conservatoria Immobiliare and Registry. In doing so, registration notary's fees and tax will be payable.

• The third step is the actual completion of the acquisition, which entails the signing of the defi nitive contract, also called rogito, before an Italian notary public. Upon completion, the ownership of the property is transferred from the seller to the buyer. Typically, the fi nal part of the payment is handed over to the seller in the presence of the notary. At this stage, the buyer must also pay the notary's fees, taxes and duties.

With the attractive tax regime implemented by the Italian government, it is no wonder the wealthy are looking at Italy's real estate market for residential and/or investment purposes. While acquiring Italian property is not overly complicated, Asian investors looking to acquire high-end Italian real estate should ensure that they are familiar with the legal and fi nancial requirements.