Italy

Overall construction activity

The first half of 2020 has been strongly affected by the 'darkest' months of the COVID-19 pandemic, with Italy’s GDP registering a dramatic contraction of 11.8%. According to the estimates by the leading Italian economic research company Prometeia, Italian GDP dropped by 9.1% in 2020. The latest estimates by the National Institute of Statistics (ISTAT) indicate a GDP decline of 8.9% compared to 2019.

All the economic forecasts for 2021 show that there will be a slight rebound in wealth creation, notwithstanding a high degree of uncertainty. Prometeia forecasts a livelier recovery of economic activity beginning from the summer and leading to a GDP growth of 4.8% in 2021.

As for the construction sector, the first signs of trend reversal observed in 2019 and in the early months of 2020 have been abruptly interrupted due to the public health emergency situation. The estimate by the National Association of Italian Constructors (ANCE) for 2020 overall construction investment indicates an impressive contraction of 10.1%.

Compared to 2019, new housebuilding declined by 12.5%, nonresidential building dropped by 13.5%, civil engineering fell by 2.5%, and even housing renovation - which was the only sub-sector to sustain the whole industry market throughout the post-financial crisis period – declined by a sharp 9.8%.

The COVID-19 pandemic has significantly affected the Italian residential real estate market. In 2020, the number of housing transactions dropped by 7.7%, and a further decline is expected to take place in 2021 (between -1.1% and -4.8%).

ANCE’s outlook for 2021 predicts a rebound of 8.6% in construction investment, mainly driven by the redevelopment of the existing stock for housing purposes (+14%) and by a gradual recovery in both private investments for non-residential building (+5%) and civil engineering (+7.7%).

However, such a recovery will heavily depend on the actual ability to take full advantage of the great opportunities offered by the market, above all the ‘110% Superbonus’ measure that raises to 110% the percentage of already existing tax rebates for energy efficiency works on the housing stock (‘Ecobonus’), for post-quake reconstruction (‘Sismabonus’), and for the installation of a photovoltaic system (‘Bonus Edilizia’). A further notable opportunity is offered by the EU Recovery Plan, representing a unique chance where the construction sector may assume a fundamental leading role.

Housebuilding

ANCE estimates that investment in housebuilding has decreased by 10.5% in real terms in 2020, due to a twofold effect; on the one hand, the progressive resumption of production activity in the second half of the year; on the other hand, the increased uncertainty and the enduring of investors’ prudential attitude, especially households, in light of the Covid-19 recrudescence in late October 2020 and the consequent restrictive measures.

The decline, occurred in 2020, in residential housing development levels stems from the considerable reduction in new housebuilding investment (-12.5%), which reversed the positive trend started in 2017 in connection to the positive trend in construction permits in the period 2016-2019.

Simultaneously, also the redevelopment of the existing housing stock, which now accounts for roughly 37% of total construction investment value and that was the only sub-sector to drive market growth during the post-financial crisis period, has sharply declined in 2020 (-9.8%). Such a result is markedly affected by the pandemic emergency and by the 'wait-and-see' approach of investors in view of the actual rollout of the ‘110% Superbonus’ tax rebate measure.

ANCE’s outlook for 2021 is, however, positive and predicts a 3.5% increase in new housebuilding investment and a pronounced rebound of 14% in investment for the redevelopment of the existing housing stock. The outlook takes into account the positive impact on production levels expected from early interventions taking advantage of the 110% tax rebate, entered into force in July 2020.