Italy opens up real estate financing to alternative lenders

The Italian government is reforming the country's financing system in a move which will allow alternative lenders to provide direct real estate finance.

Earlier this week Italy's prime minister Matteo Renzi passed a law called Finance for Growth which will make it possible for alternative financiers to offer loans to the country's belaguered property industry. The decision - which comes as Italian banks remain reluctant to underwrite new business - is expected to provide up to €20 bn of liquidity, significantly reducing the country's funding gap, according to market experts.

While Europe has seen a sharp rise in non-bank lenders since the credit crisis, Italy remained in deadlock as local regulation made it too complicated for alternative financiers to enter direct property lending.

Leading European property executives Isabelle Scemama, head of real estate lending at AXA Real Estate, and Helmut Mulhofer, head of debt and capital markets at Allianz Real Estate, have pointed out in the past that regulatory, tax and legal impediments limited international insurers' real estate lending activities in Italy. Both groups are active property financiers elsewhere in Europe but have yet to make a first step in Italy.

INCREASED COMPETITION
Increased competition and a more active financing market would be beneficial to the Italian property sector as a whole, including active lenders in the country, according to Michael Shields, ING's head of Real Estate Finance Europe & the US.

Speaking at the Expo Italia Real Estate fair in Milan, Shields said ING welcomed the news. 'Up until today alternative lenders were not active in Italy because of a regulatory issue and competition came exclusively from other investment banks. This was an advantage for us, because little competition meant higher margins. However, it is important that the market becomes more liquid and that it shows increasing deal flow. This reform will probably mean more transactions and a positive effect on values in the long term. For me, this was a no-brainer, a logical thing to do,' he commented.

ING, which has a total of €25 bn of real estate loans globally, plans to be more active in Italy, he added. 'We are shifting our focus from the US to Europe where we see more opportunities. In Italy we have been present for a number of years and we have had a strong portfolio performance even during the financial crisis. Today, we have a strong pipeline of deals and we have a large budget so we are prepared to provide big-ticket financings as well. We are growing our Italian team and if we were to find €1 bn of loan opportunities, we could do them. The only problem we see is the lack of liquidity,' Shields said. 'Hopefully this is about to change with deal flow picking up in the future.'