Bare ownership of residential properties: insights on two segments of the Italian market

Purpose - This paper aims to deal with the sale of the bare ownership subject to the lifetime usufruct to the seller as an alternative channel for housing investments in Italian cities. The first aim of the study is to understand in greater detail the bare ownership market while also stimulating the interest of researchers in this segment of the housing market that up until now has been marginally analyzed so far. The second aim is to make the estimation of the bare ownership easier and more reliable for market investors and institutions. The third aim is to quantify on the markets investigated in this paper, the “actual” appraisal coefficients for the usufructuary presence, as well as compare these coefficients with the ones set for tax purposes to highlight either the concordance or discordance. Design/methodology/approach - A hedonic price model is developed, with which it is possible to evaluate the market price of the bare ownership as a function of the determinants of value in the market segments in question, in particular the life expectancy of the usufructuary. Findings - Through the hedonic models defined in this work, it is possible to appraise the market value of the bare ownership of residential flats in a building located in the same districts overcoming the limitations of the procedures currently used. Comparing the appraisal coefficients for the usufructuary presence estimated through the hedonic models defined in this work, with the legally defined coefficients applied countrywide for tax purpose, it is possible to conclude that the latter markedly underestimate the market value of bare ownership, thereby leading to fiscal iniquities and substantial social costs. Research limitations/implications - It has not been possible to know the gender of the usufructuary. Rather limited size of the apartment sales samples. Practical implications - The bare ownership market is currently an important sector that deserves greater attention from the institutions, market investors and real estate research. The model developed allows to estimate the “actual” coefficients for the determination of the market value of the bare ownership of residential units. Originality/value - There are currently no studies nor descriptive investigations relating to either the bare ownership market segments or recent cases of estimates. The present study is the first in current literature that both systematically deals with the quantification of the “actual” appraisal coefficients for the usufructuary presence, as well as compares these coefficients with the ones set for tax purposes.