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The dream of owning a home is deeply rooted in Italian culture, a pillar of stability and tradition. However, the path to achieving this goal is evolving. Alongside the traditional mortgage, innovative financial solutions are emerging to adapt to a more flexible job market and new housing needs. Among these, real estate leasing for individuals, also known as residential leasing, is an increasingly attractive alternative. Introduced in Italy with the 2016 Stability Law, this tool allows you to enjoy a property with the prospect of becoming its owner, combining elements of renting and buying into a flexible formula.
This article explores in detail how real estate leasing works, analyzing its mechanisms, the parties involved, and the requirements. We will compare its advantages and disadvantages against a mortgage to understand who it is for and when it might be the right choice. The goal is to provide a clear and comprehensive guide to navigating an option that blends the Mediterranean desire for “brick and mortar” with the needs of a constantly changing world.
Residential real estate leasing is a contract whereby a bank or financial company purchases a property on behalf of an individual (the lessee) and grants them its use for a predetermined period. In return, the lessee pays a periodic fee. At the end of the contract, they have the option to purchase the property by paying a final buyout price, which was agreed upon at the beginning. This formula, once reserved only for businesses, has been extended to individuals for the purchase of a primary residence, offering an alternative path to homeownership.
There are three parties involved: the lessee, who is the individual choosing the property; the lessor, which is the bank or financial intermediary that buys the property and leases it; and the seller, the original owner of the property. The lessee assumes all risks associated with the property, such as maintenance and the risk of loss, from the moment of delivery. This feature clearly distinguishes it from a simple rental, bringing it closer to an actual purchase.
The process for obtaining a real estate lease is structured in several phases. First, the individual identifies the property they wish to use as their primary residence, which can be either already built or under construction. Next, they approach an authorized bank or financial intermediary, which will assess their application and income capacity, similar to a mortgage application process. If the assessment is positive, the leasing company proceeds with two separate acts: purchasing the property from the seller and signing the financial lease agreement with the lessee.
The lease agreement typically involves an initial down payment, called a large initial payment, which is usually lower than the down payment required for a mortgage. This is followed by periodic payments, either monthly or quarterly, the amount of which takes into account the purchase price of the property and the contract duration. At the end of the lease period, the lessee has three options: buy out the property by paying the final balloon payment, return the property, or, in some cases, extend the contract.
Access to real estate leasing for a first-time home purchase is governed by specific requirements, introduced to favor certain categories of citizens. The main target of the legislation is anyone with a total income not exceeding €55,000 who does not already own a primary residence. These conditions were designed to make the tool particularly appealing to young people and those entering the real estate market for the first time.
The tax benefits, which are one of the major strengths of leasing, are adjusted based on age. For those under 35, there is a 19% IRPEF (personal income tax) deduction on lease payments (up to a maximum of €8,000 per year) and on the buyout price (up to €20,000). For those aged 35 and over, the deduction thresholds are halved: up to €4,000 for payments and €10,000 for the buyout. Additionally, the registration tax for the purchase is reduced to 1.5% for everyone, a further incentive that makes this option competitive. Finally, the property must not belong to luxury property categories (A/1, A/8, A/9).
Residential leasing offers several advantages that make it a viable option. One of the main ones is the ability to finance up to 100% of the property’s value, reducing or eliminating the initial cash outlay, unlike a mortgage which typically covers up to 80%. The initial costs are lower, as there are no appraisal fees and mortgage registration is not required. The approval process can be leaner and faster than that of a traditional mortgage.
However, there are also disadvantages to consider carefully. The total cost of the lease, if the buyout option is exercised, can be higher than that of a mortgage due to generally higher interest rates. Another key difference is that ownership of the property remains with the leasing company until the final buyout. This means the lessee cannot sell or rent out the house during the contract. Finally, the availability of residential leasing products on the Italian market is still limited compared to mortgages, and the terms in case of default can be stricter.
The choice between leasing and a mortgage depends on individual needs and financial profiles. The most significant difference concerns the ownership of the asset: with a mortgage, you become the owner immediately upon closing, although the property is encumbered by a lien; with a lease, ownership is deferred until the potential buyout. This has important tax implications: the rental income of a leased property does not contribute to taxable income until the buyout, unlike with a mortgage.
From a cost perspective, leasing requires a smaller down payment but may involve higher monthly payments and a higher total cost. A mortgage, on the other hand, often has a longer term (up to 30 years compared to 20 for a lease) and more competitive interest rates. Leasing offers more flexibility at the end of the term, allowing you to choose whether or not to purchase the property. For this reason, it can be an ideal solution for young people, gig workers, or anyone wanting a home without an immediate mortgage, while a mortgage remains the traditional choice for those seeking stability and ownership from the outset.
In a culture like the Mediterranean, and particularly in Italy, buying a home is more than just an economic transaction: it is a rite of passage, a symbol of security, and an investment for the future. “Brick and mortar” is seen as the ultimate safe-haven asset. In this context, real estate leasing fits in as a financial innovation that does not replace tradition but reinterprets it. It offers a bridge between the deep-rooted desire to own a home and the needs of a modern society, characterized by greater mobility and less linear careers.
Residential leasing can be seen as an evolution of the path to ownership, a mechanism that combines the stability of a fixed home with contractual flexibility. It allows you to “test” a property and a living environment before committing to a final purchase, a valuable feature for younger generations. In this sense, leasing is not just an alternative to a mortgage, but a modern response to an ancient need, capable of adapting the solid tradition of real estate investment to the fluid dynamics of the contemporary economy. It represents one of several unconventional solutions for those looking to realize their life project.
Real estate leasing for individuals is a modern and flexible financial tool, offering a valid alternative to the traditional mortgage for purchasing a first home. As we have seen, its strengths lie in the reduced initial cash outlay, targeted tax advantages, especially for those under 35, and the freedom of choice at the end of the contract. These elements make it particularly suitable for those with a good income but limited initial liquidity, or for those who want a more agile solution than a thirty-year commitment.
However, it is crucial not to underestimate the less advantageous aspects, such as a potentially higher overall cost and the fact that you are not the property owner until the buyout. There is no single answer to the choice between leasing and a mortgage; it depends on a careful analysis of your financial situation, future prospects, and personal goals. Before deciding, it is essential to compare detailed quotes, perhaps with the help of a consultant, to understand which tool best aligns with your life project. For those looking for flexible purchase options, it may also be useful to compare leasing with formulas like rent-to-own.
The fundamental difference concerns the ownership of the property. With a mortgage, you become the owner of the house immediately, although it is encumbered by a lien to secure the loan. In real estate leasing, however, ownership remains with the leasing company (a bank or financial intermediary) for the entire duration of the contract. The lessee pays a periodic fee for the use of the property and only at the end of the contract do they have the option, not the obligation, to buy it out to become the owner. Consequently, with leasing, there are no mortgage registration costs, and notary fees are only paid in the event of a final buyout.
Residential real estate leasing is available to individuals who do not already own a primary residence. The main requirement concerns income: at the time of signing the contract, the applicant’s total annual income must not exceed €55,000. There are specific, and more advantageous, tax breaks for young people under 35, but the tool is also available to those who are older, albeit with reduced tax benefits. The application must be submitted to an authorized bank or financial company, which will assess the client’s income and debt situation.
Defaulting on lease payments has specific consequences. For real estate leasing, a serious breach occurs after the non-payment of at least six monthly installments (or two quarterly ones), even if not consecutive. In this case, the leasing company can terminate the contract and demand the return of the property. Subsequently, the company will sell the property at market value. If the proceeds from the sale exceed the lessee’s outstanding debt (overdue and unpaid installments, future principal payments, the buyout price, and expenses), the surplus is returned to the lessee. Otherwise, the lessee must pay the difference.
No, the final buyout is not mandatory; it is an option for the lessee. At the end of the contract, you can choose whether to purchase the property, extend the lease agreement (if provided for), or simply return the asset to the leasing company. The buyout price, or final balloon payment, is a predetermined value and is established when the contract is signed. Its amount is calculated taking into account the initial purchase price of the property, the duration of the contract, and the installments already paid. Generally, the buyout value can range from 1% to over 30% of the original cost of the asset.
Real estate leasing for a first home offers significant tax advantages, which vary by age. Applicants can deduct 19% of the lease payments and the final buyout price from their IRPEF (personal income tax), within specific maximum limits. For those under 35, the deduction applies to lease payments up to €8,000 per year and a buyout price up to €20,000. For those over 35, these limits are reduced to €4,000 and €10,000, respectively. Additionally, there is a reduced registration tax of 1.5% on the purchase deed by the leasing company. Another advantage is that, since you are not the owner until the buyout, you do not have to include the property’s rental value in your tax return during the lease period.