What is bare ownership (nuda proprietà) and why can it be a good investment for a foreigner or an Italian living abroad?

Have you heard of usufruct and bare ownership with regard to real estate? What are they?

If you are looking for an investment opportunity, this could be a good idea.

Usufruct is the right of a subject (usufructuary) to enjoy and dispose of a property owned by another subject (bare owner), without being able to change its economic destination, but being able to derive from it all the benefits that can arise (such as the yield of a land or the rents in case of lease). The bare owner is the owner of the property who, however, cannot use it or enjoy its fruits as those rights belong to the usufructuary (the person who lives in the property and who sold it to the bare owner).

Let’s make an example. John lives in New York and is the bare owner of a property in Rome in which Marco, the usufructuary, lives. John retains the bare ownership but cannot use the property, so he cannot live in it for example. Marco, on the other hand, has the right to use and enjoy the property but he is not the owner.

Usufruct has a maximum time limit. In fact, if the parties have not established a duration term in the contract, it ends in any case with the death of the usufructuary (Marco) (or at most after thirty years if the usufructuary is a legal entity). When the event happens (Marco dies), the bare owner (John) becomes a “full owner”.

Ordinary maintenance expenses, taxes, rents and land revenues are all borne by the usufructuary. Extraordinary expenses are borne by the bare owner.

When do you buy the bare ownership of a property?

Generally, the usufruct is used when the owner of a property needs money (for himself or to leave as an inheritance) but wants to continue living or using the property until his death. In this way, the buyer acquires ownership of the property, but cannot use it until the end of the usufruct right (bare ownership), while the usufructuary is no longer the owner of the property because he has sold it but has the right to live in it until his death.

An aspect to consider when buying bare ownership is definitely the age of the usufructuary. If the usufructuary is elderly, the end of the usufruct right could be near, but if the usufructuary is young, theoretically the bare owner will have to wait longer to become the full owner of the property. It should also be kept in mind that among the rights of the usufructuary are those to transfer their right to third parties (but not through inheritance) and to lease the property.

If you’re interested in investing in real estate in Italy, contact Vademecum Italia today at info@vademecumitalia.com. We’ll be happy to help you achieve your investment goals.

Why can bare ownership be a good investment for foreigners or Italians residing abroad?

Bare ownership can be an interesting option for foreigners looking to invest in the Italian real estate market, as it represents an opportunity to acquire a property at a lower price than the purchase of full ownership. In fact, the sale price of a property with a usufruct is considerably lower than that of full ownership precisely because the usufructuary has the right to continue living in the apartment until his/her death.

However, if someone intends to make an investment and does not need to move into the property immediately after the purchase, buying naked ownership can be an excellent investment for various reasons including the purchase price that will be much lower, but also because the property will be occupied by the person who lived there before the sale, who is also responsible for ordinary maintenance (an expense the new owner will not have), and, as he/she will continue to do so, will therefore most likely take good care of the property.

Moreover, it should also be considered that if the IMU (the property tax that must be paid in Italy for owning a luxury property or one that does not constitute the owner’s “primary residence”) is due, the usufructuary will be responsible for paying this tax. In essence, the naked owner does not pay this property tax, which will be paid by the usufructuary, unless the latter has made the property his/her habitual residence, commonly called the “primary residence,” in which case an exemption applies and even the usufructuary will not have to pay the IMU.

When a foreigner buys a property in Italy, given that they are a resident abroad and therefore live permanently with their family abroad, they will have to pay the property tax since the house in Italy would be their second or third home (and not their “primary residence” as seen above) or because it is considered a luxury real estate. With usufruct, however, if the tax is due, the usufructuary will have to pay it.

Once the usufruct, as mentioned, expires with the death of the usufructuary, the buyer of the naked ownership becomes the owner of the property without having to make further payments and automatically (they will have to pay the IMU again, unless they decide to move into the property to reside in it, as in this case, it would become their “first home” if it is not considered a luxury real estate).

Naked ownership is often considered by those who, for example, already know that they will return to live in Italy in a certain number of years. Perhaps naked ownership of a property inhabited by a very elderly person may represent an excellent opportunity for them.

The purchase of the naked ownership of a property can also be a good purchase for one’s children. In fact, in addition to the classic case of the death of the usufructuary, for which the owner acquires the entire property that can then be passed on to the children, it should also be considered that in the event of the death of the naked owner, the usufruct does not expire. This means that the naked ownership passes to the heirs of the naked owner, who will have to respect the usufruct (and the usufructuary will continue to pay the IMU if due), but upon the death of the usufructuary, they will become owners automatically and without having paid for ordinary maintenance expenses, having taken care of managing the property and paying the property tax (IMU) for perhaps years.