How a construction boom in Italy’s financial capital stalled
By Claudia Cristoferi and Emilio Parodi
MILAN (Reuters) – When Cristian Coccia agreed to buy a three-bedroom flat off-plan for 600,000 euros ($650,000), the 51-year-old businessman hoped to move his family swiftly into the swanky high-rise overlooking an artificial lake in Milan’s western suburbs.
After prosecutors seized the three-tower development in July, his dream of a new home turned into a nightmare.
The Residenze Lac towers, where Coccia bought his flat, was developed by French real estate group Nexity. It is one of more than 100 active or planned building sites that have stalled since Milan prosecutors started investigating alleged abuses in the fast-tracking of building permits in Italy’s financial capital, according to industry executives.
“There are perhaps 150-200 projects submitted to Milan’s municipality that are at a standstill, because no city council official is willing to sign them,” said Federico Filippo Oriana, who heads Italy’s real estate developers and promoters association Aspesi.
Nexity said it had complied with Italian legislation.
Milan has been on a roll since 2015, when the Expo international exhibition helped to transform the city into a hot spot for developers. Since then, Milan has attracted more than $30 billion of real estate investment, according to Reuters calculations on real estate services companies’ data, including from foreign players such as the Qatar Investment Authority and Australia’s Lendlease.
But a flurry of formal complaints from Milan residents objecting to the mushrooming of multistorey buildings has triggered a raft of investigations into whether city authorities cut corners to support the construction boom, according to judicial sources as well as seizure orders, unpublished court documents and prosecutors’ reports exclusively reviewed by Reuters.
While the prosecutors’ focus on the construction sector in Milan has been reported by local media, two judicial sources told Reuters that the number of inquiries has ballooned to more than 60 from just 12 in June and that 20 people are under investigation.
Prosecutors are going through more than 100 complaints from citizens and residents associations, according to the sources, who declined to be named as they are not authorised to speak to media. So far, no-one has been sent to trial.
To date, three building sites have been seized by judges, seizure orders show, while around 150 planned building sites fall in the same category as those targeted by the investigations, according to Giancarlo Tancredi, the councillor in charge of urban renewal for the city of 1.4 million people.
Tancredi said the municipality did not violate the law, adding the problem was the interpretation of the regulations: “(Milan) has worked out how to renovate itself and attract more investment, and so these issues with the rules emerge.”
Guido Inzaghi, a lawyer representing several builders affected by the investigation, said municipal authorities and the developers respected the law. The inquiries, he said, have cast a long shadow over plans to develop Milan.
The gridlock may cost Lombardy’s biggest city some 38 billion euros by 2035 in lost real estate investment and related economic activities, according to a study by research group Scenari Immobiliari and real estate firm Abitare Co.
“The market is at a standstill because it’s impossible to interpret the town planning regulations,” Raoul Ravara, managing director for asset management at developer Hines Italy, which has invested 7 billion euros in the country, told a business conference last month.
The investigations have also exacerbated a pre-existing housing shortage, leaving people such as Coccia, a company director, in a legal limbo.
“We’re at the sharp end of all this chaos,” said Coccia.
Milan residential property prices rose by 49% over the past decade, against an average of 8.3% for Italy, according to data from the EU’s statistical office Eurostat. The increase has forced low-income workers to move out of the city, creating staff shortages and triggering protests last year by university students struggling to find affordable accommodation.
To solve the construction stalemate, Prime Minister Giorgia Meloni’s ruling party is drafting a law, already dubbed the “Save Milan” bill, that aims to clarify the existing rules.
The bill should be discussed in parliament from Nov. 26, according to a source at Italy’s infrastructure ministry.
HIGH AND MIGHTY
The investigations, which kicked off in 2022, have highlighted several possible breaches of planning regulations by city officials, architects and builders, according to documents reviewed by Reuters, including court rulings, search warrants and seizure orders.
The alleged violations include the greenlighting of high-rises to replace much smaller structures situated, in some cases, inside the courtyards that are a feature of many Milanese buildings.
In one egregious example, a seven-storey building sprung up in an enclosed yard that previously hosted a one-storey workshop in the sought-after Isola neighbourhood, the prosecutors’ documents show. Contacted by Reuters, a lawyer for the building’s developer declined to comment.
In the Park Towers project in northern Milan, two towers of 81 and 59 metres hosting 113 apartments replaced a two-storey warehouse. In the seizure order for the buildings, dated May 2 and seen by Reuters, the judge argues the alleged infringements did not stem from confusion over the legal framework, but from a “deliberate distortion of the basic principles of real estate laws”.
The lawyer for Andrea Bezziccheri, head and partner at Park Towers’ developer BlueStone, called the prosecution’s accusations “incomprehensible” because “similar permits have been issued, indiscriminately and with the same interpretations, to the benefit of hundreds of real estate projects”.
“We therefore trust that the judges will not find fault with the activities of a businessman who has only followed the rules”, Bezziccheri’s lawyer Andrea Soliani told Reuters.
The investigations have also engulfed the more than 8,000 square metre Bosconavigli residential complex, designed by award-winning architect Stefano Boeri, which prosecutors say lacks the urban planning arrangements necessary for a project of such size.
Boeri told Reuters the building project respects Milan’s regulations, followed all the agreed procedures, and paid the required urbanisation charges as indicated by the municipality.
Prosecutors also allege that by classifying projects as renovations instead of new builds, local officials were able to speed up approval and reduce costs for builders, bringing economic damage to municipal authorities and the state, the documents show.
“We, as a police force, are concerned with verifying whether crimes have been committed against the public administration in the issuing of urban planning permits,” Ivan Ammaturo, a colonel with Italy’s financial police who is investigating the alleged violations, told Reuters. “We have to assess whether there has been economic damage to the state coffers.”
A project deemed a new build requires the developer to provide more onerous social investments, such as large green areas or bike lanes, than for a renovation, the documents also show.
Since 2014, Milan authorities have approved 7,000 conversions or renovations of buildings, city council data show. Of 882 residential buildings built between 2010 and 2023, only 372 were classified as new constructions.
The charges payable to the city of Milan for a new build are at least three times higher than those incurred for a conversion, according to sources briefed on the procedure. Carrying out a conversion also brings tax breaks.
Oriana, from the realtors’ association, says a national law from 1942, issued in wartime to help expand cities and revived in 1967-68, conflicts with less stringent legislation implemented between 2001 and 2020. The older law set at 25 metres a building’s maximum height unless the real estate project is incorporated into a wide, and more onerous, city service plan.
Lawyer Inzaghi rejected accusations that local administrators were cutting corners, saying the municipality took between 9 and 12 months to examine each project. He added builders paid the required fees.
Chiara Mazzoleni, an urban planning professor at the University of Venice who advised the prosecutors, said Milan’s municipality has consistently asked builders for less land and less money per new inhabitant than the minimums set by law.
In the German city of Munich, comparable to Milan in size, developers pay out around 30% of the cost of a real estate project to local authorities against 8% in the Italian financial capital, according to Mazzoleni’s research that also underscores the absence of a comprehensive multi-decade urban plan for Milan.
“The Court will say whether (Milan) has gone too far in the direction of pandering to the market,” said Luca Dondi, a managing director at think thank Nomisma. “But certainly a balance has to be found between market needs and the regulatory path.”
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