In the real estate market one often comes across the term “bare ownership”, especially when referring to residential property. Normally, the attraction is the price, which is more advantageous and often much lower than the market price. It is also an interesting long-term investment opportunity provided that one knows how it works and under which terms.
Let’s try to shed some light on what this particular form of private property, which has very ancient origins, having originated in Roman law.
Bare ownership and usufruct
Bare ownership is that form of “bare” ownership , and therefore deprived of the right to use and economically exploit the property, the latter defined as “usufruct”, which therefore belongs to another person.
This distinction between bare ownership and usufruct is “time-based”, and can be either fixed or indefinite. In the case of a physical person, the susufruct can last for the lifetime of the person concerned and in this case it is indefinite. Otherwise, the parties can establish a fixed term (30 years both in Italy and France) and therefore the usufruct has a fixed time. In the case of a legal person holding the right of usufruct, the law also sets a maximum term.
At the termination of the usufruct, there is an automatic rejoining of bare ownership and usufruct, thus arriving at the initial situation of the so-called full or complete ownership, the form of ownership we are all familiar with.
Similarly to full ownership, the purchase is completed by a regular notarial deed and, for tax purposes, is subject to the same rates as for the purchase of full ownership.
Medium to long-term investment
In real estate, bare ownership is considered a medium- to long-term investment, due to the variable time in the availability of the property. This investment also enjoys a low tax impact.
Over the last decade, the bare property market has grown as a result of the economic crisis and the progressive ageing of the population.In particular, many elderly people sold the bare ownership of their property and reserved the use of it for the rest of their lives. In most cases, the aim was to “monetise” the value of their property and to get rid of the costs of extraordinary maintenance and the tax burden associated with its use.
The economic and social consequences triggered by the Covid-19 pandemic make it possible to assume that the growth trend of this peculiar form of ownership will be confirmed.
Advantages for sellers and buyers
There is no doubt that bare ownership offers advantages over “normal” properties on the market. Advantages for both parties, seller and buyer. The selling party is often an elderly person, without heirs, who needs to have some liquidity in a timely manner, and who wants to continue living in his house. Or it can be a good tax planning tool and be applied in situations of generational changeover where the parent owner transfers the bare ownership to an heir while reserving the usufruct for himselft.
For the buyer, on the other hand, the purchase of bare ownership offers several advantages, starting with the purchase price, which is lower than the market value. This value is in fact reduced by the usufruct, calculated on the basis of tables provided by law.
How do you calculate the price of bare ownership?
The most correct valuation for this kind of transaction can only be established with the help of a real estate specialist. Generally, the market value of the property is established, to which is then applied a variable coefficient, defined on the basis of the age of the usufructuary. The values of the coefficients fluctuate according to periodic publications of the Ministry of Finance and are based on statistics concerning life expectancy in the country of reference and the interest rate currently in force.
In short: the older the usufructuary is, the higher the value of the bare ownership will be. The taxation on the purchase will also increase proportionally.
If I want to make an investment, should I buy bare ownership property?
Yes, absolutely, if there is no immediate need to use the property in the foreseeable future. Buying a property in bare ownership guarantees the advantage of buying a property at a lower price than the market average, hoping to obtain a revaluation of the property in the medium term. It must be borne in mind that the investment has to be considered in the long term.
Is the value of the bare ownership lower than the market price?
Yes, by purchasing bare ownership property the value of the property is reduced by the usufruct of the same. For example, a bare property sold with a time usufruct (10 years), with the usufructuary being 75 years old. The market value in this case will be about 65% of the full property value.
Who will pay the costs?
Ordinary maintenance is charged to the usufructuary. Extraordinary expenses, on the other hand, must be borne by the bare owner.
Can I carry out renovations on the property after purchase?
Work on the property may only be carried out with the consent of the usufructuary and in agreement with him.
What does time usufruct mean?
The usufructuary is the person who has the right to reside in the property. The usufruct may be for an indefinite period, i.e. as long as the usufructuary is alive, or for a period of time. In this case, the usufructuary’s right has an expiry date (10, 15, 20 years, etc.). The time usufruct affects the value of the bare ownership.
Can I ask the usufructuary to leave after the purchase?
No. It is the usufructuary’s right to enjoy the real estate whose bare ownership is transferred for a fixed period of time (time usufruct) or for the duration of his life (usufruct).
This is not the case if, after a period of time, an agreement is reached with the usufructuary to acquire his “right” to use the property.