Italy ViewPoint: The Italian Constitutional Referendum - Business As Usual? November 2016
On December 4, 2016, a constitutional referendum will be held in Italy with the aim to make it easier to govern Italy and to enact new legislation. The reform would make the Chamber of Deputies the main legislative body, allowing Italy to streamline the political system. People will be asked to rule on a number of important proposals for changes, and especially on the proposal for the reduction of the numbers in the Senate and the abolition of its legislative powers.
A Yes Victory: the establishment will be confirmed, and there will be relief in the markets. Renzi will strengthen his leadership and will remain in office until the end of the legislature in 2018. His government would speed up the process of the reforms that should favor the economic recovery of the Country. He then has committed to modify the electoral law (Italicum) in order to adopt an electoral system that ensures a clear winner.
A No Victory: would usher in a period of political gridlock, typical of Italian politics (on average since the Republic came into being, Italy had one government each year). It is likely that Renzi will resign, but this does not mean that new elections will be held. If the reform is voted down, and an election follows, the Senate would retain its legislative power and would be elected on a purely proportional system, which almost certainly would produce a parliament without a clear majority. For this reason, the President of the Republic is likely to push for the formation of a transitional government – most likely to be led by Renzi himself - committed to pass a new electoral law before calling of new elections. This scenario would not be new for Italy.
If the outcome of the Referendum should be “No”, from an investment perspective, CBRE remain cautious but still optimist on the Italian real estate investment market over the short-medium term. On the short term, the referendum could favor some opportunity. The nervousness in the markets could increase as the referendum day would approach thus reflecting in an increased volatility and uncertainty and let to higher risk creating a window of opportunity for opportunistic investors. On the other side, a “No” Vote will further boost the polarization between prime and non-prime (already ongoing) thus we are expecting that flight to quality will be strengthened and prime asset could experience a further yield compression, at least in the short term.