Italy's hated housing tax a drag on property market recovery
* Real estate transactions to rebound after 6-year fall
* Rome to reintroduce housing levy under new name
* House prices to fall in 2014-15 as market digest new levy
* Property tax was at centre of two last political campaigns
MILAN, Jan 14 (Reuters) - Plans by the Italian government to preserve a much-hated property tax, albeit under a different name and structure, are likely to hamper the fledgling recovery of the residential property market after six years of contraction.
Sector experts predict housing transactions in Italy will increase this year for the first time since 2007, after which the country was hit by the global financial crisis and subsequently by its longest economic recession in 60 years.
But prices are expected to continue to fall, further eroding Italy's private wealth - which is 60 percent invested in real estate assets - and hitting bank balance sheets.
"The Italian real estate market is still on the mend and the new tax system will reduce the profitability of buying a house to rent it," said Mario Breglia, president and founder of real estate think tank Scenari Immobiliari.
Property tax is a politically sensitive issue in Italy, where 80 percent of citizens own the houses they live in, and it has been central to the last two political campaigns.
Former centre-right leader Silvio Berlusconi won the 2008 general election largely because he promised to get rid of the detested property tax, known as IMU, and forced the coalition government of Enrico Letta to cancel the levy last year after it had been reintroduced by premier Mario Monti.
However, since Italy's coffers are nearly empty and local governments derive a big chunk of their resources from the property levy, Rome has no alternative but to continue to tax real estate, even though it will do it under a different name.
Revenues from the IMU tax totalled 24 billion euros in 2012, of which 4 billion came from primary residences. Experts say the new tax system, to be approved by the government over the next two weeks, will raise no less than this amount.
Real estate expert Breglia said property transactions would rebound by 10 percent in 2014 from a 30-year low in 2013.
But house prices, already down by 15 percent in nominal terms since their 2006 peak, are expected to fall by a further 3-4 percent in nominal terms this year, said Luca Dondi, director general of think tank Nomisma.
LIMITED WIGGLE ROOM
The new real estate tax, dubbed TASI, will affect both main and secondary houses and will be tied to a tax on garbage and an existing levy on secondary homes. The three taxes will all bring resources for cash-strapped local governments.
While the entire taxation structure is still under discussion, analysts expect the TASI to hit the purchases of holiday houses or secondary residences.
"The introduction of a new and more complicate system will be a drag for families wanting to invest their savings to buy a non-primary houses even if prices have now reached attractive levels," said Daniele Mancini, CEO at Casa.it, the most popular Italian website for real estate.
Italy has seen purchases of houses halve since 2006, as the sovereign debt crisis cut citizens' disposable income and made access to loans more difficult and costly.
The number of property transactions fell in 2013 to 400,000 from more than 800,000 in 2006, when the market was enjoying a buying spree. Analysts see them recovering to around 440,000 this year, as the Italian economy braces for 1 percent growth.
The government plans to leave to local authorities the responsibility to decide both the tax rates of the TASI and deductions for poorer families.
"The government has not the resources to do without a levy on housing, so its wiggle room is limited," said Carlo Stagnaro, chief economist at think tank Bruno Leoni.
"The new tax has a much more complicated structure that Italians will have to digest," Stagnaro said, adding that leaving to local authorities the power to decide the form of the tax on their territory could even bring a net increase of the fiscal burden on housing compared with the old system.
(Editing by Lisa Jucca/Mark Heinrich)