Is it time to look for and take advantage of opportunities in the Israeli housing market? Absolutely/ShutterStock
We entered the Iron Sword War with an unprecedented low in the housing market. The State of Israel goes back twenty years to the days of the second intifada in terms of sales figures for new and second-hand apartments. And here comes the Chief Economist at the Ministry of Finance and reports on a very significant recovery in the housing market, which actually began in the last week of Black October.
What's the most surprising thing? This is especially noticeable in Rehovot and Rishon LeZion – the two cities with the most shooting ranges in the war, outside the Gaza envelope of course.
Is it time to buy an apartment? Perhaps, time will tell. Is it time to look for and take advantage of opportunities in the Israeli housing market? Absolutely; The opportunities are in the market. Even if you don't buy, it's time to check the market. If you don't, then you'll say, as usual: it's too late, too bad.
Pinui-Binui - in the full sense of the word
Israel's wars cannot be compared to the current Gaza war. This is the first time we have been hit in the soft underbelly of every citizen. This is not the euphoria of 1967 and can never be, even if we eliminate all of Hamas; Nor are these the years of the Yom Kippur oil recession in the 70s; Not the various Lebanon and Gaza operations. This time - it's evacuation-reconstruction in the full sense of the word.
The seventh day of Black October can no longer be changed. It is a fact perpetuated in the history books. It remains only to turn the inference into a positive one. For example, taking urban renewal with all the protection it brings with it – and turning it into a quick process; to take the delusional concept of bureaucracy - and eliminate it as in a military operation; To bring urban renewal to the periphery with golden wings – and to create golden opportunities for construction companies there; Take the long-term lease, provide a guarantee to developers who lost interest in it due to the increase in interest rates and turn it into a lifeline in the market.
And perhaps, looking to the future, this maneuver will save many from the terrible "planned" earthquake here in the coming years.
Is the fitness time now?
Almost always, scientifically, we miss the fitness rate for actual buying. The herd law says - we always wait on the fence for further descents that stop at some point. When do you buy? Buy when everyone buys, when the market wakes up. You always look with envy and admiration at those who did take advantage of opportunities and got rich.
On the other hand, maybe the fitness hour is here. The first interest rate cut has already been recorded. The second is expected later this year, followed perhaps by the third. Now, however, it's kind of an opening shot.
In the US, in parallel with the interest rate decision, which remained in place for the third consecutive time, the Fed's forecasts for the interest rate for 2024 were published. In the previous forecast, most Fed members thought that interest rates would be cut only twice during 2024, and now forecasts are for interest rate cuts of 3 times a year.
The Bank of Israel's decision to lower the interest rate by about 0.25 percent serves as a remedy for the real estate market. Monthly repayments on an average mortgage of NIS 1 million for about 30 years declined by about NIS 55 per month compared to today, and by about NIS 20,1 for the entire period (the data relate to an average mortgage of NIS <> million, consisting of one-third prime interest, one-third unindexed fixed interest rate, and one-third CPI-indexed variable interest. The decline in repayments relates to the prime interest rate only). This is according to a calculation made for us by our mortgage consulting network.
In the end, beyond the decline in the monthly repayment, the decision has a psychological effect and is likely to encourage the real estate market and increase demand for apartments, in light of the assessments that we are facing a series of interest rate cuts in the future.
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Take Tel Aviv as an example. Half of the apartments in the city are for rent owned by investors. The expensive investments in the Tel Aviv area have led to a 55% drop in the past year in the average purchase of apartments for investment in 2023.
The total number of homes purchased by investors in this area last July before the war stood at only 113 apartments, one of the lowest levels recorded in this area in the past twenty years. Since the beginning of the war, the numbers have even declined. Investor purchases in Black October nationwide totaled only 411 homes, a sharp decline of 56% compared to October last year and a decline of 54% compared to the previous month.
The Be'er Sheva area is also notable for a sharp decline in investor purchases in 2023, despite the sharp increase in sales by contractors in this area. This is according to the Chief Economist at the Ministry of Finance. In the past, sales promotions of contractors in the city were characterized by an increase in investor purchases. Today barely. A geographic breakdown shows that the sharp decline in investor purchases encompassed almost all regions, with the Be'er Sheva area particularly prominent, with a decline of 77% compared to October last year. The Jerusalem area was the only area where the level of investor purchases in October of this year remained unchanged compared to October last year, partly because of world Jewry. However, this is still a low level of purchases (97 apartments were purchased for investment in this area).
Investors will surely wake up, but the government is now invited to lower the purchase tax and ease the process. In the end, this move will lead to the money entering the treasury from taxes, and will not go to dubious investments abroad.According to an analysis carried out by Ohad Danos, former chairman of the Real Estate Appraisers' Bureau, in the past six months between the beginning of June and the end of November 2023, there has been a trend of price declines in the rental market, with changes between different cities and within the cities themselves.
Prominent declines were in the cities of Tel Aviv (-4.3%), Modiin (-4.6%), Petah Tikva (-4.6%), Rishon LeZion (-4.0%) and Netanya (-4.0%), with price declines in most types of apartments. The city of Jerusalem actually saw a 9% increase in the past six months, partly due to interest from Jews from around the world.
And what about the returns? The highest return for investors is Be'er Sheva, with an average annual return of 4.2%, followed by Eilat (3.7%) as a result of a real decline in apartment prices in the city. The lowest annual return was recorded in Rehovot with 2.5% per annum, as a result of the dramatic increase in apartment prices in the city compared to declining rental prices.
Supply, demand and everything in between
It all starts and ends with supply and demand; Building starts have been falling since the beginning of the year, and even more so in recent months in the absence of workers since October 7. There was a recovery in sales in November–December, and the tendency is to increase demand without sufficient stock of homes. The growing interest from Jews around the world experiencing anti-Semitism may also increase demand. Sometime it will explode. The housing shortage continues to expand and the high demand is unmet.
On the other hand, on the eve of the war, the stock of unsold apartments held by contractors reached a precedent-setting high of 61,4 apartments, mainly in the periphery. This figure, by the way, helped construction companies provide apartments to evacuees in the first days of the evacuation.
Contractors have a need to make promotions and give favorable conditions for the sale of apartments. To the delight of potential buyers, it turns out that most of the new apartments offered for sale are concentrated in the central region – 30.7% of them in the Tel Aviv district (18,845 apartments) and 25.0% in the central district (15,365 apartments).
And which city is at the top of sales on the eve of the war? Ashkelon's most restricted city, which leads the volume of new home purchases with about 650 apartments purchased in the last quarter, more than any other city. Jerusalem, for example, with about 490 apartments purchased, Tel Aviv-Yafo with only 374 apartments. By the way, another city at its peak on the eve of the war is Sderot - with 445 apartments.
According to the Chief Economist at the Ministry of Finance, the most significant recovery in sales was already recorded in the last week of October in the area of Rehovot Nes Ziona, which includes Rishon LeZion, one of the most targeted cities during the war, outside the Gaza envelope. On the other hand, the Tel Aviv area has a particularly low level of sales. Even lower than that recorded in the Beersheba area even at the beginning of the war.
In the coming decades, the State of Israel will need a second floor
Opportunities can be found most often. Take the contractors' promotions – you now pay only 15% or 20% and the rest of the payment upon occupancy. For example, for Pershkovsky's 4-room apartment in Ramat Hanasi in Haifa - you will pay NIS 329,299 now and the balance in occupancy. Also in the new Neve Doron neighborhood in Ramle, for two penthouses belonging to the same company - you will now pay NIS 000,2022 and the rest of the payment upon entering the penthouse.
The increase in the interest rate, as we noted at the beginning, is the main factor in the current state of the market in Israel. In April 0, the sharp rise in interest rates began, pushing the interest rate from 1.4 per cent to 75.2 per cent within a year. Contractors until that moment thought that prices here were only rising and paid a fortune in administrative tenders. It seems that one did not really foresee a collapse in sales and falling prices.
What about the future? Suffice it to mention that Israel's population growth rate is the highest in the OECD, at 5.2023%. In other words, the State of Israel will need a second floor over the next two decades.
We will summarize the remarks of Dr. Eyal Argov of the Bank of Israel Research Department, who warned in a recent Interior Committee discussion that the large inventory held by contractors will indeed lead to a decline in home prices in the near term. However, the shortage of workers, on the other hand, and the significant decline in activity at construction sites during the last quarter of <> will be felt in the coming years and will cause an increase in home prices in the long term.
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