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Who will stop the train of real estate prices and are they really on the way up?

Three signs show that increases are expected to continue, after apartment prices rose by 3.2% last year.

Will we see 3% -4% jumps in prices in each of the following years as the developers anticipate, or can the crisis be stopped?

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• Apartments

Arik Mirowski

Monday, 08 February 2021, 12:35

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The price increases in the near future are a fait accompli, most professionals estimate.

The question is just how many.

Recent house price indices, RMI land tenders, declining construction volumes and buyers' raids on apartments in recent months reinforce the assessment that price increases will accompany the industry for years to come.

Three government bodies that are very concerned with housing prices are the Ministry of Housing, the Ministry of Finance The Israel Land Authority recently conducted an analysis of land tenders marketed as part of "reduced-price housing," and the conclusion was almost the same: developers are building on annual price increases of 3% -4% in apartment prices, for at least three years.

This is a conservative estimate, as there are estimates that price increases will be even higher.

However, even if the government estimates come true, they will be added to a 4.1% increase in prices recorded in 2019, after prices froze in 2017-2018.

In the spirit of the corona days, a senior government official calls the phenomenon an "outbreak of immigration."

It is estimated that the main reason for the increases lies in the absence of a functioning government for more than two years.

In a time of political instability and on the way to elections, the public is increasing the purchase of its apartments due to distrust of the government.

This was also the case in 2019;

In 2020, a price-per-tenant program has finally expired, and whoever is supposed to replace it, "housing at a reduced price" is a program that is unfamiliar to the majority of the public, and the scope of its apartments will be much smaller than its predecessor.

That is why many price-eligible tenants these days prefer to purchase apartments on the free market.

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Go stop immigration without a functioning government (Photo: Reuven Castro)

Beyond that, the lack of budget does not allow the government to adopt any policy, and the result is major delays in advancing programs, especially in the center of the country, and blowing up RMI tenders required for designated budgets. Political paralysis also does not allow government agreement on housing, which seems very far from the current government. It is open whether the new government, which will be formed in just a few months, will be able to present a plan to increase supply significantly.

1. RMI tenders: The developers are willing to pay, and a lot

Anyone can talk about declines or price increases, but when entrepreneurs are willing to pay large sums for land, money speaks.

The price of land indicates not only the direction of prices, but also how much they will change.

Here are some examples of Rami tenders that have been closed recently: In the north of the Am HaMoshavot neighborhood in Petah Tikva, between Rebecca Gover and Shraga Refaeli streets, Guy and Doron Levy recently purchased a plot for 44 housing units for NIS 41.4 million. The average price of land, including development, has reached To about NIS 960,000 per housing unit (before VAT).

By comparison, five years ago, and half bought Remy Shviro Trust Land under NIS 719 thousand housing units. This means that the price of land increased by a third, while housing prices rose Index this period by 18% only.

Bar tender in the most recent area north of Neve Gan Ramat Hasharon , Stunned the market, and most likely apparently Rami's appraiser.

He set a land price of NIS 1.2-1.3 million per housing unit (including development), and the developers offered almost NIS 2 million for land for the apartment.

The prices of new apartments in the neighborhood reach NIS 33,000-35,000 per square meter, and according to the results of the new tenders, the developers believe that they can reach more than NIS 40,000 per square meter.

These are fantastic numbers.

In the locality of Azor, the company acquired S.

Scribble a plot for 116 housing units for NIS 90.2 million.

In addition to the development costs, there is a land price of NIS 835,000 per housing unit, not including VAT; this is a price that is three times higher than a previous tender in the locality seven and a half years ago. Prices in the locality did not rise to levels that explain the jump in land prices. The company expects that by the time the project is marketed, prices will rise significantly.

As part of the "Housing at a Reduced Price" project, apartment prices are rising; in Ramat Gan, tenders were closed last week to sell apartments in the South Tel Hashomer complex for NIS 16.4 thousand per square meter. The Ministry of Housing discounted about 21% of similar apartment prices on the market.

However, a comparison with most of the apartments sold as part of the "price per occupant" between 2017 and 2019, shows that these are prices that are about 15% higher.

In the Nurit neighborhood in the Tzrifin complex in Rishon Lezion, the increases are even greater: the price per square meter of an apartment in Rishon will reach 13.4 thousand square meters, excluding VAT. In the same neighborhood, apartments were drawn in 2019 at prices of NIS 10-11,000 per square meter Including VAT. From these two examples it can be understood that even the subsidized housing market operates in an atmosphere of rising prices.

Prices continue to soar.

Petah Tikva (Photo: Reuven Castro)

2. Price indices, transactions and mortgages

The housing price index for the months of October-November rose by 1%.

This is a very high rate, which may be balanced in the coming months (the index published before it has actually been revised upwards), but it is also possible that it will not.

Complementary parameters plant the assessment that this index will not be the last high index, and that it faithfully reflects a process of price increases.

In the CBS survey that accompanied the publication of the index, they noted that the annual price increase reached 3.2%. This is mathematically true, but the real estate industry also needs to be examined separately - before the corona and after the corona.

The plague interrupted the price increases from 2019 and early 2020, but while the expectation at the beginning of the plague was that homebuyers, especially young people, would exercise caution before buying an apartment in light of the unhealthy disease, economy and employment situation - the corona and government response to the plague.

Indeed, after the initial shock of March-May, when there was an overall decline of 0.8%, in the half year between May and November, prices rose by 2.7%.

And it is already starting to have a rapid rate of increase, of 5% -6% per year, and there is no reason to stop.

According to mortgage data published by the Bank of Israel in recent weeks, the market has been even hotter in December than in previous months.

Based on data from the Treasury, in the six months between May and November 2020, the real estate market recorded the largest number of transactions of all the corresponding periods in the last ten years at least.

If we compare the last years - the average number of transactions in that half year reached 10,000 per month. Which was the average transaction in the corresponding months in 2019 and 7,600 in 2018.

Contracting companies report record sales month after month, and indeed the shelf life of a new apartment (i.e. the time it is offered for sale until it is sold) dropped from 19 months two years ago to Today,

those who have significantly increased their purchases are investors, who are taking advantage of the purchase tax cut made at the end of July, housing improvements are still faltering, while young couples have not left the market, although the number of occupant price transactions is declining.

This figure could explain the record mortgage set last year (a total of NIS 78 billion) and the increase in the amount of the mortgage taken, to an average of NIS 816,000 in December. Apparently the young people who decided to buy apartments on the free market take out high-level mortgages.

3. Alerts from the Bank of Israel and the Ministry of Housing

"The impact of the crisis and government restrictions can be clearly seen in the residential real estate market in Israel, and especially in the number of construction starts and transactions.

These developments are damaged to some extent on the demand side apartment during the closure, as well as hitting the supply side, which will affect the medium term prices, "reads the statement of the Bank of Israel's financial stability in the second half of 2020 amid the crisis of the corona.

Review highlighted the bank's economists the decline in housing starts: "When looking at the long-term construction rate, it seems that the supply of apartments fails to keep pace with the increase in demand in the long term, which takes into account population growth.

When calculating the ratio between active construction and residential construction in terms of area and the population one finds that since the beginning of 2017 it has started to decline, that its decline intensified during the corona crisis, and it has reached very low levels.

These developments indicate that half the demand - beyond the short term affected by developments in the health crisis - will continue to be the dominant factor in the housing market and may even increase. "

A week and a half ago, the director general of the Ministry of Housing, Yair Pines, wrote a letter to Prime Minister Tzachi Braverman. And to the Deputy Director General of the Alternative Prime Minister's Office, Hod Betzer, and asked them to urgently raise Minister Yaakov Litzman's proposal to approve grants for homebuyers as part of "reduced-price housing" in the periphery of the government's agenda.

"The critical need to approve the proposal for grants and development subsidies rests on the data we have been exposed to for a long time, indicating a decline in marketing data and construction starts leading to a growing annual gap between housing supply and demographic growth. These trends occur following three election campaigns. Significant decisions and against the background of the Corona epidemic ... In the absence of a valid decision, we will not be able to close tenders that are due to close by February 1, which include 1,800 housing units, we will be required to postpone the publication of tender brochures for more than 11,000 housing units. Thousands of housing units over the next two years. "

And here's what Pines writes towards the end of his letter: "We are already seeing the consequences for the housing market in the recent rise in housing prices in the CBS publications and in the results of recent real estate auctions that also indicate a future rise in prices.

As not taken immediate actions to support the construction industry, including increasing the success of the marketing efforts periphery, then this trend will intensify and we may be facing a situation of shortage of housing and rising housing prices, which will result in burdening further the households in Israel. "

Another letter in a similar vein came out earlier Minister Housing Litzman to Prime Minister Benjamin Netanyahu and Finance Minister Israel Katz, who also warned of a rise in prices.

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