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Don't rely on profit: what did the interest rate do to the shares of the real estate companies? - Voila! Money


The new apartment market has cooled down in the shadow of the increase in interest rates. The main victims are the leveraged real estate companies, who bought land at record prices, for example in the Sde Dov complex, which also turned out to be a bear on the stock market

The real estate boom has stalled and leveraged companies that purchased expensive land at record prices are debating whether to realize at a loss or bear the burden of financing (Photo: ShutterStock)

While it is estimated that few people have started withdrawing their money from bank accounts due to the emerging legal reform, many of the investors and buyers are moving their feet away from the shares and sales sites of the Israeli residential real estate companies, which in the past year have turned from a farm locomotive to a collection wagon of levers at high prices.

The shares of ten real estate companies for residences tested by Walla!

Money and Meariv Businesses, which are traded on the Tel Aviv Stock Exchange, have fallen an average of about 34% since the end of 2021 - during which housing prices continued to soar and with it the price of shares of residential real estate companies.

The quantitative deletion, however, is much more noticeable and stands at about NIS 9.6 billion for the period examined.

The average also does not faithfully represent the majority of companies, whose range of declines is in the range of 16%-62%, and expresses the risk that investors find in them, among other things, due to the amount of their leverage (debt taken to promote the company's activity) and the type of their activity.

Thus, companies that operate in the field of urban renewal - and therefore do not need to purchase land and finance its maintenance until construction on it - receive higher trust from investors than entrepreneurial companies that are based on the purchase of land or own land as part of their activities.

Two of the biggest decliners in the table are Hanan Mor and Shikhon Vabinui, which are traded on the Tel Aviv Stock Exchange at a value of approximately NIS 396 million and approximately NIS 4.8 billion, respectively, at the time of their examination, and have fallen approximately 62% and 50% since the beginning of 2022 until the end of last January.

The declines erased approximately NIS 3.7 billion from the value of Shikun and Binui, the highest quantitative decrease among the companies included in the table, and approximately NIS 622.6 million from the Hanan Mor company, which stood at the end of 2021 at a value of approximately NIS 1 billion.

The latter experienced a decrease of about 21% in just two days towards the end of December, following investors' concern about the company's ability to service the debt it took on from financial corporations and bond raisings, and as of the end of last year stood at over NIS 3 billion.

All residential construction companies lost money in the last year, but precisely those that hold less land reserves, decreased less (photo: Walla! system, without)

From a bear field to bears in the stock market

The main reason for the decrease is the purchase of land for the construction of approximately 381 apartments along with approximately 1,500 square meters in the Sde Dov complex in Tel Aviv, for approximately NIS 1.5 billion, of which approximately NIS 1.3 billion was financed through a loan taken by the company

. Along with the economic uncertainty, which slows down the purchase of apartments and for the time being discourages investors from them, played the cards. The period of taking the loan by the company was when the interest rate in the economy was zero, while today the Bank of Israel interest rate is 3.75%, raising the prime interest rate to 5.25 %.

This increase makes the repayment of loans and debt more expensive by tens of millions of shekels, and investors are voting to withdraw their money from the company's shares.

Sde Dov has also become the Achilles' heel of the Shikun and Binui stock, which took on about 1.8 billion shekels of debt to purchase land to build rental housing projects in the complex. At the end of last December, it was published The rating company Midrog issued a warning in view of the increase in the company's debt situation, and led its stock to plunge deeper.

Midrog stated in the report that Shikhun Vabinui added approximately NIS 2.8 billion to its financial debt following the purchase of land, which put the company's debt as of the end of the third quarter of 2022 at approximately NIS 12 billion - approximately 50% higher than its volume in the corresponding period in 2021.

The companies whose shares responded with less steep declines were Africa Residences and Aura, which are traded on the stock exchange worth approximately NIS 2 billion and NIS 1.5 billion respectively, and fell 16.5% and 18.1% for the period under review. The

relatively moderate decline in Africa Israel's stock is attributed to its being less leveraged than its competitors, And the relative-moderate decline in Aora shares can be attributed to the fact that the company is focused on urban renewal.

The decline in the companies' valuations also indicates the cooling housing market, due to the rise in mortgage prices alongside the economic uncertainty that surrounds the markets and, as mentioned, separates the feet of buyers from the companies' sales offices.

As written here before, this has already led the companies to lower prices in the form of various sales promotions, in order to bring as much money as possible into the cash register and take some of the pressure off.

The big question therefore is when will the increase in interest rates stop, and the markets will return to the successful functioning remembered from not long ago - and of course: which company will be able to survive until then and how?

Assuming that the interest rate environment will remain high during the next two years, the question also arises as to whether the residential real estate companies will be able to sell apartments at the same prices at which they were sold before the interest rate increase, and if not - what will happen to the companies that relied on the purchase of land through leverage as a strategy, and in the coming years will be forced to realize them at a loss or continue to hold them, but with expensive financing.

  • Of money

  • consumption

  • financial decisions


  • residence

  • The Stock Exchange in Tel Aviv

  • Real estate companies

  • aura

  • Hanan Mor

  • Housing and Construction

  • Regions

  • Africa residence

  • cardan

Source: walla

All business articles on 2023-02-02

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