Wall Street Givatayim Corner: How does the capital market affect real estate in Israel?

World stock markets are losing ground, high-tech companies are returning to proportions.

Who should worry, who should be encouraged and will this have a real impact on the local real estate market?

Nir Shmol, guest column

16/05/2022

Monday, 16 May 2022, 11:44

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In recent months we have witnessed sharp declines in stock prices on most stock exchanges in the world, especially in the high-tech stocks leading the global economy in most developed countries.

This new situation, after a continuous decade of price increases (since the crisis in the United States in 2008), along with money printing policies - especially during the Corona period, has led to an increase in the value of assets in the world and did not miss the real estate world

. They will be able to realize with the increase in the value of the company and rake in significant sums of money that will allow them to purchase and rent properties around the world.

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Wall Street last week.

Stock markets are losing ground, investors are worried (Photo: GettyImages, Michael M. Santiago)

In a recent conversation with an acquaintance who is a senior in the local high-tech industry, number 3 at one of the largest high-tech companies in Israel traded on the Nasdaq, he told me that until a few months ago, when he would go to lunch at company offices, he would hear conversations of employees aged 30-25. Talented workers who earn tens of thousands of shekels a month, many of them from Unit 8200 and the like, who talk about buying apartments in Israel at prices of NIS 6-5 million. Campaign, the hallway talks on real estate stopped at once.

It is important to understand that although the global high-tech industry does not constitute the bulk of the economy, and according to various studies employs about 5% -7% of all employed in various industries in the world economy, it is responsible for about 10% -17% percent of GDP and in Israel It is responsible for 40% of exports, with an annual growth rate of four percent, according to recently published data from the Bank of Israel, which means that the contribution of the high-tech industry in Israel to the local economy is crucial on any scale.

In recent years, we have seen a lot of new "get rich" people in the real estate industry, ie Israeli high-tech workers who made exits and exercised options. To huge international companies that have acquired the exceptional Israeli technological knowledge.Also, in light of many issues of local companies mainly on the New York Stock Exchange, when their value reached billions of dollars and as a result many workers who worked in those companies exercised options in the hundreds and millions of dollars, each according to His relative share in the same company.

Hallway conversations are less happy in the offices of high-tech companies (Photo: ShutterStock)

Many of these workers invested this money in the local real estate market. Those who had equity due to the exercise of the options and shares they had mainly bought residential and investment apartments, while those who did not have enough equity to buy an apartment, rented apartments in large amounts and contributed in part to increases Prices of the rental market in Israel, especially in areas of demand, with an emphasis on Tel Aviv, Herzliya and the cities of the center (close to the places of employment where they work).

Nowadays, when global inflation is rampant, the US Federal Reserve raises interest rates and in the era of a global global market we see interest rate hikes by all the world's central banks to suppress inflation, interest rate hikes lead to many investors leaving the world Of money, which leads to a wave of price increases which the way to deal with is an increase in interest rates, which leads to sharp declines in world stock markets).

This is because when the interest rate is high, the debt rises, and the banks receive a handsome return on the money and the slowed down economic activity as a result - and until the danger of a recession in the future.

The expectation in the Israeli real estate market is based on two main things. One is demand and supply. There is no doubt that in Israel the demand currently exceeds supply, especially in light of the highest population growth rate in OCED countries in the number of children in each family. Long bureaucratic procedures for approving new real estate plans alongside a lack of governance and high turnover of governments, leading to a lack of long-term government planning.

The second thing is the buyers.

Are buyers able to pay the rising real estate prices. As there is a match between the real estate price increases and wage increases, one can see a match and people continue to buy.

It is also important to remember that when real estate prices rise, anyone who owns a property, whether it is housing improvement or an investor who has purchased an apartment in the past and wants to upgrade, the price of the existing property increases according to the price increases of the apartments he wants to buy. A variable and the same amount that should have been added a year ago, will be added even today in the same gap of course only in different values ​​of price - buy and sell.

Are you going to a difficult time? (Photo: Reuven Castro)

Nir Shmol (Photo: Tomer Feder)

When wages fall or, God forbid, due to the decline in the value of companies on world stock exchanges, with an emphasis on high-tech companies, a wave of layoffs begins - those people who have earned high salaries that characterize the global and local high-tech industry reduce consumption. Employees have taken out high mortgages, they are forced to sell these apartments when they are unable to pay the high mortgage payments.

This is happening in light of the lack of high income and also due to the rise in interest rates leading to higher monthly payments, compared to the past which has been characterized since 2009 in a low global interest rate environment.

In the coming months we are facing global change, as the era of low interest rates is over.

Now a new global era has begun (and the war between Russia and Ukraine is contributing to this), in which we are witnessing a global wave of price increases, transportation and supply problems, declines in the value of the world's leading companies, and rising interest rates to cope with the rising price wave.

We must all remember that in nature there are cycles, both in business and in real estate. Not always what rises continues to rise, sometimes there are stops, sometimes there are also declines. The last real economic crisis in Israel was in the early 2000s, when the second intifada broke out, a huge wave of terrorist attacks alongside the crash of the dot-com bubble in Silicon Valley in the United States, which affected all world economies for several good years of declines and recessions.

The crisis in 2008 did not reach Israel at all, it passed us by except for a few months of slowdown.

, and it is good that it is. I very much hope that the economic boom years will continue in Israel and around the world, but I recommend everyone to prepare for better times,

• Real Estate

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• Real Estate

• Hi-Tech

• The housing crisis