The headlines in the last few days talk about expected price drops in the real estate market, in light of the data from the Central Bureau of Statistics and the Ministry of Finance, according to which last December was the weakest in the sale of second-hand apartments in the last 20 years.
The voices of commentators in the real estate market in recent times estimate that sooner or later - the contractors will be forced to lower prices due to the accumulation of tens of thousands of new apartments that are standing empty and have not been sold. Despite this
, the real estate financing companies in Israel refuse to be excited by the data and recommend that the apartment buyers get off the fence and not wait.
What are the reasons?
We addressed this question to Topaz Deutsch-Ram, the business development manager at Novo Millennium, a non-bank credit company that deals in real estate financing.
Illustration: Financial calculation for buying an apartment (Photo: ShutterStock)
"Don't fall into this trap,"
calls Topaz Deutsch-Ram, "a drop in apartment prices is a nice headline, but we have to look at the big picture - and when good things happen for the wrong reasons, they are far from good. The apparent drop in apartment prices does not come from the right reasons. It comes on the back of an economic crisis and an abnormal increase in interest rates and not because of a real excess in the supply of apartments."
"All the price declines that have occurred in the last fifteen years were born from an artificial state of uncertainty, whether from an epidemic, a government program or a global recession - and not from increasing the supply of apartments for the residents of Israel," continues Deutsche-Ram, "after Yair Lapid's 0 VAT plan, Price per inhabitant' of the Kahlon Window and the Corona epidemic, we saw a single-digit drop in short-term real estate prices - and then a huge double-digit jump. In my estimation, this is exactly what will happen now."
Topaz Deutsch Ram, Business Development Manager at Novo Millennium (Photo: Public Relations)
According to Deutsche-Ram, this phenomenon repeats itself over and over again in the real estate market: a chronic lack of supply of apartments that leads to an increase in prices, which is followed by an economic crisis, which causes a temporary stop and even a slight drop in prices, then the lack of supply again takes its toll and prices rise again
. A real equilibrium in the housing market will only come when the real estate world knows how to meet the demand for apartments in Israel. And these are data that can be answered according to the start of construction in Israel along with its demographics. There is no other solution than freeing up land, massive construction and adjusting the interest rate," says Deutsch-Ram.
"As a non-bank credit company, we and, of course, our customers are greatly affected by the level of interest in the economy. In our opinion, there is a significant error in the conduct of the Bank of Israel in relation to the level of interest in the economy. It is true that the Bank of Israel is seen as an expert, but it has missed in its inflation forecasts for most of the past years.
"The Bank of Israel should be alert to the practical economy and not to theories. If the inflation forecast for 2023 currently stands at only 2.7%, it is not possible for the prime interest rate derived from the Bank of Israel interest rate to be so high at a rate of 2 times the predicted inflation. This suffocates the economy and leads to a slowdown and perhaps, Heaven forbid, for a recession."
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