Ahead of the expected increase in interest rates: the contractors warn against the "credit crunch" | Israel today

This coming Monday, the Bank of Israel is expected to raise the interest rate in the economy for the fifth time in a row, and according to most forecasts, this time too the interest rate increase is expected to be at a sharp rate of 0.75%-0.5%, to a level of 2.75%-2.5%.

Waiting for his decision.

Governor Prof. Amir Yaron, photo: Yehshua Yosef

Although it is common to think that the increase in interest rates is supposed to moderate the rate of increase in apartment prices, in reality the opposite is happening, and despite the decrease in demand for housing, the rate of price increase increased to 17.9% in the last year.

The contractors' association is convinced that a further increase in interest rates could lead to a further rise in apartment prices in Israel, and the reason they claim is a jump in financing costs.

Effect on the supply". Sargo, photo: Ancho Ghosh/Gini

The contractors say that the jump in construction financing costs is already making it difficult for some entrepreneurs in the real estate market to continue operating due to the unviability of the new projects. They talk about the expected decrease in construction starts and warn of a "credit crunch".

"The costs have doubled"

We note that senior Bank of Israel officials have often said that the way to solve the housing crisis in Israel should be by increasing the supply of apartments, but that, at least according to the contractors' claims, the Bank of Israel's measures may actually harm the supply in the housing market and thus worsen the situation.

Raul Sargo, President of the Association of Contractors Building Ha'aretz, says in a conversation with "Israel Hayom": "Contrary to the voices of various experts in the economy, we estimate that the Bank of Israel Governor's decision to raise interest rates again next week is equivalent to a slowdown in the economy and a decrease in construction starts, which will cause continued price increases Apartments in Israel.

"The effect of the increase in interest rates on financing costs and the supply of apartments is expected to be much more dramatic than a temporary decrease in the demand for apartments caused by the increase in mortgage prices. Entrepreneurs and contractors in the construction industry have long witnessed the increase in the difficulty of obtaining credit, due to the sectoral limit set by the Bank of Israel for banks that lend to construction."

Amit Gottlieb, an entrepreneur and contractor and one of the owners of Gottlieb Construction Liability Company, which deals with construction intended for rent in Zaor, the center, adds: "Financing costs have doubled. If before that I paid 40-50 thousand shekels a month and now I pay 100 thousand a month, then I have no choice but to raise the rental prices."

Gottlieb also claims that raising interest rates does not necessarily reduce demand.

"Many immigrants from Russia cannot find apartments in the central area at all, there are no apartments. The birth rate is increasing dramatically, the number of divorces is increasing every year, people are dividing their family unit in two and need more apartments."

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