An examination by the Hachshara Financial Fund for "Real Hayom" reveals that if the rate of growth in construction starts continues, the residential construction industry will need additional credit in the amount of approximately NIS 18 billion per year.
According to data from the Central Bureau of Statistics, in the months of July 2021 - June 2022, the construction of approximately 72,540 apartments began - an increase of 24.3% compared to the previous period (July 2020 - June 2021).
This is the highest annual rate of construction starts since the 1990s.
However, after the construction of almost 20,000 housing units began in the first quarter of the year, in the second quarter there was a decrease of about 11% compared to the first quarter.
The increase in construction starts is a consequence of the massive land marketing by the outgoing government along with the continued rise in prices that created the motivation among entrepreneurs to compete for every piece of land that went on the market.
In light of the rise in interest rates in the economy and the slowdown in demand, it is possible that in the coming quarters we will continue to see a decrease in construction starts that will be caused by the developers' fear of continuing to build when costs are rising and demand is falling.
Erez Segman // Photo: Elad Gutman,
The analysis of construction starts also shows that 14.2% of the apartments whose construction started (about 10,330) were under government subsidies, a decrease of 19.0% compared to the previous period.
About 2,550 apartments, which are about 3.5% of the total construction starts, are built for the purpose of renting and that the number of construction starts for detached houses is decreasing and only about 14.2% of the apartments built in the last year were built in single and two-family houses.
The data also shows that in the last year the construction of approximately 10,950 apartments began as a result of the demolition of an existing building and the construction of a new building, and the construction of approximately 4,900 apartments also began as additions to existing buildings.
The settlements where the construction of more than 2,000 apartments has begun are Tel Aviv-Yafo (5,432), Jerusalem (4,514), Bat Yam (3,431), Ashkelon (3,338), Rishon Lezion (3,004), Beit Shemesh (2,979) and Netanya (2,716). .
According to the CBS data published today, in the last year (July 2021 - June 2022) building permits were issued for approximately 80,670 housing units compared to only approximately 62,020 in the corresponding period last year, an increase in the change rate of approximately 30.1%. The number of construction starts in the months of July 2021 - June 2022, stands at approximately 72,540 apartments, an increase of 24.3% compared to the previous period.
At the Financial Training Fund
, which specializes in providing credit and accompanying guarantees to entrepreneurs in the residential sector, they conducted an examination for "Real Estate Today" regarding the consequences of the increase in construction starts on the bank and non-bank credit market. If the rate of construction continues in the coming quarters, we will reach an annual rate of almost 80,000 units. D per year.
This is a significant increase compared to the last few years when construction starts were at an average rate of about 55,000 units per year.
The inspection shows that for an apartment with an average price of about 1.8 million NIS, the developers need financing of up to 40% of its price (excluding VAT), so that for an average apartment the developer will require an average loan of about 720,000 NIS. If the credit market is required to finance more 25,000 construction starts each year, the Hachshara Financial Foundation estimates that the residential construction market alone will require additional credit of approximately NIS 18 billion. According to Bank of Israel data, by the end of 2021, the non-bank financing entities operating in Israel have provided NIS 14 billion, compared to the banks that provided 320 billion NIS in 2021.
Erez Segman, CEO of the Hachshara Finance Fund,
points out that even today the banks in Israel are under a severe credit limit and some of them have almost stopped providing credit to the industry, therefore the burden of financing will be transferred to the funds and the non-bank financing companies, most of which are based on collaborations with the major insurance companies in Israel. If in the past the foreign financing Bankai was the property of small and medium-sized entrepreneurs who had difficulty getting financing from the banks, after all, in recent years the market has been growing rapidly, and the limitation of the banks also encourages large entrepreneurs to move to the non-banking market.
To the extent that the non-banking companies provide the credit and professional and efficient service to the entrepreneurs, it may be seen in the coming years that the non-banking market takes a more significant share from the banks in the financing of the industry.
However, the rise in interest rates in the economy and the fact that the financing of the projects in both banks and non-banking companies is becoming more expensive cannot be ignored.
The increase in interest increases the financing costs of the project, but in light of the increase in apartment prices in recent times, this is a minimal amount that does not harm the entrepreneurs.
Where can a problem arise?
With entrepreneurs who purchased land at high prices, while they estimate that apartment prices will continue to rise and that they will be able to sell the apartments above today's prices.
In these cases and if the forecasts do not materialize, the interest rate increase can create a risk.
Beyond that and even more significantly, there is an indirect damage to entrepreneurs which is reflected in the increase in the price of mortgages for apartment buyers and the continued slowdown in demand for apartments.
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