Governor of the Bank of Israel Prof. Stanley Fischer today rebuked Minister of Housing and Construction Ariel Atias over media leaks concerning his warnings on marketing too much new land. Speaking to the Knesset Finance Committee Fischer said, "I like Minister Atias, but I was surprised to hear that a private discussion we had had behind closed doors, during which I spoke with him openly, found its way to the media. But maybe these are the rules and I need to get use to them."
Fischer said that he was surprised to read about his discussion urging Ariel Atias to market less land to prevent prices collapsing.
Fischer warned the Knesset Finance Committee against a scenario in which real estate prices fall sharply, claiming that this would hurt the economy. Fischer said that instead, he prefers a gradual decline in real estate prices.
"Real estate prices need to decline gradually," Fischer said. He added, "There is a need to quickly market land for building, but prices need to decline gradually and not sharply, which could cause problems in the construction industry."
Fischer believes that the trend in the residential real estate market has changed and that prices are beginning to fall, but warned again and again that a sharp decline would be detrimental. "The trend has changed and the rise in prices is slowing, and there is even talk about the beginning of a fall in real estate prices. It is extremely important that prices fall gradually and not sharply, since a sharp fall could harm and destabilize the construction industry, which would hurt not only contractors and buyers, but also the entire economy. This has occurred throughout the West and up until now we have been able to successfully prevent this."
Fischer signaled to Atias that the marketing of land should be moderated. "Building should be in sync with long-term housing needs. We must not take steps that look good in the short-term, but that will harm the public in the long-term. Building 40,000 housing units a year is a good number; more than this could lead to a negative trend." There were 43,000 housing unit starts this past year.
Fischer supplied the committee with another statistic that shows the sensitivity of the financial system to the real estate market: mortgages make up 20% of Israeli bank's turnover. As a result, Fischer said, "Banks must not grant credit of more than 20% to the construction industry. Real estate is a very problematic field. It takes two years to build housing units, and we need to predict what the situation will be like in two or three years when they will need to be sold."
Published by Globes [online], Israel business news - www.globes-online.com - on November 23, 2011
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