Who is buying Israeli homes?

Dror Marmor

Nationwide foreign residents account for a negligible number of purchases but in some Jerusalem neighborhoods they account for 40% of purchases.

You don’t need a millionaire's salary to buy an apartment in Israel. You simply need the right parents, or the courage to take a highly leveraged mortgage. According to the Ministry of Finance's State Revenues Administration, the average gross household income of homebuyers in 2011 was NIS 14,400 - not an income from which it is easy to accumulate the hundreds of thousands of shekels in equity needed to buy a home, without supportive parents or a generous bank. Investors are not necessarily tycoons, either. The average gross income of Israelis who bought apartments for investment was NIS 22,300 in 2011.

There is a correlation between salaries and the purchase target. For example, homebuyers in Tiberias had an average gross family income of NIS 9,400, compared with NIS 19,000 for a family buying a home in the Sharon.

Only the Tel Aviv District, the heart of Israel's housing demand, showed a big anomaly. Although the average gross family income in the district was 3% higher than the national average, at NIS 14,900, the average apartment price was NIS 1.6 million - 36% above the national average. For the sake of comparison, in 2006, the average price of an apartment bought in the Tel Aviv area was 2% above the national average.

As apartment prices rose, homebuyers left Tel Aviv for suburbs an hour's drive away, changing the housing demand map as a result. In contrast to the nationwide drop in the number of homes bought in 2011, the Hadera region (which includes Ariel, Zichron Yaakov, Caesarea, and Pardess Hanna-Karkur) was the area where demand was stable. Home sales in the region rose from 400 units in 2000 to 1,400 in 2011.

However, this was not necessarily due to a land rush by young couples. For example, the sharp increase in purchases of new apartments in the Hadera region was driven by investors, with an extraordinary 72% growth in purchases in 2011 (and 125% growth by investors from outside the region). The number of home purchases by young couples rose by 21% in 2011, and the increase in purchases by buyers going upmarket was small.

A Finance Ministry gimmick

The battle against rich investors who buy homes for investment at exorbitant prices, and the Ministry of Finance's latest idea to raise the purchase tax on homes costing over NIS 3 million from 7% to 8%, are liable to turn out to be dangerous gimmicks. The number of homes bought for investment costing over NIS 3 million fell from 5.2% in 2010 to 4.1% in 2011. The drop in the number of these apartments in Tel Aviv from 17% to 11% explains the sharp drop in prices of apartments bought for investment in the city in general.

The median price of an apartment bought for investment in Tel Aviv was NIS 1.1 million in 2011, 20% less than in 2010. Since 40% of residential transactions in Tel Aviv are by investors, it seems the high taxes on luxury homes are driving them to buy cheaper apartments. This puts them head-to-head against of ordinary people trying to buy their first apartment in the city.

The global economic crisis meant that foreign investors missed out on the surge in housing prices in Israel. The proportion of foreign residents fell from 6% of all home purchases in 2005-06 to 3% in 2009 and 4.1% in 2011.

But given the idea to levy surtaxes on real estate transactions by foreign residents, by cancelling the exemption on betterment taxes and other proposals, we should ridicule their weight in the market or their effect on housing demand. Although nationwide, foreign residents account for a negligible number of purchases (3,500 homes a year), in three cities - Tel Aviv, Jerusalem, and Netanya - they account for 11.2%, 8.2%, and 6.6% of all purchases, respectively. In some Jerusalem neighborhoods - such as Rehavia, Bayit Vegan, Romema, and Sanhedria -foreign residents account for 40% of purchases of apartments.

Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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