People moving upmarket - people who want to sell their only apartment in order to buy a new one and who are the focus of the Ministry of Finance's new austerity measures - are the biggest segment of homebuyers in Israel, according to figures "Globes" requested from the Ministry of Housing and Construction's database. The data contradict the figures presented by the Ministry of Finance, which states that first-time homebuyers are the largest segment in the real estate market.
The Ministry of Housing examined all residential transactions reported in 63 towns nationwide between June 2012 and February 2013. The data cover towns in which there were at least ten transactions by first-time homebuyers, investors, and people moving upmarket. The data indicate that people moving upmarket - people who previously owned an apartment, or who bought an apartment and declared their intent to sell it - accounted for 37.3% of all transactions, compared with 36.3% by first-time homebuyers, and 21.6% by investors (people who own two or more apartments). Foreign residents accounted for 2.8% of all transactions, and 2% are classified as "other", such as apartments bought by companies for business purposes.
In most towns, transactions by people moving upmarket outnumber transactions by first-time homebuyers. In Shoham and Modi'in, people moving upmarket accounted for over half of all transactions, at 53.1% and 51.2%, respectively. In Ness Ziona, people moving upmarket accounted for 49.8% of all transactions; they accounted for 48.1% of all transactions in Yokne'am; and 47.8% of all transactions in Zichron Yaakov.
The high proportion of people moving upmarket in the outer suburbs of Tel Aviv, up to an hour's drive from the city, may indicate the movement of many Israelis to slightly more distant locations where they can buy larger homes for the same price as smaller ones in high-demand areas. This hones the absurdity of the new purchase tax of 3.5% from the first shekel on the new home, which the Ministry of Finance plans to levy on people moving upmarket.
New Minister of Finance Yair Lapid, who may have now and then forgotten that he is now a key cog in the legislative and executive branches, did not hesitate to admit over the weekend that the tax is unreasonable. In a media interview, he said, "The purchase tax on people moving upmarket is the tax that I hate the most. We will abolish it in the future."
There is an old adage about this: A clever man does not get into situations which a smart man knows how to get out of (or says that he knows).
The data indicate that the proportion of people moving upmarket is very low, which may imply a lack of confidence (or wherewithal) of the largest and most natural clientele to buy a home in these towns. In Tiberias, only 25.2% of homebuyers are people moving upmarket; the proportion in Safed is 25.6%; in Or Akiva, it is 26.4%; and in Tel Aviv, it is 27.3%. Beit Shemesh, where people moving upmarket account for 27.3% of all homebuyers, is the only town in which first-time homebuyers account for over half of all homebuyers.
The data also indicate that people moving upmarket do not compete against other kinds of homebuyers. The average price of an apartment paid by people moving upmarket between June 2012 and February 2013 was NIS 1.35 million, 32% higher than the average price of NIS 1.02 million paid by first-time homebuyers, and 21% higher than the average price of NIS 1.1 million paid by investors. At the other end of the scale, foreign residents paid an average of NIS 2 million for apartments, 48% more than the average price paid by people moving upmarket.
Assuming that the number of home purchases in Israel stays steady in the coming years (there were more than 100,000 transactions in 2012), and that the proportion of people moving upmarket also stays steady, they will account for 38,000 transactions a year. On the basis of the average apartment price paid by people moving upmarket, the new purchase tax will generate NIS 1.7 billion a year, over half a million shekels more than the Ministry of Finance's estimate of NIS 1.05 billion in the Economic Arrangements bill.
Investors in Tel Aviv and Kiryat Shmona
Much has been written in recent years about real estate investors, who benefit from very low interest rates (which means both cheap mortgages to buy an apartment and a lack of investment alternatives in the bond market), to send housing prices upwards. The average apartment price of NIS 1.1 million paid by investors indicate that they are directly competing against first-time homebuyers, who paid an average price of NIS 1.02 million - a difference of less than NIS 100,000. However, the intention of levying the capital gains tax (25% of the capital gain between the purchase price and the sale price of an apartment) on investors, while keeping the high purchase tax (5-8% of the value of an apartment), may reduce demand and possibly lower prices in the market segment where young couples are found.
Jerusalem and Beer Yaakov were the only towns where investors paid an average higher price for an apartment than people moving upmarket. The Ministry of Housing data show wide variability in the market share of investors, who account for 22% of the market nationwide, by towns. Tel Aviv was the only city in which investors accounted for a larger share of the market (31.2% of all transactions) than people moving upmarket (27.3%) and first-time homebuyers (29.1%).
Investors also accounted for a large share of the housing market in Eilat (31.1%), Haifa (20.9%), and, unexpectedly, Kiryat Shmona (31.1%). Unsurprisingly, the cost of an apartment for investment in Kiryat Shmona is a quarter of the price in Tel Aviv: an average price of NIS 519,000 to NIS 2.23 million, respectively. Interestingly, in Beersheva (which for years has been seen as attractive for investors, because of the relatively high return on investment and the large number of potential tenants among university and hospital students), investors accounted for 25.4% of buyers, well below people moving upmarket and first-time homebuyers.
If real estate investment means rental apartments, a shortage of rental apartments may emerge. Investors accounted for less than a fifth of the apartments bought in Petah Tikva, Holon, Kiryat Ono, Yehud, and Ariel.
The segment of foreign residents is especially interesting. The high average price of apartments - almost NIS 2 million - paid by foreign residents, and the fact that Jerusalem, Tel Aviv, and Netanya (12.8%, 8.6%, and 7.8% of all transactions) are the focus of purchases by wealthy foreign Jews seeking an apartment in Israel for vacations and the holidays, blurs the general picture and the full impact of foreign residents on the Israeli housing market.
In scores of Israeli towns, foreign residents behave exactly like ordinary real estate investors. The investment target, and, most of all, low prices, indicate that foreign residents are seeking opportunities for return on investment and capital gains. Foreign residents account for 3.7% of all homebuyers in Afula, where they paid an average price of NIS 481,000. Foreign residents account for 6.4% of all homebuyers in Arad, where they paid an average price of NIS 405,000. Foreign residents accounted for 6.7% of homebuyers in Ra'anana, 6.1% in Beit Shemesh, 5.7% in Eilat, 4.9% in Ashdod, and 3.5% in Tiberias. It should be remembered that the total number of transactions in these towns is only a few score of apartments, which means that there is no land rush by foreign residents.
Published by Globes [online], Israel business news - www.globes-online.com - on May 19, 2013
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