Only 2006 new homes were purchased in Israel in January 2023, not including the Buyer Price government subsidy program, down 42% from January 2022, and down 5% from December 2022. In February 2023 the number of new homes sold remained much the same at 2025.
For some time now builders have seen a significant fall in sales, which is also being reflected in the second-hand housing market in general. In February 2023, 3,775 second-hand apartments were sold in Israel, down 48% from February 2022. The fall in demand has led to a fall in prices as demonstrated, according to the Central Bureau of Statistics, by a 0.2% fall in prices between December-January 2022/2023 and January-February 2023.
Real Estate Appraisers Association in Israel new chairperson Nehama Bogin explains that the housing market has indeed changed but insists it is not in crisis.
"The market today is at a changing point. I deliberately do not use the word crisis, I call it a change. And the significant change is of course the matter of interest rates. We have been used to working in an environment of zero interest rates for a very long time and now that interest rates are rising, and quite dramatically even over a short period of time, it changes the rules of the game. But what I see before me is not collapse - crisis - crash - disaster, all the same words I hear a lot around. I see it as sitting on the fence. It always happens when there is change. It's sitting on the fence, and sometimes rethinking the way forward. Of course it's on both sides - both developers and buyers."
Perhaps this is because of the expectation that prices will soon be lower. And if that is the case why pay more now when in another month or two prices will be NIS 100,000 lower?
"First of all, there is definitely this expectation. In addition, in times like this, there are also occasional opportunities, it's true, it definitely happens. But if you look at the market in macro, in general after such a period - and it doesn't have to be very, very long - the repressed demand erupts, because the gap between demand and supply is still huge. There is a shortage of 250,000 apartments in Israel. We are on an upward trend. It is true that as part of the increase there are also bumps of ups and downs within it, but the trend is upward."
In the luxury market, "rethinking the way ahead"
When Bogen describes those "bumps," that is to say the current fall in prices, she explains that it is the luxury market that gets hit first and there she says there are more people "rethinking the way ahead."
In apartments in the NIS 3-4 million price range, she still does not detect a dramatic change. "You see that people in the market are reporting that apartments up to NIS 3-4 million are more or less continuing as usual. These are significant amounts, yes, but the really expensive apartments are hard to sell today and the halt is mainly there, as well as rethinking the way ahead."
Urban renewal plans take many years, sometimes over 10 years, until they come to fruition. For investors whose investment horizon is usually between 5-7 years on average, this can damage their investment plan.
In contrast to these plans, the much maligned veteran Tama 38 plan (earthquake strengthening) for the most part moves forward more quickly.
Another important thing to note is the period we are entering. It is no secret that we are entering a difficult period, and it is likely that we will see a decrease in the scope of activity in the field of urban renewal and why? Today, the multipliers of the apartments in the new economic situation are also affected by the economics of the project. If we assume there are places where a project is economic by a factor of 2.5 (two and a half new apartments for every apartment that is destroyed), then the change in the market may result in the developers asking to change the plan and request an increase in the number of apartments, because it is no longer economic for them. Whether they accept or not - this means that the project will continue until a developer is accepted.
Bogen focuses on a field that it is worth investing money in - urban renewal. She says that the world of urban renewal is the future of real estate in Israel and in practice also at present.
"Many times when I speak about urban renewal," Bogen explains, "I use a word that we don't like to remember - exponential. Do you remember when we used it a lot? During the Covid pandemic where it was a great 'contagious disease'. If you look at it from an investor's point of view, the most correct investment in my opinion is really in apartments in areas that are designated for demolition, of course it depends at what stage they are at."
Do appraisers, as professionals who see an apartment on an urban renewal track, have an orderly way of calculating the value, according to the stages of progress of a project?
"On the probable calculation level, what I need to do is estimate the value of the apartment and then judge is expected to be received at some point, then make a reduction due to the delay in time, and also price the risk. The risk is reflected in the discount rate that we take into account. This is the model. Ultimately, you learn all these things from the market. And you see at the end what they are actually willing to pay in the market for the same potential, then you look at the calculation, the same model, and finally arrive at the result. There are no formulas in appraisals. There is a great deal of judgement, because there are a great many parameters, and a great deal of life experience brought into this estimate."
Published by Globes, Israel business news - en.globes.co.il - on April 23, 2023.
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