Roughly 7% of the supply of new homes for sale in Israel is in Tel Aviv with almost half of those concentrated in the north of the city, a "Globes" survey has found. In this district alone, the study found, since the beginning of 2022, more apartments have been built than in Haifa, Beersheva, Ramat Gan and other locations. But the number of deals completed in Tel Aviv has shrunk, and this has turned the Israeli real estate capital, and one of its most sought-after neighborhoods, into a place with a high supply of new apartments.
On the other hand, the study shows that in Haifa and Kiryat Malachi there were more home purchases recorded than building starts, typified by early purchases in the Buyer Price government subsidy program that does not meet demand. This is due mainly to the rise in interest rates that has brought about dramatic changes in the apartment market. According to the Central Bureau of Statistics, in the first quarter of 2023, there were 40% less new apartments sold on the free market than in the first quarter of 2022.
Despite the slump in the number of deals, construction over the recent period has continued at the same rapid pace that began during the boom at the end of the first Covid lockdown in 2020. Consequently, thousands of apartments are pouring onto the market while the number of buyers is shrinking.
Not selling but building
This situation has meant the amount of time it takes to sell a new apartment in Israel has jumped 2.5 times over the last two years, to 22 months, while increasing the supply of new apartments by 26%,over the past year. Unsold new homes total about 55,000, and almost two thirds of the supply is in the three demand areas - Tel Aviv, Jerusalem and the center.
This is due to the intensive construction in these areas, and the steep fall in apartment purchases in and around Tel Aviv. From the start of 2022 to the end of the first quarter of this year, construction of 5,885 apartments in Tel Aviv was begun and most of them still remain without buyers. The difference between building starts recorded over the past 15 months, and the purchase of apartments in Tel Aviv is about 3,740. This is how an intriguing situation has emerged. In Tel Aviv's highly desirable Rova 4, between Shaul Hamelech Boulevard in the south, Ibn Gbriol in the west, the Yarkon River in the north and the Ayalon Highway in the east, construction of 2,343 homes began in the last 15 months, while only 585 new homes were purchased with 1,758 homes left unsold.
Apartments purchased before the start of construction through "free sale" procedures, the number of which is unknown, but must be taken into account, and must be deducted from it; New apartments built as part of urban renewal and TAMA 38, some of which are not intended for sale, but for the owners of the apartments, must also be subtracted. However, even after taking these apartments into account, the unsold supply remains exceptional, and it is certain that the developers did not plan for this to happen.
The developers are already committed
In order to better understand what is happening, we examined, through online real estate sales site Madlan, the distribution of deals carried out over the past 15 months in Tel Aviv, by neighborhood. Madlan CEO Tal Kopel said of the findings: "From the beginning of 2022, the number of deals in Tel Aviv-Jaffa has fallen sharply, when comparing the first quarter of 2022 to the first quarter of 2023, the main 'victim' is Rova 7 in the south of the city, which mainly includes Jaffa and Neve Ofer and Abu Kabir, with a decrease of almost 77% in the number of deals.
"The prices in the district are still low for the city, so it is of interest to quite a few investors, but with the rise in interest rates and the price of money, they probably decided to stop the purchases."
When Madlan examined other parts of the city, the situation was not much better. "The lowest number of deals in the first quarter was recorded precisely in Rova 3, the Old North, where the number of deals fell by 70%," Kopel says. "The apartments in the Old North are much more expensive than apartments in Jaffa, not to mention being the most expensive in Israel, and are intended for completely different customers. So it can be said with relative certainty (since we did not examine the second-hand market) that the stagnation in the Tel Aviv real estate market is a citywide and cross-class trend."
Tel Aviv has been paralyzed in terms of apartment sales, but construction continues as usual. 2021, construction of 4,831 apartments began, and 2022, when construction of 4,659 apartments began, were record years in terms of building starts in the city, and the first quarter of 2023, when construction of 1,379 apartments began, even marks an increase in the pace.
This is mainly happening because of the commitments by real estate developers. In pre-sale cases they are committed to buyers, in urban development they are committed to homeowners and in government subsidized projects they are committed to buyers and the state, although there are none of the latter projects in Tel Aviv.
In second place in Israel in terms of new, unsold apartment inventory is Jerusalem, with 2,332 apartments, in third place is Rishon Lezion with 1,657 apartments and in fourth place is Beit Shemesh with 1,548 apartments. However, it should be emphasized that in these three places, many deals were registered as part of the Buyer Price government subsidy program, so the actual inventory is smaller, although still considerable.
In Haifa and Kiryat Malachi, on the other hand, the balance is negative, meaning that more new apartments were bought than were started. In Kiryat Malachi, a city where a significant part of the projects is allocated to Buyers Price program, and where deals are signed some time before construction - the situation is understandable.
In Haifa the situation is more complex. The areas popular for construction in the city are the Carmel ridge including Ahuza, Western Carmel, French Carmel, and Ramat Golda. The "Globes" survey found that since 2021 a similar amount of new apartments have been purchased in the city as those whose construction have begun since 2019.
Published by Globes, Israel business news - en.globes.co.il - on June 27, 2023.
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