The real estate companies listed on the stock exchange provide excellent testimony of the weakness of the new housing market in Israel. The financial statements of some of the most prominent developers indicate that the number of homes sold in the first half of 2023 was 66% below the figure for the first half of 2022. The reports also indicate that the average selling price of a new home built by those companies rose 32%.
After more than a year of rising interest rates, the sales offices of the construction companies have steadily emptied recently. The public, it would seem, is sitting on the fence and hoping that home prices will fall. The figures indicate that, for the time being, the contractors are still keeping their prices high, and giving preference to buyers with equity.
Central Bureau of Statistics figures show that, in the first half of this year, contractors sold 14,700 homes throughout Israel. That represents a 40% fall in comparison with the first half of 2022. According to figures published by "Globes" last week, the contractors had a stock of about 58,000 unsold homes at the end of June, 27% more than at the end of June last year. This is the highest number for several years.
We examined the sales figures of six developers. Two of them, Kvutzat Acro (Acro Group) (TASE: ACRO) and Israel Canada (TASE: ISCN), specialize in the high end of the market, mainly in Tel Aviv and areas nearby. The other four, Africa Israel Residences (TASE: AFRE), YH Dimri Construction & Development (TASE: DIMRI), ZMH Hammerman (TASE: ZMH), and Bonei Hatichon Civil Engineering & Infrastructures (TASE: BOTI), build homes all over the country.
The trend of declining sales is common to all six companies. Altogether, they sold 643 homes in the first six months of this year, 66% fewer than in the corresponding period last year. The average price charged by them, as mentioned, rose by almost a third, to NIS 4.5 million. It should be pointed out that the sales mix in the construction projects varies from one period to another, but the price rise trend was similar in all cases except for at ZMH Hammerman, where prices remained the same between last year and this year.
"In some of the companies that operate countrywide, there were massive sales under the government-subsidized Buyer Price program last year, such that the rise is only thanks to the change in the mix," a senior industry source says by way of explanation of the rise in prices despite the sharp fall in sales. "Last month, there was a revival in sales, but it’s hard to tell whether this is a trend. What is clear is that, looking forward, the supply of homes will start to fall, because some of the contractors are finding it hard to realize new projects. For anyone who bought expensive land, it’s hard today to obtain finance in comparison with last year."
What could bring about a change in the trend? "As far as the public is concerned, and from conversations in the sales offices, we’re seeing that people want some kind of certainty," the source says. "So, from their point of view, if the current level of interest rates becomes steady, they will be more prepared for a deal in accordance with what they can afford. I see many customers who ultimately decide to look for a property in the periphery, because that’s where they can afford to buy."
The steepest decline in in home sales was at Acro Group, controlled by Yitzhak ("Zahi") Aarabov and headed by Ziv Yakobi. In the first half of this year, the company sold just thirteen apartments, 85% fewer than in the first half of last year (in the second quarter this year it sold seven apartments). At the same time, the average price of each apartment sold shot up by 53% to NIS 7.8 million, a bigger rise than at any other company we checked. The company explains this by the mix of projects in which it made sales, prestige projects in Tel Aviv.
Yakibi stated in the company’s financials, "We arrived at this challenging period with a relatively small stock in projects being marketed, having sold 75% of the housing units in these projects. We expect to recognize revenue of some NIS 2.6 billion over four years."
Africa Israel Residences, controlled by Jacob ("Luxy") Luxenburg’s Lapidoth Capital, saw its sales decline by 71% between the two periods to 131 in the first half of this year. At the same time, the average price of an apartment sold rose 25% to NIS 3 million. A similar trend was exhibited by residential real estate construction giant YH Dimri, controlled by Yigal Dimri, which sold 336 units in projects spread all over the country, 59% fewer than in the first half of 2022, while the average price rose 34% to NIS 2.2 million.
"Not fazed by sales decline
ZMH Hammerman has also seen a decline in sales. The company mainly builds in the Dan area around Tel Aviv, but also in other places such as Nahariya and Lod. In the first half of this year, it sold 54 homes, 77% fewer than in the first half of last year. The average price per home remained steady at NIS 4 million. ZMH Hammerman CEO Haim Feiglin told "Globes", "The decline in sales is something that everybody is experiencing today because of the continued rise in interest rates."
What has been the effect of the fall in home sales?
"We aren’t all that put out by the low level of sales, because the company’s main effort today is in making progress on the projects under construction, as quickly and as well as possible. We are also making an effort to realize projects currently at the licensing stage."
Why in fact?
"Because we have a very small stock of homes. In our existing projects now being marketed, 88% of the homes have been sold. Of the stock of 1,400 homes in various stages of construction, there are only six homes ready for occupation that are unsold. Of these, two are being used as sales offices, and the remaining four are very expensive apartments for which the sales process is slow. But they are located in a project that has long since ceased to be at risk. The company has recovered its equity from it and the accumulated profits."
The company that sold just five homes in a quarter
The slowdown in home sales is also marked at Bonei Hatichon, which sold just ten homes in the first half year, 83% fewer than in the first half of last year (five homes were sold in the second quarter).
The company’s projects are spread widely around the country, and projects in several cities in the center are described on its website, in Tel Aviv, Holon, and Kiryat Ono, besides projects in Jerusalem and Modi’in. The average price per home sold rose 16% within a year to NIS 3.2 million.
Israel Canada, controlled by Barak Rosen and Assaf Tuchmeir, recorded a smaller than average decline in the number of homes it sold, while their prices rose steeply. The company has a gallery of luxury projects in central Israel, including one in Sde Dov in north Tel Aviv.
Israel Canada sold 99 homes in the first half year, 57% fewer than in the first half last year, but their average price was 46% higher at NIS 6.9 million.
Market shows patience - will it be enough?
"In the last half year, the number of expressions of interest in buying a home was not lower than in previous years," says a senior industry source. "In our project in the center of the country, the rate of enquiries about buying an apartment is between 700 and 800 a month, which is similar to the rate since marketing of the project began in 2020."
So what has changed?
"The number of deal closures has fallen substantially. In this project, if on average we were selling ten apartments a month, since the beginning of this year it ahs been two to three deals on average. But the bottom line is that were patient, because we have almost no homes left for immediate occupation. The next project to be carried out, also in the center, is still at the excavation and lining stage, and it will be completed in four years’ time. Most of our unsold apartments at present are in that project."
What explains the rises in the prices of the homes sold?
"It’s hard to put one’s finger on it, because it varies with the mix of homes and the locations of the projects from one company to another. In our case, I can say that standard three to four room apartments have risen in price to some degree. The flexibility today is over payment terms."
Published by Globes, Israel business news - en.globes.co.il - on August 23, 2023.
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