Will the modest fall in housing prices since the beginning of the year continue? Ministry of Construction and Housing director general Yehuda Morgenstern told the Globes and Bank Leumi Mortgage Conference that this was the wrong question.
He said, "The more interesting question is whether something is happening here that is only because of interest rates, and is it an episode that depends only on interest rates and when it is high it does not reflect the real situation of declines. It is difficult for developers to finance, there is no cash flow, and no buyers, and naturally an artificial fall in prices is created, which will bounce back like a boomerang."
Morgenstern added that while interest rates have a huge impact on housing prices, it can also be seen that since 2010 there has been a significant jump in supply. He said, "If we look at it for a moment in 5-year leaps, we can see an almost doubling in marketing and we can see a doubling in the number of homes planned. In the end, it cannot be ignored that the Ministry of Housing, Israel Land Authority (ILA) and the Planning Administration are have been doing the work since 2015, when we reached land marketed for 50,000 homes, and over the last two years we reached more than 100,000."
You are referring to a zero percent interest rate period, which is over
"Correct. Our challenge is supply, supply, supply. How do we do supply? Through changes in the target price (subsidized) plan also a target price plan in the central area, also changes we have made in the development budget and more. In the new interest rate environment we need to be proactive and creative, not do the same thing and hope it catches on. This week there are four tenders that failed in the past and NIS 150 million from the budget is being allocated to them to lower development costs. There is budget money to subsidize development costs. We believe that in the next three to four months, we will reach the target of 90,000 homes marketed in 2023 and pass, God willing, the threshold of 60,000 deals. If we persist in this, the trend of stopping, slowing the price increases and even decreasing is not a trend that is here as a passing episode, but as something that will stay with us a long time. There is more supply, the rural sector, until today it was looked at as a place for few hundred or dozens of housing units, but the ILA can bring in tens of thousands of housing units that are marketed in the rural sector."
In the past they said you don't have to do anything because market forces will solve the problem. So you have dismissed this theory?
"No, when I came to the job they told me there was once the 0% VAT program, the reduce price program, the target price program, the buyer price program. I say the market has been around, and the developers have got used to a target price. I think there is no need to look for a program that will be named after a minister. There is a program in which we are making amendments. We have reduced discounts in the tenders from NIS 1 million to a maximum of NIS 500,000. Throughout the country, we set a 20-25% discount on the price of an apartment, with a limit of up to NIS 500,000."
The main thing is to stop inventing new jokers in the market, but you invented a new-old joker. Giving a NIS 50,000 check to someone who builds an apartment for NIS 600,000 is not a real cure.
"First of all, this doesn't happen in a vacuum, it's not the only thing we do. As we said, a billion shekels to stimulate real estate and planning, these are things that happen at the same time. Getting a mortgage is a challenge, but the equity to buy an apartment is no less a challenge. So when you buy an apartment at a discount, it is a discount from the equity, when a person buys an apartment for NIS 2-3 million it is still not achievable. When we look at a supplementary plan, we said there are people who want to purchase an apartment whose net worth does not exceed one hundred thousand shekels."
Are there apartments like that costing up to NIS 600,000?
"We checked it out and found that there were 7,000 apartments like that.
Maybe four months from now, after we examine ourselves, we'll say we need to expand the program, and we might say it didn't move and didn't do anything significant and that it's over. But when we look today, many programs were marketed only in the periphery or only in the center. Today there is a consensus that there is no one solution for one person, we have to do different things, and as far as we are concerned, this is part of the prototypes of a solution for the population."
You talked about subsidies for the periphery, apartments at a discount, NIS 50,000 for apartments costing NIS 600,000, in the end you Haredim take care of your sector.
"Then I would be happy to come and include the entire public. Currently, close to 6,000 people have registered for the grant. We do not identify any certain trend among those who register, we see a normal distribution, we do not know how to identify populations, we do not identify any anomaly. I estimate that even when we examine ourselves after that these grants have been awarded there will be a normal distribution of the population, and the future will prove the same."
Can you assure the public here that with everything we've talked about so far, that there will be no change in direction and prices will continue to come down?
"I am not a prophet but I take a risk and estimate that the trend we see now will continue to accompany us until 2026."
Full disclosure: The Israel Mortgage Conference was held by Globes in cooperation with Bank Leumi
Published by Globes, Israel business news - en.globes.co.il - on September 4, 2023.
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