The Housing Prices Index published by the Central Bureau of Statistics rose by 3.6% between November 2023 and March 2024 after falling by 2.5% in the 10 months prior to that. The average price of an apartment in Israel in the first quarter of 2024 reached NIS 2.23 million, after the market faltered in the first three quarters of 2023.
The number of housing real estate deals carried out in the first three quarters of 2023 was about 6,000 home per month, a low that has not been seen in at least the last 20 years.
The 20/80 promotions that developers have introduced since interest rates started to rise and have become almost a standard in the market (buyers can buy new apartments under construction for a 20% down-payment with the balance paid when the home is completed) halted the slowdown in the new apartment market, while at the same time purchase of second hand apartments continued to decrease. Transaction prices for new apartments also began to rise. If in the first quarter of 2023, the average price of a new apartment reached NIS 2.07 million, in the second and third quarters it exceeded NIS 2.1 million.
From November last year everything changed. The price indices rose and so did the average prices of deals. It clearly seems that it was not the 20/80 deals that changed the trend, but the war.
The war directly contributed to the fact that the weight of the new apartments purchased currently amounts to about 50% of the entire market, for the first time since the Covid pandemic in 2020. Then the motivation for buying new apartments was the need to work from home and the extra space required and larger and more spacious apartments that would make it easier to stay at home during prolonged closures.
During the war, the need for reinforced security rooms in homes has increased significantly, and this can only be provided by new and second-hand apartments built in the last 20 years, since housing that was built in the 1990s was smaller and does not meet security needs.
The amount of new apartments purchased in the first quarter of this year on the free market jumped by 40%, while in second-hand apartments the amount purchased this quarter increased by only 6%. This reflects the fussiness among apartment buyers, to purchase relatively new second-hand apartments, and the increasing difficulty of owners of older apartments to sell them.
When it comes to the price indices, a significant change is evident between new apartments and second-hand apartments. During the war, the price index for new apartments has increased by 1.8%, while the overall index (new and second-hand apartments) has increased by twice as much. This indicates that the type of apartments that have contributed most significantly to the price increases were the second-hand apartments.
Since there is no specific index for second-hand apartments, it is only possible to estimate based on the other indices, that the prices of second-hand apartments rose between November 2023 and March 2024 by 5% or more.
This is a very fast pace, which can be explained by the low supply of second-hand apartments that meet the requirements of secure rooms.
Israel Builders Association president Raul Srugo recently told the Knesset Finance Committee that already today there are delays in delivery of new apartments of up to six months; The government is unable to formulate effective solutions for bringing in foreign workers to ensure that the backlog will not become longer in the near future, and those who purchase a new apartment will have a better idea of when it will be completed.
Assuming that all these market conditions do not change in the coming months, it is likely that the trend we see today will continue and apartment prices, especially relatively new second-hand apartments, will continue to rise rapidly.
Published by Globes, Israel business news - en.globes.co.il - on June 9, 2024.
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