There were 15,546 unsold new apartments in Tel Aviv in February 2023, the Central Bureau of Statistics has told "Globes," representing 29% of all unsold apartments in Israel. In February 2023 alone, 350 new apartments were added to the total of the Tel Aviv region.
In the central region there were 10,326 unsold new apartments in February 2023, with 170 new apartments added to the total that month. 53% of the supply of all unsold new apartments are in high demand areas.
Tel Aviv and Central regions were the undisputed rulers
This is a complete turnaround, which could change the rules of the Israeli real estate market, at least in the short term. A look at the market since 2018 shows that until recently the Tel Aviv and Central regions dominated the new homes market without competition, and except for 2020, the amount of new homes purchased in these two regions was over 50% of all deal completed.
The extent to which buyers snapped up homes in these demand regions can be seen from what happened in the Tel Aviv region, (which also includes Bnei Brak, Ramat Gan, Givatayim and Bat Yam). Total new homes purchased there in 2018 was about 5,500, while in 2021 it jumped to almost 13,000. In the Central region the number climbed to over 16,000.
The real estate market was boiling over at the time and prices rose accordingly. Real estate developers increased building starts to keep pace with demand confident in receiving high prices. Building starts in the Tel Aviv and Central regions rose from 26,000 in 2018 to 29,000 in 2021 and 31,000 in 2022.
But the tide turned last year when the Bank of Israel started hiking the interest rate. This pushed demand for new apartments sharply down as new homes sales plummeted. The number of new apartments sold in Tel Aviv fell 40% last year to 7,000 and there was a 38% fall in the Central region.
In February 2023, the Tel Aviv region, until recently the capital of demand, was only in eighth place in the rankings of new homes sold. Between December 2022 and February 2023, the number of new apartments sold was down 80% from the corresponding period the year before.
For the developers this is a dire situation, having increased building starts in recent years in the Tel Aviv and Central regions, not thinking that prices would suddenly start falling.
On the other hand the situation in the periphery - Northern, Southern and Haifa regions - the situation is not so bad. In 2018, about 30% of new apartments sold were in the periphery. This share rose to 43% in 2022 and to 47% in the first two months of 2023. This trend is expected to continue in 2023 with sales in the periphery exceeding those in Tel Aviv and the Central region.
Three factors have brought about this unprecedented situation. Firstly the success of former Minister of Finance Moshe Kahlon's policy to incentivize planning and construction in the periphery with lotteries for discounted apartments, secondly the sharp housing price rises since 2020 and thirdly the economic crisis and jump in inflation and interest rates since 2022.
Apartment prices in Tel Aviv are beyond the means of those who would like to purchase an apartment there, and until a relatively short time ago could afford the prices. Not now. Buying an apartment in the cities surrounding Tel Aviv such as Ramat Hasharon, Givatayim, Ramat Gan and Herzliya has also become very difficult, while on the other hand, many console themselves with the cheap apartments in the periphery, which has suddenly become an "area of demand." But not really. The periphery has not undergone a transformation in terms of jobs and education that would have made it truly attractive in the eyes of the apartment buyers there. Many of those buying apartments in the periphery, would have been more than happy to do so in the real demand areas.
Published by Globes, Israel business news - en.globes.co.il - on April 24, 2023.
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