Real estate prices in Israel will continue to fall over the next three years. This according to Shlomo Simanovsky, joint general manager of Meitav Investment and Securities Consultants. Simanovsky makes this comment in the first of a series of articles analysing the position of Israel's real estate market.
According to Simanovsky, the leaders of the Israeli economy have learned, over the years, that if they act efficiently and wisely, there is no shortage of land, and that the day is far ahead when Israel's land potential is exhausted.
Simanovsky says that those who dictate economic policy changed their attitude to the real estate sector on seeing that housing prices rose in real terms by about 20% in 1990-92, and by 25% in 1993-96.
Following these price hikes, Simanovsky notes, the Israeli government started to institute a gradual reform of the real estate sector, in order to lower prices. One of the main changes the government put into effect was the long-term planning of land marketing by the Ministry of Housing and the Israel Lands Administration. Under this plan, the government proposes to market lands for the construction of 500,000 residential units, at a uniform annual rate of 50,000 units, also in high-demand areas along the coastal strip.
Simanovsky notes that, although the idea was to market lands along with detailed construction plans, marketing was actually conducted aggressively, and private developers are also purchasing lands without comprehensive planning. By means of such marketing, the government is achieving an accelerated rate of sale of land for construction, thus managing to harness private resources to improve the quality of the land.
Another change brought about by the government as part of the "real estate revolution", was better effective utilisation of land. Simanovsky noted that the government realised that land is a commodity in short supply, and must therefore be utilised to the maximum, by innovative building plans. He said that in the years when real estate prices rose, land utilisation had been wasteful. For example, on one dunam (1/4 of an acre) of residential construction land, only 4-8 residential units had been built, whereas building percentages of industrial land stood at 120%.
In recent years, Simanovsky notes, construction plans have been approved that make for far higher utilisation of land: 20 residential units per dunam, with 350% building percentages per dunam of industrial building. Simanovsky estimates that the rate of land utilisation
should increase even further before long, and reach 30 residential units per dunam and 500% per dunam for industry.
Published by Israel's Business Arena March 19, 1998