Homebuyers are increasingly preferring larger apartments further away from Tel Aviv in less crowded locations, according to Tel Aviv University research on the impact of Covid-19 on the housing market. The research also found that measures taken by the Bank of Israel to remove some of the restrictions on taking mortgages with prime interest rates are indirectly contributing to the rise in housing prices.
The research entitled, "Changes in Household Tastes Before and after the Coronavirus Outbreak," was conducted by the Alrov Institute for Real Estate Research in Tel Aviv University's School of Management by Prof. Danny Ben-Shahar, head of the institute, research associate Roni Golan and Prof. Tsur Somerville of the University of British Columbia and a research associate in the Alrov Institute. The research examined 350,000 deals conducted between January 2016 and April 2021, with 25% of the deals conducted after April 2020 at the start of the virus.
The researchers concluded that while the Covid pandemic did not result in a revolution in the real estate market, it did cause certain changes in the preferences of homebuyers, which was expressed in geographical preference and a change in the composition of the size of apartments sought and the density of housing in the neighborhoods in which the homes were sought.
In geographical terms, the researchers found that there was a rise in demand for apartments located within a radius of 30-60 kilometers from Tel Aviv. These areas include Hadera, Netanya, Ashkelon and Modi'in. The level of demand for these cities grew 20% after the outbreak of Covid. If before the Covid pandemic, these areas represented 20% of the market, after the outbreak of the virus their market share rose to 24%. Meanwhile in areas closer to Tel Aviv there was a 9% decline in the level of apartments purchased. In Tel Aviv itself and cities bordering it, the level of the deals remained unchanged at about 24% of the entire market.
What also stood out in the research was the fall in demand for smaller apartments. Prior to the coronavirus pandemic, almost 25% of deals were for apartments up to 70 square meters in size, today their market share has fallen to 22%. In contrast, the bigger the apartment, so its market share has grown. The share of deals for apartments between 100-150 square meters in size has risen by 5% and the share of deals for apartments larger than 150 square meters has risen by 6%.
The research also found that buyers prefer apartments in less densely populated locations. The number of deals in places with less than 1,500 homes per square kilometer rose by one fifth to almost 25% and the more densely populated a neighborhood, the more demand fell.
Prof. Ben-Shahar said, "There has been no revolutions here but you can see the changes, perhaps adaptations to the coronavirus period and you also see a slight influence on the prices of properties. The most outstanding finding is that before the pandemic was that the more densely populated a place was the more expensive it was by almost 0.5% for every extra 1,000 apartments, compared with less densely populated areas. But demand for less densely populated areas has reduced this difference by almost 0.1%."
Ben-Shahar added, "Tel Aviv kept its attractiveness in terms of deals and also places 30-60 kilometers from it, while in places further away the numbers fell."
The findings of the research are in line with reports from the real estate industry of increased demand for more spacious apartments with balconies, or gardens and better conditions for working from home. Appraisers and real estate sales people report that these requirements often require moving further from Tel Aviv.
The research also addressed the fact that apartment price rises have recently begun to accelerate. "Two measures have been taken by the regulator recently, which have supported demand. Relaxation by the Bank of Israel on the variable interest rate component of mortgages, which allows households to take higher risk mortgages at lower interest rates. The second was the lowering of purchase tax for investors. Both these actions have encouraged demand and on the supply side exactly the opposite is happening. Instead of increasing supply, urban renewal is sluggish and there is a shortage of land being marketed for building starts."
Ultimately Ben-Shahar said, what is important regarding prices is expectations. "A large part of demand also stems from a lack of belief by the public that the government will deal with housing in a way that will change something. The fact that people are increasing demand shows that they think that prices will continue to rise. Part of the dynamic that there is today is irrational. Such as for example 'that prices cannot fall.' That is not true in any way. The thinking that the real estate market is not risky is also not correct. It's true that this market does not fluctuate like the stock market but government bonds are much safer than real estate."
Published by Globes, Israel business news - en.globes.co.il - on July 1, 2021
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