Anyone who thought that Diaspora Jewry would be packing their bags on the way to Israel and buying new homes the moment they arrived, may have jumped to hasty conclusions. It is true that the wave of terrorism in France, Australia, and elsewhere is arousing substantial interest in homes in Israel, on the part of foreign residents, or so the apartment marketers, real estate agents, and contractors say. A report recently published by the Ministry of Finance, however, indicates a different state of affairs: the number of housing purchases by foreign residents fell in 2014 to its lowest level in recent years. Nor do initial figures for January 2015 show any surge in purchases by foreign residents. Diaspora Jews it seems are more concerned by the security situation in Israel, than in their own countries.
Another interesting figure in the survey conducted by the Ministry of Finance Chief Economist Department shows a further substantial change in this market segment over the past year. While it has always been asserted that foreign residents buy more expensive housing units than Israeli housing buyers, and that the two groups therefore do not compete much with each other for the supply of available housing, 2014 figures indicate a change in this situation, with the prices of housing purchased by foreign residents falling significantly, in certain places to a level quite close to the price of the housing purchased by Israelis.
2,700 housing units sold to foreign residents in 2014
According to the figures, 2,700 housing units were sold to foreign residents in 2014, 15% fewer than in 2013. 820 housing units were purchased in the fourth quarter. The Ministry of Finance notes in its survey that the figures show that the number of housing units purchased in 2014 by foreign residents was the lowest since 2003. There are two possible explanations for the drop in the number of housing units sold to foreign residents in 2014. Starting in 2014, foreign residents have been paying a tax on the housing they buy - even a single unit - a tax they were not previously required to pay. The Ministry of Finance explains that this is one of the reasons for the drop in the number of housing units purchased, and for the change in the prices of the housing purchased by this population.
The other explanation is the effect of the security situation. In July-August 2014, a war took place here in Israel, Operation Protective Edge, which also directly affected foreign residents. Real estate agents doing business with overseas housing buyers explain that an unstable security situation has a marked effect on foreign residents that sometimes extends to extreme proportions. The real estate agents say that at such times, they frequently encounter foreign residents seeking to sell a housing unit that they own, even at a discount. The Ministry of Finance survey also addresses the effect of the security situation on the housing purchasing habits of foreign residents, and the figures show a definite effect, with an emphasis on Tel Aviv, out of several cities covered by the survey. For example, the number of housing units purchased by foreign residents in Tel Aviv fell 32%, during Operation Cast Lead in 2009, 27% during Operation Pillar of Defense in 2012, and 25% during Operation Protective Edge. At the same time, when the fighting subsides, the foreign residents who were strongly affected by the security situation quickly go back to buying housing.
Housing purchases in Tel Aviv leaped 74% in the quarter following Operation Cast Lead, 17% following Operation Pillar of Defense, and a whopping 85% following Operation Protective Edge. In other cities covered by the Ministry of Finance survey, the situation was similar, although less extreme.
Since the survey figures show a recovery in housing purchases following Operation Protective Edge, and assuming that the security situation remains tranquil in the near future, what is still affecting foreign residents is the question of taxation. The Ministry of Finance cited heavier taxes as one of the reasons for the fall in the number of purchases, but also as a reason for the drop in the prices of the housing units purchased. If a wave of purchases by Diaspora Jews or overseas investors is really in store in 2015, it is likely to influence the supply of existing housing units more than it did in past years.
Competition for the same housing units
According to the Ministry of Finance figures, the difference in the prices of new housing purchased by foreign residents, which formerly varied between 48% and 56%, dropped to only 20% in 2011-2013. These figures show that the narrowing of the price gap was most prominent in Tel Aviv and Jerusalem. "Beyond the steep fall in in purchases by foreign residents in 2014, the prices of the new housing units purchased by this population also plummeted," the Ministry of Finance economists wrote, adding that the narrowing of the price gap extended to both the average price and the median price. Another phenomenon was visible in the survey mainly in Jerusalem: the purchasing of a large number of housing units jointly by foreign residents - sometimes as many as 20 housing units per purchaser.
In Jerusalem, for example, housing units were purchased for an average of NIS 1.4 million by these buyers, who bought a large number of housing units, compared with an average price of NIS 2.5 million for housing units purchased by all foreign residents. The narrowing of the price gaps is also attributable to the fact that housing prices are still rising, and Israeli residents are themselves having to pay a higher price. On the other hand, it is possible that on the other end, the foreign residents purchasing housing are settling for more modest units, because of both the price and a possible change in the identity of the buyers and their economic status.
The proportion of housing units in Israel purchased by foreign residents out of all housing buyers is a negligible 3%, but it is still worthwhile for policymakers to continue monitoring this market segment. A situation in which the prices of the housing units bought by Israelis and foreign residents are nearing each other is likely to constitute a problem later, and should be taken into account in efforts to increase the supply of housing.
Published by Globes [online], Israel business news - www.globes-online.com - on March 1, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015