The continued rise is housing prices in Israel is a fait accompli, most of the professionals in the real estate sector believe, the only question is by how much will prices rise.
The most recent housing price indices issued by the Central Bureau of Statistics, Israel Land Authority land marketing tenders, the fall in building starts, and the way buyers have been snapping up homes in recent months all back up the belief that the market will be dominated by price rises in the coming years.
The Ministry of Finance, Ministry of Construction and Housing, and the ILA have each separately recently undertaken research analyses of land marketing tenders and reached almost identical conclusions. Developers are calculating their costs on the assumption that housing prices will rise by 3%-4% annually over the next three years, at least.
This is a conservative estimate, with some expecting prices to climb by even more. So after treading water in 2017 and 2018, prices rose by 4.1% in 2019 and 3.2% in the 12 months ending November 2020, in what senior government figures call, in the spirit of these Covid-19 times, an "outbreak" of price rises.
One of the main reasons for these rises is the absence of any coherent government policy to restrain prices due to the political instability and repeated elections over the past two years. The government Buyers Fixed Price program has come to an end and the proposed and more limited Reduced Priced Housing program has yet to get underway. So many young couples who were previously entitled to discount priced housing have tired of waiting and simply bought on the free market.
The first of many clear signs in the field that market prices are rising are the sums being bid by developers for ILA marketing tenders. For example the developers Guy and Doron Levy recently paid NIS 41.4 million for a lot to build 44 housing units in Em Hamoshavot in Petah Tikva - NIS 960,000 per housing unit, before VAT. Five years ago Rami Shbiro paid NIS 719,000 per housing unit for a nearby lot. In other words land prices rose 33% while housing prices rose 18%.
There have been even more remarkable examples of the rising prices of land in Neve Gan in Ramat Hasharon where appraisers for ILA tenders expected between NIS 1.2 million and NIS 1.3 million per housing unit (including landscaping) but developers bid NIS 2 million per housing unit. Homes in the neighborhood currently cost NIS 33,000-35,000 per square meter but the developers clearly believe they can get NIS 40,000 per square meter.
The Central Bureau of Statistics housing price index rose 1% in October-November and more such high monthly hikes are expected. The index has risen 3.2% over the past 12 months but that is not the full story because of the Covid pandemic. Prices actually fell 0.8% between March and May at the start of the pandemic, when many expected prices to go into a tailspin. But in the six months between May and November, prices rose 2.7%, according to the index.
According to the data about mortgage taking published recently by the Bank of Israel, the market was boiling over in December, even more so than in the previous six months when mortgage taking was at its highest for more than 10 years.
Building contractors report month after month on record sales and if a new home on average took 19 months to sell two years ago, today it takes 15 months.
The buyers who have really stepped up housing purchases are investors, lured back into the market by the cut in purchase tax for buyers of second homes or more. Young homebuyers and those moving up to bigger properties are all in the market and this explains the record mortgage taking - a total of NIS 78 billion in 2020 with the average mortgage rising to Nis 816,000.
If all this were not enough to push up prices, the Covid crisis has also seen a fall in the number of building starts, which the Bank of Israel warns will impact supply and thus prices in the medium term. The shortfall of building starts has been further exacerbated by the inability of the government's Reduce Price Housing program to get off the drawing board.
Published by Globes, Israel business news - en.globes.co.il - on February 8, 2021
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