Home buyers are not sitting on the fence. How do we know this? Because the mantras in the monthly reviews by the Ministry of Finance over the past two years, which mentioned a "standstill in the real estate market" and "continued cooling off in the real estate market" have given way to "a steep increase in the number of deals." The number of deals in the fourth quarter of 2018 was higher than in any of the other quarters in the past two years: 28,800 housing units, 8,900 of them new homes. 2018, which began as a recessionary year, ended with the same number of deals as in 2017.
The review published yesterday by the Ministry of Finance chief economist is the first one summarizing the past year (a more up-to-date review will be published a month from now) and highlights several patterns. It verified the fact that young people have returned to the market in a big way. Over 50% of the deals in December were by young couples, which leads directly to Minister of Finance Moshe Kahlon's pet project - the Buyer Fixed Price Plan. The plan's effect apparently reached a peak in the last quarter; the plan accounted for over a third of the housing units purchased under the plan during the entire year.
Note the following figure, which sheds light on the all the hype given out by the Ministry of Finance concerning the plan. Only 9,400 apartments were purchased under the Buyer Fixed Price Plan in all of 2018. At a time when the number of winners in the lotteries is much higher, it is obvious that the rate at which wins in the lotteries turn into signed deals is slower than expected. It is a fact that a large proportion of the winners of the lotteries, which began in June 2017, have still not taken advantage of having won by signing sale agreements. This is already contributing to stagnation in the market.
Did the number of apartments sold under the Buyer Fixed Price Plan inflate the number of deals in the fourth quarter of 2018? Even if these deals are subtracted, the number deals in the quarter was still one of the largest in the past two years. Furthermore, move-up buyers also made one of their highest numbers of deals during the past two years, which hints that young people increased not only the number of new apartments that they bought, but also the number of secondhand apartments.
There is also some of the best news in years for contractors. They sold 1,500 housing units in December under the Buyer Fixed Price plan, but also 2,300 housing units on the free market - the largest number of sales since September 2016. Most of the increase in sales was in the central region (500 sold, 45% more than in December 2017), the inland plain (350 sold, a 51% increase), and the Hadera region (280 sold, a 48% increase). In the latter region, it is likely that most of the increase resulted from bargains offered by developers in Or Akiva.
In any case, a purely quantitative comparison does not tell the full story of the current real estate market, which is undergoing substantial changes under the constraints of the Buyer Fixed Price Plan. One arresting figure in the chief economist's review is the difference in time between the signing of purchase contracts and delivery of housing units. One of the complaints about Buyer Fixed Price Plan projects is that the time elapsing between winning a lottery and moving into the apartments can be measured in years. In the free market, the time between signing contracts and moving into the apartments is much shorter, but it seems that the situation has changed, and 85% of the apartments sold in December on the free market in the central region are scheduled for occupancy in over two years. Stories from the field show that contractors are having difficulty selling expensive housing units on the free market, which is causing delays in construction. They therefore prefer to continue presale bargains.
The average price of an apartment on the free market sold by contractors to young people last year was NIS 1.95 million, while the average price of an apartment purchased under the Buyer Fixed Price Plan was NIS 1.28 million.
A regional comparison further demonstrates the differences between young couples buying apartments on the free market and those under the Buyer Fixed Price Plan. Young people who bought new apartments in the Sharon area - Herzliya, Netanya, Ra'anana, and Ramat Hasharon - paid NIS 2.2 million on the average for them, while apartment buyers under the Buyer Fixed Price plan paid an average of NIS 1.7 million. In the central region, young people buying apartments paid an average of NIS 2 million, while those buying under the Buyer Fixed Price plan paid an average of NIS 1.4 million, 30% less. The same pattern prevailed in Jerusalem, where young free market buyers paid NIS 1.8 million, while Buyer Fixed Price plan buyers paid NIS 1.25 million. The difference in prices was lower in the outlying areas, reaching only 7% in the Galilee.
This difference is equivalent to two years' rent, meaning that if the planning and building processes of the projects take longer (which is what usually happens), the discount is offset, and the cost of the "discounted" apartment become greater than the costs of buying an apartment on the free market and occupying it quickly. The NIS 40,000 or NIS 60,000 grant for apartment buyers in these locations can help increase the difference, but the problem of the lower gap between free market prices and bargain prices remains.
Published by Globes, Israel business news - en.globes.co.il - on February 12, 2019
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