Housing price rises in Israel set to continue

Tel Aviv Photo: Shutterstock
Tel Aviv Photo: Shutterstock

Between May and December 2020, housing prices rose 4.5%. All indications point towards these rises continuing in 2021.

For the third consecutive month housing prices in Israel have risen by 0.9%, according to the Central Bureau of Statistics. Over the past 12 months, housing prices have risen by 4.3% but this is a misleading figure, as prices fell during the early months of the Covid-19 pandemic. But between May and December 2020, housing prices rose by 4.5%, reflecting an annual rise of 7%, a rate we have not seen in Israel for six years.

This is no major surprise to anybody. In March and April 2020, everybody had been expecting the housing market to collapse with major layoffs, hundreds of thousands put on unpaid leave and so much economic and job uncertainty. But during the second half of the year, the real estate market not only recovered but it positively boomed with 62,000 housing deals, the highest average monthly number in nearly 20 years. Record mortgages of NIS 78 billion were taken in 2020.

It should be noted, however, that the rise in housing prices is regionally uneven around Israel. Prices have risen fastest in northern Israel, by more than 5.3% since the end of the first lockdown at the end of last April. Prices have risen by 4.7% in Tel Aviv and Jerusalem and going below the national average of 4.5% by 4.3% in central Israel, by 3.3% in the south and by just 3% in Haifa.

For many reasons housing prices should continue to rise in 2021. The first is Israel's political instability and the absence of a government implementing policies to moderate price rises and affordable housing is not even an issue for any of the major parties in the current election campaign.

The second reason is that homeowners looking to buy a bigger apartment are back on the market. Former Finance Minister Moshe Kahlon's buyers fixed target program, which built tens of thousands of new homes for young couples at reduced prices, meant that they were not buying smaller second hand apartments, thus blocking people wanting to sell and move up the ladder. The buyers fixed target program has now been phased out.

The third reason is that building starts were down over the past year because of Covid. Efforts are now being made by the Israel Land Authority (ILA) to market more land. The ILA has promised tenders for 2,000 homes in high demand areas but no government budget has yet been allocated for infrastructures and it will take time until supply catches up with demand.

Added to all this is the fact that following the cancellation of higher purchase tax for buying more than one home, investors return to the market big time in the second half of 2020. With interest rates negligible and the stock market an uncertain bet, investor will continue to flock to the real estate market over the next year.

Last but by no means least mortgage rates have been falling, encouraged by the Bank of Israel ending restrictions on flexible interest rates, and it is possible that rates will fall even further.

Published by Globes, Israel business news - en.globes.co.il - on March 17, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Tel Aviv Photo: Shutterstock
Tel Aviv Photo: Shutterstock
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