Israeli construction cos report booming home sales

Buyer Price project in Yavne  photo: Eyal Fisher

As construction company shares peak, current trends indicate steep price rises in 2020.

The residential real estate sector in Israel is again prospering. After a period during which it appeared that home buyers were sitting on the fence, the financial reports of construction companies for the third quarter of 2019 indicate a steep rise in the number of homes sold, together with a strong increase in revenue and profits.

Supported by increases of over 10% in the number of homes sold by the companies in the sector, their shares have staged a recovery. Shortly before the end of 2019, it appears that the construction companies listed on the Tel Aviv Stock Exchange (TASE) are going to have one of their good years, with rises of over 10%, sometime well over 10%, in their share prices. The share prices of many of these companies have reached record levels.

Figures for the 12 TASE-listed construction companies for the first nine months of 2019 show that the number of homes sold during this period shot up by over 40% to 4,850, compared with 3,400 homes by the same companies in January-September 2018. The local mortgage market is peaking, helped by low interest rates that also help explain the jump in activity. Mortgages taken by the public totaled NIS 50.5 billion in January-September, which will probably make 2019 a record year for mortgages.

Uncertainty supports demand for housing

Together with the low interest rates fueling the market, the intensity with which the Buyer Fixed Price Plan was pursued earlier this year is also a major factor in the high sales reported by construction companies. The companies that were involved in Buyer Fixed Price Plan projects stood out in comparison with their competitors. The original purpose of the plan was to lower housing prices, and the goal later was "to make it easier for young families to buy a first home on more advantageous terms." Since the Buyer Fixed Price Plan was launched four years ago, it has been heavily criticized, including by contractors, but the increase in activity shows that the construction companies involved in the plan have no cause for complaint.

After benefiting from their involvement in Buyer Fixed Price Plan projects, the construction companies believe that the current uncertainty about the plan's future resulting from the political uncertainty also supports continued demand for new housing in Israel. Some buyers delayed their home purchases until now in the hope that the Buyer Fixed Price Plan would cause prices to fall. At the same time, some of the financial reports show that under the influence of sales of housing in the plan's projects, the average price of the homes sold fell.

Some of the companies enjoyed growth in sales even without being involved in Buyer Fixed Price Plan projects. Companies whose involvement in the plan supported larger sales also benefited from higher sales in other projects. Under the relevant accounting standards, the construction companies are reporting their revenue according to the pace of construction, and are affected by sales of housing in construction projects and the speed at which they are carried out. It therefore appears that the direction presented by the companies in their reports is likely to persist into next year.

Shay Lipman, real estate analyst at the Value Base investment house, says, "A decrease in supply and growth in demand, caused by the market's realization that the Buyer Fixed Price Plan will not be continued, combined with a low interest rate, will make prices rise steeply in 2020."

Published by Globes, Israel business news - en.globes.co.il - on December 2, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Buyer Price project in Yavne  photo: Eyal Fisher
Buyer Price project in Yavne photo: Eyal Fisher
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