So far in 2022, there have been 224 homes bought for more than NIS 10 million, according to the Israel Tax Authority including eight deals worth more than NIS 30 million. But this is less than half the number of homes bought for more than NIS 10 million in 2021 and 2023 is likely to see even less deals.
These huge deals include the last penthouse on the 29th floor of Arlozorov 17 in Tel Aviv sold for NIS 58 million, while Shari Arison sold her triplex in the Hashoftim Tower for NIS 90 million. Two months ago Roni and Ifat Irani bought a penthouse in the Shalom Tower for NIS 145 million and a 438 square meter apartment on the 24th floor of the David promenade Tower at 55 Hayarkon Street was sold for NIS 88 million. A 336 square meter, 14th floor apartment in the 1 Rothschild Tower was sold for NIS 45 million.
While Israel's high-end apartments market has been flourishing in 2021 and 2022, the market is expected to fall in 2023. Indeed 2022 is the first time in five years that the number of high-end deals has fallen. One of the reasons for the dampening of the high-end market is the overall state of the market. Many of the NIS 10 million plus deals were pushed over the line by the sharp rises in housing prices in recent years but now with mortgage rates on the rise, the pace of prices rises is expected to slow and perhaps even fall.
Another reason that the high-end market has been booming over the past five years has been Israel's impressive economic growth, which has allowed more people to complete such deals. This can be seen in the mortgage data published by the Bank of Israel. Although they do not isolate the transactions of mega-luxury apartments, which are included in the framework of mortgages taken out on apartments at prices of more than NIS 5 million, they reflect the general trend: if by 2016 the rate of mortgages taken out by the buyers of apartments of NIS 5 million or more reached to 4% of all mortgages taken out, in 2020 it reached about 5%, and at the end of 2021 it crossed the 6% mark, and from July 2022 it already constituted about 10% of all mortgages taken. Part of this reflects the amount of large mortgages taken out by these apartment buyers, and another part reflects the decrease in the volume of mortgages among apartment buyers at lower prices.
The high-end market began falling even before interest rates rose
It is no surprise that buyers of luxury apartments think twice these days, whether to take out mortgages in a time of rising interest rates. Some of them, especially in the tech sector, are seeing tougher times, and the motivation as well as the ability to purchase apartments for tens of millions of shekels has been seriously damaged. The result - if the number of apartments being sold in the entire apartment market decreases by an estimated rate of about 30%, the number of apartments the luxury market will fall by 50%, perhaps even more. The data showed that the number of deals in the high-end market was small even before the interest rate increases. The watershed in this market was the increase in the purchase tax on investors that was carried out at the end of November 2021. Until then, an average of 48 deals per month of more than NIS 10 million were completed. After that the number of deals fell by about 10%, then the interest rates started to rise in April 2022 and in recent months the number of high-end housing deals has fallen to an average of about 10 per month, although it should be stressed that it takes time for the Israel Tax Authority to updates data. Even so, it seems unlikely the number of deals will return to what it was last year.
In this shrinking market, there is a change in the geographical distribution of high-end deals: if in the first half of the year 40% of the most expensive deals were in Tel Aviv, 22% in Herzliya, 20% in Jerusalem and 11% in Ramat Hasharon, in recent months Tel Aviv's share has risen to 47% while Herzliya has fallen to 18%, Ramat Hasharon has fallen to 5% and Jerusalem has risen to 15%. It seems that the Tel Aviv market for apartments worth over NIS 10 million is easily the strongest in the country - the average housing deal price in the city is NIS 4.1 million, according to the Central Bureau of Statistics.
Past experience has shown that the high-end market jumps quickly, as we saw in 2020-2021, but also that fades quickly. The rapid contraction of 2022 is reminiscent of the real estate crisis that hit the country in the first decade of the 2000s. At that time, there was talk of a very large decrease in the number of deals, sometimes even accompanied by sharp price drops.
2023 is expected to mainly reflect the decrease in the number of deals. The price falls may come later - depending on the duration and intensity of the crisis that is expected to hit real estate.
Published by Globes, Israel business news - en.globes.co.il - on December 25, 2022.
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