Rentals scarcer as investors exit real estate market

Israeli apartments Photo: Shutterstock
Israeli apartments Photo: Shutterstock

A decline in the stock of investment properties together with falling home purchases is putting upward pressure on rents.

The real estate market is rapidly sinking into a deep recession, and analysis of the transactions data for the first few months of the year published by the chief economist at the Ministry of Finance recalls the low that this market reached twenty years ago. The stock of homes held by investors continues to decline, creating upward pressure on rents, while developers are making special offers to reduce the damage.

Are the interest rate rises really sending the market back twenty years? It’s still too early to tell, but figures from the last few months indicate a rapid decline in home purchases, which tends to support the assessment that this is indeed the case.

In February this year, 6,311 homes were purchased, and the chief economist states that this is one of the lowest February figures in the past twenty years. Even taking into account months in which Jewish holidays fell, February 2023 was one of the weakest months in the past decade and a half. The number of transactions was 41% lower than in February 2022, and the reason that the Ministry of Finance points to is the sharp rise in interest rates.

The decline in transaction numbers is mainly in secondhand homes, sales of which fell by 48%. Just 3,775 transactions took place in such homes in February. Developers sold 2,536 homes, 500 of them in the government subsidized Buyer Price program. This represents a 27% decline in comparison with February 2022.

How did the developers manage to cushion the drop in sales? Through special offers. Not all of these can be directly translated into price terms, as some consist of higher specifications or extra accessories, but Central Bureau of Statistics figures indicate a 6% drop in prices of new homes in four months, which is a lot. Nevertheless, the situation on the market suggests that the price cuts and special offers are not over but that, on the contrary, the phenomenon will grow.

Investors continue to reduce their presence in the market, which is cause for concern. In February, they bought 1,029 homes, 34% fewer than in February 2022, and sold 1,331 homes, which means that the stock of homes held by investors fell by 300 in one month.

Since 2016, some 29,000 homes have been subtracted from this stock. Until recently, this did not noticeably affect rents, but now, with demand for purchasing homes falling steeply, demand for rentals has risen, and rents have risen accordingly - by 6.7% in the past year.

Published by Globes, Israel business news - en.globes.co.il - on April 19, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

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