Rents in Israel rise but still lag home prices

Rental homes in Jerusalem photo: 3division

The average monthly rent in Israel rose 1.6% in the past year to a record NIS 4,000.

The average monthly rent in Israel continues to rise, and reached a record NIS 4,000 in the third quarter of 2019, the Central Bureau of Statistics reported. The rent index rose 1.6% in the past year and 10% over the past five years.

The increase in rents is smaller than the increase in housing prices, but annual rents have nevertheless increased by an average of NIS 4,500.

According to the Central Bureau of Statistics, the district with the highest rents in Israel was Tel Aviv with an average monthly rent of NIS 5,865, while the lowest rents were in the Krayot region north of Haifa, where rents averaged NIS 2,538.

National average of rent deals

The market believes that the increase in rents should have been greater, mainly because the supply of rental housing has dwindled, owning to a large volume of housing sales by investors. According to the Ministry of Finance chief economist, since the second half of 2016, the number of housing units held by investors has declined by 20,000. The main reasons for selling the homes is the increased tax burden on investors and assessments that housing prices would not continue to rise at the same rates as earlier in the decade.

The Central Bureau of Statistics' figures, however, show that these assessments were wrong, and that housing sales are happening in places where investors concluded that demand for housing would not be high.

The most common error of investors in recent years was to buy apartments in discount projects in outlying areas because of the cheap prices, without taking into account the state of the local rental market. The result was that investors flocked to places where the rental market was small, thus generating excess supply.

Analysis by the Central Bureau of Statistics of rental deals that distinguishes between the different regions shows that price changes are not uniform. In the year between the third quarter of 2018 and the third quarter of 2019, rents for 3.5-4-room apartments in the northern and Haifa districts rose by only 1.4%, and in the Krayot district by only 0.1%. These three districts, especially the Krayot district, are being swamped with apartments for rent, mainly from the Buyer Fixed Price Plan, and many of them have not been occupied. When they become occupied, the picture will become clearer, and it will become possible to distinguish how many of the buyers are investors.

In high-demand districts, on the other hand, rent increases are steeper. Rents rose 4.2% in the cities surrounding Tel Aviv, 3.4% in the Tel Aviv district, and 3% in Jerusalem.

The average rise in rent in the southern district was 3.5%. One possible explanation for this exceptional increase is that this district is defined as the entire area south of Ashdod. In recent years, the cities of Ashdod and Ashkelon have become remote suburbs of Tel Aviv, and as such a target for investors and renters. It is possible that a large proportion of the leases signed in the year between the third quarter of 2018 and the third quarter of 2019 were for new homes in these locations.

Published by Globes, Israel business news - en.globes.co.il - on November 19, 2019

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

Rental homes in Jerusalem photo: 3division
Rental homes in Jerusalem photo: 3division
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