Tel Aviv home price gap keeps widening

Sarona Towers, Tel Aviv  credit: Shutterstock
Sarona Towers, Tel Aviv credit: Shutterstock

Prices in the city have risen 40% in two years, and the differential with neighboring Ramat Gan has crossed the 50% line.

The fourth quarter of 2021 was the craziest quarter in Israel's history for home purchases, and the rise in prices was greater than the average in the past decade, according to the figure released by the Central Bureau of Statistics on Tuesday. If the assumption guiding the Ministry of Finance was that the rise in purchase tax for investment buyers would make them rush to buy before the tax hike came into force, it turned out that first-time buyers and move-up buyers also stormed the market.

Within this general picture, Tel Aviv again stood out as disconnected from the rest of the country. Even if, in the Tel Aviv District, the price rises are not exceptional in relation to other areas, within the city itself they are substantial, and price levels are considerably higher than in other cities.

The figures are not yet final - the Ministry of Finance chief economist has yet to release her data and the Central Bureau of Statistics figures are subject to revision - but it can be estimated that 42,000 transactions took place in the fourth quarter last year, and that prices rose by nearly 4%. In the general buying frenzy, certain places stood out with exceptional transaction numbers and price rises.

Rishon LeZion leads

According to the Central Bureau of Statistics deals sample, in Haifa, Jerusalem, Netanya, and Rehovot, more homes were sold in the fourth quarter of 2021 than in any other quarter in the past five years. There is no point at the moment in going into detail, as the sample figures are due to be revised, but the numbers will only rise further.

Rishon Lezion saw the steepest rise in the number of transactions in comparison with the previous quarter - 56%. Buyers also flocked to Ashdod, raising the number of transactions there by 43%. In Kfar Sava, the number was up by 39%, in Haifa by 32%, and in Ramat Gan and Rehovot by 30%. As mentioned, these are provisional figures, but the picture is clear. In Ashkelon, which in the past few years has become the capital of the low-end real estate market, the number of transactions in the last quarter was actually lower than in previous quarters. In Tel Aviv, transaction numbers were not exceptional.

Buyers in Tel Aviv willing to pay more and more

Contrary to what is popularly thought, home prices in Tel Aviv don't just go up. For example, between the first and last quarters of 2018, selling prices fell by nearly 12%. During 2019, however, prices in the city rose by 6%, and what has happened since 2020 is just something else entirely. The home price index for the district rose by 15%, and the average price of homes in the city jumped 30%. In the last quarter of 2021, a four-room apartment in Tel Aviv cost NIS 4.38 million, which compares with NIS 3.14 million in the last quarter of 2019, representing a jump of almost 40% within just two years.

The rise in prices of apartments sold does not represent a home price index, but it does faithfully reflect the growing readiness of potential buyers to pay more and more to buy a property in Tel Aviv. This is very much in line with what we have published in the past about the takeover of the city by technology workers, who are buying prestige apartments, new or in Tama 38 renewal projects, particularly in the old inner northern neighborhoods, quarters 3 and 4, stretching from Shaul Hamelech Street and Bograshov Street to the Yarkon River. Supply there is very small, and it only takes a few dozen potential buyers to send prices upwards.

It appears that in the rest of the city too, a large proportion of purchases is of new homes. This assessment is on the basis of another survey by the Central Bureau of Statistics, which placed Tel Aviv as the city in which the most new homes were bought in 2021 - some 4,100,

Low returns

All this did not manifest itself in an exceptionally high number of transactions in the fourth quarter, as mentioned, but the fact that the home price index for the Tel Aviv District rose 5% says a great deal. There may be extensive construction in the city, but the supply of new apartments almost never meets the demand. Against the complaints that prices in the city put homes there beyond the reach of the average Israeli household, there are the facts indicating that there are enough non-average households that can afford the prices, and can even push them higher.

Tel Aviv's glorious isolation even from the rest of its own district can be seen in the price differential between it and neighboring Ramat Gan, which in the fourth quarter of 2021 crossed the 50% line (an average of NIS 3.75 million versus NIS 2.48 million).

The dramatic rises in home prices in Tel Aviv have not, however, found expression in rents. Rent levels did not react when home prices in the city fell three years ago, and they have not reacted to the current upturn. On the contrary, in the past year the rise in rents has slowed. The average monthly rent for a four-room apartment in Tel Aviv in the last quarter of 2021 was NIS 7,240, up 0.7% in comparison with the fourth quarter of 2020, and up 3.5% in comparison with the fourth quarter of 2019. Since this gives an annual return of 2%, it can be concluded that most home buyers in Tel Aviv in the last year were buying to live in the properties and not to rent them out.

It's hard to think that prices in general, and in Tel Aviv in particular, will continue to rise the way they did in 2021, although there is no lack of instances in which real estate prices confounded all the forecasts. The ousting of investment buyers through the rise in purchase tax will restrain the market a little, and it could very well be that the interest rate hike that will hit us sooner or later will have its effect, but given all the money from technology company exits, the exercise of options, IPOs, and high salaries in the technology sector, it's still possible that Tel Aviv will continue onwards and upwards.

Published by Globes, Israel business news - - on February 17, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Sarona Towers, Tel Aviv  credit: Shutterstock
Sarona Towers, Tel Aviv credit: Shutterstock
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