The second quarter of 2020 saw a steep decline in the number of residential real estate transactions in Israel. The quarterly review by Ministry of Finance Chief Economist Shira Greenberg, which has not yet been officially published but has been distributed to government ministries, shows that April-June this year was one of the weakest quarters in the past fifteen years. The steepest decline was in the Tel Aviv area, where the number of deals was down 41% in comparison with the first quarter of this year and down 34% in comparison with the second quarter of 2019. Among other things, the survey dispels the claim that, following Israel's early success in coping with the coronavirus pandemic, there was a wave of home purchases in Israel by foreign residents.
The state of the Israeli residential real estate market is generally examined in terms of transaction numbers. 25,000-27,000 transactions in a quarter is considered average; more is strong, fewer is weak. In the second quarter of this year, there were 19,500 transactions, 26% fewer than in the second quarter of 2019 and 24% fewer than in the first quarter this year. Excluding transactions in the framework of the subsidized Buyer Fixed Price program, there were just 16,800 transactions in the second quarter, the lowest figure since the second intifada at the beginning of the 2000s.
The sharp decline in activity on the open market encompassed all districts, but it was especially prominent in the normally high-demand areas in the center of Israel, and was less pronounced in the periphery. In Tel Aviv, 1,317 transactions took place in the second quarter, 41% fewer than in the first quarter and 34% fewer than in the second quarter of 2019. In the Netanya-Herzliya-Ra'anana-Ramat Hasharon area, which is also a prestigious and high-demand area, there were 1,602 transactions, down 34% in comparison with both the previous quarter and the second quarter of 2019.
"The findings perhaps indicate that the initial impact of the crisis was higher in the prestige market," the survey report states. "In general, in ranking the second quarter of this year on a historical comparison, the more prestigious areas are found to be nearer to their historical lows, while the less prestigious an area is, the further it is from such lows."
No longer an investor's paradise
Another market segment examined by the survey is the investment market. In examining capital gains by investors in residential properties, the chief economist found that the average gain was NIS 344,000. This is 28% down in comparison with the second quarter of 2019. This figure does not necessarily indicate a fall in prices, although it could be that desperate investors did sell at low prices. The figure can mainly be explained by the fact that many investors chose to sell after holding properties for a fairly short time, along with the fact that price rises have very much moderated in recent years. This gave rise to a situation in which 14% of the homes sold by investors in the second quarter were sold at a loss in real terms. This applies mainly to properties bought within the last three years. Almost no investors who held on to properties for at least nine years made a real loss on sale.
The foreigners never really came
The survey puts an end to the stories put about in the first months of the coronavirus pandemic that foreign residents, particularly Americans, in despair at the failures in dealing with the coronavirus in their own countries, were impressed by Israel's success in what looked like elimination of the disease, and in the second quarter bought many homes in Israel. The opposite is the truth. "Purchases by foreign residents in Israel in the second quarter totaled just 122 this year, a historical low for such purchases. Both in comparison with corresponding quarter last year and in comparison with the previous quarter there was a decline of 60%," the survey report states. "This low in purchases by foreign residents may well have come about because of technical problems affecting foreigners wishing to enter Israel, but in view of the fact that in transactions of this kind the foreign resident is in many cases assisted by a local representative, both in finding a property and in carrying out the deal, this is not the sole explanation," the report states.
Published by Globes, Israel business news - en.globes.co.il - on October 1, 2020
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