Tel Aviv: Back to normal, or a renter's market?

Gindi Tel Aviv project  / Imagin: Gindi Holdings

Some realtors insist that rents have bounced back, but the underlying trends are complex.

The period of the coronavirus pandemic perhaps made people feel that rents would stop climbing, after many landlords reported that they had made things easier for their tenants and reduced rents. In practice, this applied to a very small proportion of landlords - just 3% according to the Central Bureau of Statistics - and many tenants feel that rents are on the rise.

Where is this market going? Since there are no official figures on rental transactions, the Bank of Israel did something similar to what is done with classified ads and real estate websites, and used Google Trends to examine the degree of interest in renting homes, and real estate websites to examine the supply of homes.

The findings were dramatic: Between mid-March and mid-April, the bank's researchers found that interest in rental homes fell 50% in comparison with the corresponding period of 2019. At the same time, the number of homes for rent advertised by homeowners also fell. In the second half of April, however, the picture changed, with a resurgence of both homes to let and people seeking to rent them, and activity on the market returned to a level similar to where it was before the lockdown was imposed.

The most interesting behavior in the rental market was in Tel Aviv. There, the number of homes offered to let started growing by mid-March, probably as apartments were taken off the short-term tourist rental market, through Airbnb, for example, and were advertised for rent on the local market.

According to short-term rental data website AirDNA, the number of properties for short-term rental in Israel (mainly in Jerusalem and Tel Aviv) fell from 30,000 in January to 28,000 at the end of March, meaning that just 2,000 properties came back on the local market.

According to the Bank of Israel's figures, during the lockdown imposed to combat the coronavirus outbreak, rents asked by property owners in Tel Aviv fell 15%, which led renters to hope that a new age was dawning. Many expressed themselves in this vein, especially on social networks.

The decline in rents did not last long, but it was much discussed. Surveys by the Central Bureau of Statistics hardly made an impression, but their findings were clear: rents continued to rise in March-April.

If during the year from March 2019 to March 2020 rents rose 2.3% on average, almost half of that rise came in March 2020. In April there was a negligible fall, of 0.1%. Is the coronavirus pandemic actually contributing to a rise in rents? There is no definite proof of that.

In the past three years, in cities around Tel Aviv, average rents have risen 8-10%, and nothing seems to have changed drastically in relative prices in the cities of the central conurbation.

"Investors left, so prices are rising"

"I'm not surprised by the rise in rents," says Haim Levy, an expert in investment in residential real estate, and author of a guide to investment "Real Estate in Jeans". "The rental market and the property for sale market are complementary, because people either live in a home they have bought or in a rented home," he says. "In the past five years, since Kahlon started giving investors slaps in the face, by raising taxation and threatening a special tax on people owning three or more apartments, they have abandoned the market. From 25-30% of the buyers, they fell to just 13%, and this when about 27% of Israeli households live in rented homes."

The result is that, on average, nationwide, the rent paid in the first quarter of this year was NIS 344 higher than was paid in the first quarter of 2017.

The difference was highest in Tel Aviv, where tenants paid NIS 542 more on average in the first quarter of this year than they paid three years ago. In Jerusalem they paid NIS 297 more, and in Haifa NIS 227 more. Altogether, tenants are now having to pay thousands of shekels more annually than they did.

"Think of it this way: private investors are the main producers of homes to rent in Israel. Companies that hold homes for rent are of almost no account, as is Apartment for Rent - The Governmental Company for Housing and Rental Ltd. What Kahlon did was to suppress the main producer, so it was only logical that rent rises would come," Levy says.

There is however an opposing view. Dr. Weitzman Nagar of The Jerusalem College of Technology - Lev Academic Center, a former researcher at the Bank of Israel, does not believe that rents will continued to rise, certainly not at the current rate. He does, however, expect a freeze in the homes for sale market, because of fears on the part of potential buyers of entering into economic and financial adventures at this time such as buying homes and taking mortgages, which will drive more people to renting. "This will put pressure on the market, leading to some degree of rising prices, while in the homes for sale market prices can be expected to decline, but I don’t think that this pressure will be very significant," he says.

According to him, rents will fall not just because young people who rented apartments are likely to return to their parents' homes, and Airbnb apartments will continue to spill onto the rental market, but also because of the expected hit to salaries. "It's not possible to lose GDP without salaries falling. This will affect every aspect of life, and rents as well. Therefore, in my view, rents will perhaps stay at their present levels, or will fall to some extent," says Nagar.

"The city has never suffered from lack of demand

"Without a doubt, rents in Tel Aviv have gone back to the level they were at before the coronavirus," says Ziv Shamay, owner of realtor Galeria, which sells apartments in central Tel Aviv and the Old North of the city. "It could be a question of timing: most people move home in the summer, in May-August, and most rental activity is in these months. Demand is very high."

How do you explain it? After all, most students who rented in Tel Aviv have gone back to their parents.

"Perhaps a lot if students once lived in Tel Aviv, but my feeling is that the students who live in the city nowadays are those who have money."

So what trend are you seeing?

"If we take May this year versus May last year, there are more enquiries. As far as closed deals are concerned, it's perhaps at about the same level. There are also those who are cutting back. I had a couple who left an apartment they rented for NIS 10,000 a month in favor of a smaller apartment for NIS 7,000. In the coronavirus period prices did fall, but since people started getting back to work the offers have come closer to the asking price."

Ran Ackerman, who owns Keller Williams Tel Aviv Northeast, which operates in Tel Aviv's northern neighborhoods, also says that prices are the same as they were before the coronavirus struck. "We closed three rental deals in the past few days," he says. "A house in Tel Baruch was rented for NIS 11,000 a month, a 4.5-room apartment in Neve Sharet was rented for NIS 6,500, and an apartment in Hadar Yosef was rented for NIS 7,400."

In an attempt to explain the growing demand, Ronen Even of Even Shoham Properties says that some renters may have lost income, but their expenses have fallen as well: "No restaurants, no fitness club, no shopping." He also mentions an unexpected cause of the demand. "There are many couples for whom the lockdown was a bad experience," he says, "and they parted. We have recently rented fourteen apartments to couples who split up."

"There was a flood of apartments to rent as a result of the shortage of tenants, because some left," says Dadi Orion, branch manager of Anglo-Saxon Tel Aviv. "At the beginning of the coronavirus outbreak there was a dramatic drop in prices, of 20%.The whole market was flooded with apartments, and owners just looked for any tenants who would come in."

And now?

"Now it has started to even out, although it's not what it was, because there's a supply of apartments to rent that there hasn't been in years."

Would you say that renters are in a position of strength?

"These days, renters bargain more with the owners. If at one time apartment owners would set a single day on which potential tenants would come to see the apartment, and then the owner would start to conduct a sort of job interview, now the market is different. Apartment owners with neglected apartments realize that they will have to upgrade them. There are apartments standing empty."

Published by Globes, Israel business news - en.globes.co.il - on June 8, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Gindi Tel Aviv project  / Imagin: Gindi Holdings
Gindi Tel Aviv project / Imagin: Gindi Holdings
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