A steep drop in housing purchases by first-time buyers, a fall in the proportion of housing purchases and an increase in sales of housing units by investors, a rise in secondhand housing deals, and concern about deals aimed at evading taxes on owners of three or more housing units are the principal emphases arising from a review of the residential real estate sector in in July-September 2016 in Israel by the Ministry of Finance chief economist published today.
In its quarterly review, the Ministry of Finance attacks the survey recently published by the Real Estate Appraisers Association in Israel, which also pertains to the third quarter of 2016. This survey was published following the discontinuation of the Chief Government Appraiser's review. The Ministry of Finance explains with a detailed analysis why the indications of price rises appearing in the appraisers' review are inaccurate.
The Ministry of Finance's comment about the difference in prices and a particular index in its chief economist's review is extraordinary. 29,000 housing units were purchased in the third quarter of 2016, a modest 1.5% increase over the preceding quarter. According to the review, the increase in secondhand deals compensated for the decline in purchases of new homes.
"While purchases of new homes were down by a relatively steep 8%, sales of secondhand housing units were up 6%. Note that the deals for both secondhand and new homes were up sharply in comparison with the third quarter of last year as a result of investors bringing forward deals in June, before the taxes on these investors were increased," the review stated.
The Ministry of Finance said that the figures indicate geographic variation in the volume of deals, and attributed it to the effect of the buyer fixed price plan on the one hand and accelerated sales by investors on the other. For example, in the Rehovot area, the volume of deals was down 8%, and the number of deals by those purchasing their first home plummeted 39%. The Ministry of Finance is assuming that this decline is a result of those eligible for the buyer fixed price plan waiting for a project in nearby Rishon LeZion.
At the same time, the Ministry of Finance asserted that areas in which the number of deals rose, such as Haifa and Beersheva, were affected by sales by investors and deals by those seeking better homes.
"More than dubious"
In its review, the Ministry of Finance tries to refute the assertion that the low volume of deals in Rehovot is causing a rise in the price. This unusual comment by the Ministry of Finance about prices concerns figures showing a 3% increase in the price of four-room apartments in Rehovot in the third quarter of the year, compared with the second quarter, recently reported by the Appraisers Association, based on the review by the Chief Government Appraiser.
The Chief Government Appraiser has been forbidden to publish reviews about the difference in prices following the housing cabinet's decision a few months ago. "The analysis below makes the statement by private parties that prices for four-room apartments in this city rose by a steep 3% in the third quarter of this year more than dubious," the Ministry of Finance review states, clearly referring to the Appraisers Association report.
The Ministry of Finance analyzes the figures for deals involving new and secondhand four-room apartments, as the Appraisers Association did. At the outset, the survey states that combining these two markets into one is questionable, because there are large differences between them in prices. "The distinction is important, due to both the changes in the relative proportion of each of these market segments and the substantial difference between them in prices (from 30% to 40% in this city). In the absence of a distinction between new and secondhand apartments, the result obtained is that the average price of a four-room apartment in Rishon LeZion ostensibly rose 1% in the third quarter."
The Ministry of Finance also argues that the volatility of new housing prices is likely the result of changes in the mix of the deals, not to a change in prices. Separate consideration of secondhand housing shows that prices fell: "In the secondhand apartment market segment, price changes were more moderate, indicating a fall in prices in the third quarter, combined with fewer deals."
The Ministry of Finance does not stop at direct criticism of the Appraisers Association's figures for Rehovot. Its survey also states, "In at least one other large city, Haifa, an analysis of the deals casts doubt on the statement by the above-mentioned private index that prices in Haifa rose by a steep 3% in the third quarter."
In response to the Ministry of Finance's comments on the Appraisers Association's index, Appraisers Association chairman Ohad Danos said, "What the Ministry of Finance wrote is hard to swallow, and contradicts a clear government decision on the matter. It is interesting that the Ministry of Finance, which only recently told the entire world that it is best if reporting of figures for the housing market is left to the Central Bureau of Statistics, is suddenly releasing a review by its chief economist on its own behalf.
"As far as the specific comments are concerned, the chief economist should stick to economic analyses, and leave housing prices to the Appraisers Association. A review by an interested party is of interest to no one, and changes nothing for anyone. In a properly run country, a chief economist who made such a biased and inexplicable report would be fired. The Appraisers Association, which privately issued its recent review of housing prices, did a more professional job of it, utilizing the model adopted for years by the Chief Government Appraiser. The public will decide whom to believe."
According to the Ministry of Finance review, young couples are buying fewer new homes. In the third quarter of 2016, 12,000 homes were purchased by those buying their first home, the same number as in each of the two preceding quarters. At the same time, when this segment is separated into new and secondhand homes, the number of new homes purchased by young couples is down by a steep 14%.
"While 1,000 housing units were sold under the buyer fixed price plan in the preceding quarter, thereby preventing a drop in purchases of new homes by young couples, there were fewer such discounted sales in the third quarter. This, combined with the effect of young couples waiting for buyer fixed price homes, particularly in Rishon LeZion, brought about a steep fall in the purchases of new homes by young couples," the Ministry of Finance review stated.
In addition to Rishon LeZion, the central region and Jerusalem stood out with 17% falls in new home purchases by young couples. Since buyer fixed tenders were recently closed in these areas (and more tenders are scheduled), this decline is attributable to people waiting for the tenders. In order to verify this analysis of the effect of buyer fixed price tenders on the volume of deals, the Ministry of Finance uses a different example of an area in which there were almost no buyer fixed price tenders - the Hadera area, which is "one of the few areas in which purchases by young couples rose, including of new homes.
"It is possible that this increase is at least partially attributable to the absence of planned buyer fixed price tenders in the area in the near future. Three quarters of the buyers in the this area were young married couples, a fact that reduces the likelihood of an investor being behind a purchase."
The Ministry of Finance survey also states that the rise in the volume of deals in the secondhand housing market moderated the fall in purchases of new homes. According to the figures, purchases of secondhand homes by non-homeowners rose 10% in the third quarter. At the same time, the Ministry of Finance wonders whether these deals really involve non-homeowners, or whether they involve an effort to evade the expected tax on investors owning three or more housing units.
According to the Ministry of Finance, the reason for this suspicion is that when the sample is divided according to the buyers' family status and income, the survey "indicates a high likelihood that at least some of these purchases were made for tax reasons. In the Tel Aviv area, purchases of secondhand housing units by those buying their first home rose 20%. Half of these buyers were unmarried. These purchases also rose 11% in Beer Sheva, and nearly a third of the buyers were single. The average value of a secondhand home purchased by an unmarried person in the Tel Aviv area was 19% higher than that of secondhand homes purchases by married couples in the area.
On the other hand, the average salary of the unmarried buyers was 55% lower than that of the married couples. The same findings also emerged from a similar comparison of those buying their first home in Beersheva. While the average price of the homes purchased by single people in this area was only 4% lower than the average paid by young couples buying their first home, the average salary per household of the unmarried buyers was 46% less than that of the married couples.
The Ministry of Finance survey therefore concludes, "The fact that the Beersheva and Tel Aviv areas featured a relatively high proportion of investors owning at least two housing units for investment hints that the tax hike for these investors is what caused a rise in purchases by those ostensibly buying their first home." The review finds that investors sold more housing units in the third quarter. Investors sold 6,200 housing units during the quarter being reviewed, 6% more than in the preceding quarter and one of the highest levels of this parameter in recent years, according to the Ministry of Finance. Investors also bought 5,600 housing units during the quarter, 2% less than in the preceding quarter, following a 13% drop in the second quarter. The proportion of purchases by investors therefore fell to only 19.4%.
Published by Globes [online], Israel business news - www.globes-online.com - on December 15, 2016
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