Treasury misses the point on home purchases

Dror Marmor

Fewer transactions and fewer investment properties can only mean higher rents.

"In October the real estate market continued to cool down. There was a fall in the number of transactions to just 4,600 homes, a level slightly higher than the historical low recorded in October 2008, when the global financial crisis broke out. A decline in home purchases for investment was recorded, and prices of new homes fell a further 1.3% in comparison with September" (Ministry of Finance chief economist's survey, January 2012). "Just 4,700 homes were purchased in October, the lowest number since October 2011, when the effect of the social protests of the summer of that year was still being felt… Since 2002, there have been only five months in which there was a lower number of transactions than there were last October" (Ministry of Finance chief economist's survey, January 2017).

The Ministry of Finance loves the Jewish holiday season, which of course depends on the Jewish calendar (last year, for example, the holidays fell in September, and in other years they often straddle September and October) so that comparison with corresponding months in previous years cannot reveal the full picture. Therefore, before we congratulate ourselves on the figures for October 2016 (in which there were ten full working days, fewer even than in October 2015, when there were fifteen), and even on the October-November figures, we would do well to focus on November alone in order to obtain a truer picture of the market.

In November 2016 there were 8,900 transactions, 9% fewer than the monthly average for January-September. That's a decline, but not a drama. Besides which, we should remind ourselves and the Ministry of Finance that a decline in the quantity of transactions and a slowdown in the real estate market are not the goal. When the real estate market halts, Israelis buy less and contractors build less, but the other measures remain as usual. Every month, 4,000-5,000 couples marry, 15,000 babies are born, about 1,000 couples divorce, and about 2,000 immigrants arrive - numbers that of course generate unremitting pressure of demand for homes, whether for sale or for rent. It's true that initially it's a good idea to cool the red hot market and reduce the quantity of transactions. The real goal, however, is that there should be many transactions in the residential market, but at sane prices.

Those with the sharpest understanding at the moment of what is happening in the market appear to be the investors. They are the ones who have borne the brunt in the past two years: abolition of the betterment tax exemption; a hike in purchase tax; and the new tax on owners of three homes or more. According to the Ministry of Finance figures, fewer investors are buying homes (just 1,600 homes in November, compared with 2,000 on average), but there are also fewer investors selling homes (1,800 investment homes sold in November, compared with a monthly average of 2,000 for January-September).

This means that in the stagnation that now characterizes the market, the investors realize that they have the upper hand. Fewer buyers mean, in the end, greater demand for rentals. At the same time, when net home purchases by investors (purchases minus sales) have been negative for six months, a trend that is expected to strengthen because of the multi-home tax and the incentive to sell homes by October this year in order to benefit from a NIS 85,000 grant to set against betterment tax, the outcome will be fewer homes for rent. More demand and less supply now make the battered investors the big winners.

Published by Globes [online], Israel business news - - on January 9, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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