Israel has seen a decline in the number of real estate deals conducted – there were 24% fewer homes purchased in June compared to the same month last year, according to a report released by the Finance Ministry. Housing prices, however, not only remain high, they keep climbing – in the last year alone, housing prices went up by 17.8%, according to Israel’s Central Bureau of Statistics.
“It’s a combination of different circumstances which lead to a very counterintuitive result,” Ohad Dannus, former chairman of the Real Estate Appraisers Association in Israel, told The Media Line. “First of all, many of the deals taking place are only on paper, so the numbers don’t show the real number of houses bought and sold. And, second, there’s a dispute on why we see fewer deals. Part of it is that a lot of buyers are now waiting to see if there will be a change in policy in mortgages, so they are on the fence. Another important factor is that the deals that were made were more expensive. So, when these things happen together, we can see a decrease in the number of deals, but it doesn’t mean there is less demand,” he explained.
I have customers waiting for me to find them apartments for sale. The last apartment I went to had 15 real estate brokers in it at the same time. So, there are fewer options for deals, but the demand is still rising all the time.
Private investors, however, offer a simpler explanation.
“There are just not enough apartments. Prices are high but even that doesn’t help convince people to sell,” according to Tzachi Quatinsky, a real estate consultant. “I have customers waiting for me to find them apartments for sale. The last apartment I went to had 15 real estate brokers in it at the same time. So, there are fewer options for deals, but the demand is still rising all the time,” he told The Media Line.
Quatinsky says he doesn’t take seriously the report issued on Monday by the Finance Ministry.
“These reports are biased. It’s easy to show things from a certain perspective, to present the truth as you want it to be,” he said. “It’s not new. (Former Finance Minister Moshe) Kahlon used to do this all the time. He never let real estate appraisers add their data to the ministry’s reports, and insisted on showing things the way he wanted them. That’s what you get when elections are on the way,” he added. National elections are scheduled to be held in Israel on November 1.
Housing prices in Israel have been on a steep rise for the last two decades, and are considered by many to be the most urgent economic challenge Israel faces.
In 2011, a mass protest broke out, demanding reforms that would help bring down prices, but they only went up – by nearly 100% – since then.
“There are things you can do to help lower housing prices,” asserted Quatinsky. “Mass building projects in central areas, the industrial zone in Tel Aviv. Flood the market with new apartments for rent. This would take rent prices down, and fewer investors will buy apartments.”
He added that lowering taxes on houses would also lower prices on their sale.
“Nowadays the taxes for purchasing and selling a house are so high that it paralyzes the market. People are afraid to sell because they might lose large amounts of money. The less people sell, the fewer number of houses are on the market, and the higher prices are,” he said.
But Quatinsky also is skeptical that the Finance Ministry will change its policy. Finance Minister Avigdor Liberman “is proud about how he has covered Israel’s debt in his time as a minister. But he covered it with taxes on housing. And these taxes make housing more expensive, thus the money is coming right out of people’s pockets,” he explained.
Dannus is also critical of Finance Ministry of policies. “They did too little in some areas, and made grave mistakes in others. They avoided large reforms that would have increased the supply, but they also left high taxes on housing, so people don’t sell anymore,” he said. “To solve this, they should allow people, at least for a specific limited period, sell their assets with lower taxes. It’ll help the market.”
But the most important action to take, according to Dannus, is to build more apartments.
“It’s important to note, Israel’s housing crisis is nothing like the subprime crisis. It’s not a bubble about to explode. It’s a simple conflict between very high demand – of people looking to live somewhere, and a supply that just doesn’t match it,” he said, adding: “If we look at the population growth rate in Israel, we’ll see we need to build the parallel of another state in the next 25 years, to match demand. I’m highly doubtful there’s any chance of that happening.”
Both men say that foreign investors do not play a role in the high demand for houses in Israel.
“Despite the common misconception, it is a very narrow piece of the real estate market in Israel, and it’s mainly luxury housing. We do see some slowing down in that specific market, but it doesn’t influence the bigger picture,” Dannus said.
Quatinsky adds that foreign buyers don’t look to make money from their houses in Israel, most of the time.
“American and French buyers purchasing houses here are mostly making an emotional purchase. They don’t care about renting it out, they want to have a place to come to in Israel. So, they’re really not becoming a part of the market,” he explained.
The Finance Ministry refused a request from The Media Line for an interview, saying: “All the information is available on the website of the ministry.”