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Experts don’t see real estate prices dropping, despite gov’t efforts

CM 29/07/2021

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With the government declaring war on Israel’s sky-high real estate prices, will the market ever go down? Many experts are doubtful, especially for Israel’s largest cities.
Last month, the Central Bureau of Statistics said that average home prices rose by 5.6% over the past year. Housing and Construction Minister Ze’ev Elkin has said publicly that prices are going to continue to rise even more dramatically in the coming year.
Despite the high prices, Israelis are buying homes in record numbers. The volume of mortgages taken in Israel reached an all-time high of NIS 11.6 billion in June, and the market is showing no signs of slowing down.
In light of this, Israel’s government has made lowering housing costs one of its key goals for the coalition.
Everyone agrees that the main reason for the high prices is a lack of supply of apartments available on the market. The government has set a target of adding 300,000 units to the home market, while just over 50,000 are currently being approved each year. Finance Minister Avigdor Liberman has said that Israel needs to build 75,000 new units a year in order to rebalance the real estate market.

That being said, the Finance Ministry has no target price level or forecast for the housing sector. “Our goal is only to restore the balance between supply and demand,” Finance Ministry Director-General Ram Belinkov explained recently. “Any attempt to lower prices artificially would not be a serious response.”
Poor management at the Israel Land Authority (ILA), the government body in charge of managing the use of land in Israel, is widely blamed for the lack of building. Other options to bypass it are being pursued. Liberman is pushing forward on a controversial plan to convert tens of millions of square meters of unused office space into residences to create new housing options. Urban renewal projects are also adding a small number of new units in cities. Will these do anything?
“I don’t think it is the government’s role to try to regulate prices,” said Prof. Danny Ben-Shahar, Director of the Alrov Institute for Real Estate Research at the Coller School of Management at Tel Aviv University. “The laws of supply and demand work. But the government has two responsibilities here: to free up land for building and to ensure that the building process is fair, transparent and democratic. If the government can free up enough land, the market will regulate itself. The question is whether the government can do this.”
Ben-Shahar believes that the scarcity of homes available in Israel’s large cities will help keep general price levels up. “I don’t like to predict, but in Tel Aviv, it doesn’t look like demand will be satiated by supply anytime soon,” he said. “Israel is not one fixed unit. It has many different areas with different needs. People want to move to the center, but there is virtually no new building. In the periphery of the country, there are open spaces to build, but I believe the scarcity in the center region will force prices there to rise as well.”
The opposite scenario, in which periphery housing prices fall, and in turn, this drives down prices in high-demand areas, is far less likely. “It will be difficult to meet that kind of demand for a long time,” Ben-Shahar said.
Ben-Shahar added that recent changes to regulations about mortgages and tax laws have encouraged more buyers to enter the market. Other analysts have noted that, with so much of the economy invested in the real estate market, there are far more people interested in keeping prices high than letting them fall.
Allon Dahan, owner of Society Real Estate in Tel Aviv, is also skeptical that prices in Tel Aviv will ever fall. “There is no room for new apartments here,” Dahan said. “There haven’t been price rises like this in 40 years. Prices won’t fall here in the near future. In the longer term, we can’t know.”
In Jerusalem, Israel’s largest city with nearly a million residents, a similar picture emerges. “In 20 years, there will be 1.4-1.5 million people living here,” said Yoel Even, Jerusalem’s city engineer, in a conversation about the city’s master plans. “I don’t know how the market will respond to all of the urban renewal projects that are underway, but I’m sure that the more we build, the more demand there will be. Jerusalem is the biggest city in Israel, and that isn’t going to change.”
Nachi Paris, senior real estate agent at Jerusalem’s Nachi Realty, agreed. “Demand is way greater than supply. While it looks like there is a lot of construction, building, say, 30 new buildings with 500 new apartments is not going to meet the demand,” he explained. “People my parent’s age want to retire to Jerusalem, and people coming from the United States and Europe want to buy in the city. I’m advising my clients now to buy second-hand apartments, not new projects under construction, because the rise in the cost of building materials means you might pay 10-15% more for a project that will be ready in five years. I don’t know about the rest of the country, but prices in Jerusalem are not going down.”

Source: Jerusalem Post

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