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The Current State of the Israeli Real Estate Market

The current state of the Israeli real estate market is perhaps best described as ‘volatile’, not because of whipsaw activity in supply and demand, but because future demand is expected to severely outpace the government’s ability to remedy the housing situation. According to the president of the IBA (Israel Builders Association), Raul Srugo, Israel needs to be fast tracking its approval of additional housing units by 20,000 per year, every year, or else face a crisis of epic proportions.

According to Srugo, the housing situation in Israel requires urgent attention, owing to the fact that demand continually exceeds the available supply. One of the most ambitious government initiatives ‘Mehir Memishtaken’ a.k.a. subsidized housing with a move in price for first-time homeowners via a lottery system, is insufficient to meet demand.

In mid-July 2016, then Finance Minister Moshe Kahlon indicated that the Israeli real estate market was in a bubble and it was about to burst. Few people argued with this sentiment, but the bubble hasn't burst yet. A sustained period of rising housing prices has characterised the Israeli market for many years now. In the absence of a bubble bursting, the only other viable alternative for normalcy to return to the Israeli real estate market is deflation.

Even the Bank of Israel believes that the Israeli housing market is in a bubble. Deflationary pressures would allow the price of homes to come down gradually, but this is currently happening at a decelerated pace. In 2018, construction of housing units in Israel topped out at 130,000, compared to 30,000 units per year in previous years.

The government has fast-tracked several ambitious initiatives to help expedite home sales to first-time homeowners and to curtail investors from hogging the market and the available supply. For example, title deeds are being transferred quickly from seller to buyer, while government is imposing taxes on investors who own 3 or more properties. This is being done to discourage investors from buying up all the available real estate in Israel.

The Israeli housing market continues to benefit from low interest rates, and this has pushed big investors to snap up as many properties as they can in an era of historically low rates. Consider that in 2010, real estate investors made up approximately 33% of all buyers in the market. Now, the tide has shifted, and first-time homeowners are starting to benefit from programs like the Buyer Fixed Price Plan.

Is There a Housing Crisis in Israel?
Yes. This is the general opinion of buyers, investors, and the president of the IBA. In fact, the state of the housing market in Israel is precisely the opposite of what's going on around the world. Global trends indicate a potential slowdown with population numbers declining, but Israel is seeing an increasing population with exigent demands on the housing market. By 2050, economic models indicate that the Israeli population will reach 16 million people.

It is currently 9 million people, indicating an almost doubling of homes required within 30 years. Various measures have been called for, such as a housing task force, and strategic planning initiatives to combat the housing shortfall. It is estimated that within the next 10 years, Israel's population will grow by 3 million people, and by 2050 it will grow by 7 million people. Such explosive growth will place massive demands on Israel's metropolitan areas, and invariably require new metropolitan areas to be built.

Israel has a major shortage of contractors, home builders, electricians, plumbers and other experienced housing professionals. The government needs to work fast to bring in experienced labor to deal with the housing crisis. No doubt the Israeli economy will benefit from massive infrastructure investment, housing and construction initiatives, and fast-tracking the approval of migrant workers to come and work in Israel. The CEO of the IBA, Amnon Merhav indicated that the data shows that government needs to change the way it is approaching the housing crisis. A shortage of raw materials, labor, and real estate is curtailing Israel's ability to meet the needs of its people.

Real estate investor Ofir Eyal Bar concurs that there is a housing crisis, yet the market presents many lucrative investment opportunities for people. Given that demand outstrips supply, investment in Israeli real estate has tremendous upside potential. Bar has built up an impressive portfolio of assets over the years, by carefully selecting commercial and residential real estate in Israel, the UK, and South Africa. Bar says, ‘The numbers don't lie. Excess demand is helping to drive up the prices of real estate in Israel. As a savvy investor, you can leverage this information by taking out low-interest loans and buying prime real estate in Israel. The BRRRR Strategy is a particularly effective way to generate a healthy ROI through rehabilitation and rentals.’

The Israeli commercial real estate market is buzzing, and insights from the CBSI (Central Bureau of Statistics of Israel) indicate a stable and growing market. Thanks to the explosive growth of biotech and high-tech industries in Israel, demand for property is increasing at a healthy clip. To support this perspective, Israel now boasts the largest number of NASDAQ companies outside of Silicon Valley. Prices are high owing to several factors, notably a growing population, a shortage of land, a shortage of labor, and regulatory constraints making it difficult to process property purchases effectively.

However, the Israel Land Authority (ILA) under the auspices of the Finance Ministry is allowing investors to use 60% of their land for development of projects for young families who don't have homes. The other 40% is for the general public. China will be bringing in construction workers to Israel to help build all of these projects. Experts estimate that a shortfall of 149,000 houses has accumulated over the years. Housing starts are typically lower than the annual creation of households. For example, in 2016, there were 53,300 housing starts, compared to the annual average of 54,000.

In Summation
Israel's economy is slowing somewhat, yet it remains vibrant and strong compared to Europe and the US. From a demand perspective, rising anti-Semitism fuelled by BDS and anti-Israel sentiment is driving large numbers of European, South African, Canadian and American Jews to seek investment properties in Israel. For many reasons, all of the aforementioned factors are adding upward price pressure to these Israeli real estate market.

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Peter Davidson

Peter Davidson

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