The new national program for the real estate sector has finally been launched. No less than 142 days were needed to draw it up, and it addresses an array of problems that make it difficult to increase the apartment supply in Israel and, consequently, stabilize, or even lower housing prices.
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One of the most pragmatic tools included in the new plan is the renewal of the Israeli government's war on real estate investors. When the former Finance Minister, Israel Katz, lowered the second-apartment purchase tax from 8% to 5%, investors returned to the market in large numbers. The argument is that their return is a major catalyst causing the rise in housing prices over the last year (a rise of almost 10% on average).
We sought to examine this hypothesis with Ohad Danos, former Chairman of the Real Estate Appraisers Association and a leading expert on the conduct of the housing market in Israel. The findings are, shall we say, illuminating.
Danos checked housing prices in 10 leading cities in Israel – cities that are perpetually in the real estate headlines regarding rising housing prices over the past two years. Four types of apartments were examined – 2-, 3-, 4-, and 5-room apartments, both new and second-hand. To validate his findings, Danos also performed an examination by district.
It should be mentioned that the survey concerned housing prices in the pre-pandemic period, when the investors' purchase tax was 8% (as in the new program), compared to prices when the tax was 5%, after Israel was able to overcome the health crisis with vaccinations and social distancing. The findings are based on publications of the Central Bureau of Statistics, the survey Danos performs every quarter, and betterment tax data (in the cities he does not survey regularly).
The general view is that investors buy small, cheap apartments, and therefore, their return to the market mostly heralds a rise in the prices of these apartments (2- and 3-room). Accordingly, it is not the investors that caused prices to soar, but rather first-time buyers and apartment upgraders.
Ashdod
The reason for this unequivocal conclusion can be found in data from Ashdod. The city is known for the extraordinary number of real estate deals made in it every month. A great many apartments pass hands in the beachfront city. For many, the combination of a relatively central location and low housing prices make Ashdod a good, upgraded residential alternative to nearby towns and the center in general.
Most of the rise in prices between 2019 and today is, in fact, in large, 4- and 5-room apartments, which rose by 12% and 18%, respectively, while in small, 2- and 3-room apartments, no rise was recorded (for 2-room apartments) and a marginal, 6% rise was recorded for 3-room apartments. Ashdod, it should be said, is a central target for investors, with prices averaging NIS 16,000 per sq.m.
Beersheba
The "Capital of the Negev," the "Investors' City," and any other superlative you might think of in this context is no different in terms of the real estate market's performance. Some may argue that investors left the city in the past two years, but still, lowering the purchase tax should have brought back some of them, at least those seeking small apartments. Yet in Beersheba, that isn't the case.
Over the past two years, apartment prices in the city for 2-room apartments didn't change at all; a minor rise was recorded for 3- and 4-room apartments. Only the prices of 5-room apartments rose sharply, by 17% - and these are not considered investment apartments at all.
Bnei Brak
The Haredi representative in this survey was never an investors' city. Most of the residents buy an apartment in which they will live. The high prices until 2019 and the deteriorating economic situation following the coronavirus crisis led to an indifference to the purchase tax rise.
Prices for all types of apartments in the city have been dropping, on average, in the past two years, despite the reduction in the purchase tax from 8% to 5%. Prices for two-room apartments fell marginally, by 1%. Prices for 5-room apartments fell by 3%, while those for 3- and 4-room apartments fell by more – 5% and 6%, respectively.
Bat Yam
Housing prices in Bat Yam rose – that's indisputable. As the data shows, this finding is reflected in all apartment types. Though 2-room apartments showed the greatest rise – 7%, and 3-room apartments rose by 5%, prices for 4- and 5-room apartments also rose, by 2% and 4% respectively.
The meaning of this is that in places where investors are the main players, the hypothesis that they mostly buy small apartments is correct. Yet we can also surmise that the public in general sets the tone in the city.
Haifa
The third-largest city in Israel – a favorite with real estate investors – also proves that the purchase tax issue had little influence, if at all, on housing prices.
Despite the reduction in the tax, the price of small apartments fell (by 4%), as well as that of 4- and 5-room apartments. The only apartments that grew more expensive in the city in the past two years were 3-room apartments. This, again, shows that even if investors resumed investing in the city, those who caused apartment prices to rise were first-time buyers and apartment upgraders.
Other factors have a greater influence on the intent to buy an apartment, such as relatively large supply, a previous steep rise in prices, or even preference for other locales.
Jerusalem
The capital of Israel, which enjoyed a relatively high rate of immigration during the pandemic, presents excellent performance data in terms of price rises. Here as well, we can see that most of the players before the rise in prices were not necessarily investors.
Though it is true that the price of 2-room apartments in the city rose by about 16%, the price of large, 4- and 5-room apartments also rose, with the rise reaching double-digit figures – 12% and 15%. This indicates that many families chose to move to the city in the past two years, and they are the ones who fueled the market.
What is interesting in the context of Jerusalem is that 3-room apartments were less attractive for buyers – a fact that also shows that the main players in the market were not necessarily investors.
Petah Tikva
Petah Tikva is less prominent as an investment target, but is certainly seen as a preferred residential choice in the center of the country, due to its relatively low prices and its quality of life and education.
The city presented ongoing price rises in previous years, whereas over the past two years the market has slowed somewhat in all apartment types, whether small or large.
In 5-room apartment prices a minor drop was recorded, while other types have remained stable with a tendency to a slight rise in prices. Again, there are no signs of increased investors' activity in the city following the reduction in the purchase tax.
Ramat Gan
The city is changing and has begun to truly compete with Tel Aviv in terms of innovation, openness, and municipal services. As a result of these trends, which have not escaped the public's notice, the city has been presenting impressive price rises over the past two years for all types of apartments.
However, it has also been showing increased investor activity, reflected in rising prices for smaller apartments (2- and 3-room) of 7% and 9%, while for larger apartments, the rise in prices has been slower. Nevertheless, in Ramat Gan's case, part of the rise in the price of small apartments should be attributed to the arrival of young buyers and young couples seeking to join the party at relatively accessible prices.
Rishon LeZion
If we thought we finally found one city in Israel that shows massive and distinct investor activity, with an average rise of 23% in the prices of 2-room apartments, another finding – a rise of 31% in the price of 5-room apartments – again debunks the theory that investors are the reason for the rising prices.
Minor price rises in 3- and 4-room apartments in the city, of 3% and 2%, respectively, support the hypothesis that two parallel forces operated in the city in the past two years – investors and young buyers, on the one hand, and families and apartment upgraders, on the other hand.
Tel Aviv
Tel Aviv, which concludes the list, reflects a buying binge over the past two years in all types of apartments. The rampage in the city's real estate market, with prices rising between 4% and 20%, shows no clear connection to investors.
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People buy apartments in Tel Aviv for several reasons – the main one being that prices in the city are always rising. Of course, the buyers include investors, but these have always been here and always will be, and the purchase tax rate doesn't seem like their main incentive.
Comparison by district
Danos also examined changes in the various districts throughout the country. This was done to validate the findings and check whether the trend is similar in towns and cities that were not surveyed specifically. The findings of this examination reinforce our conclusion: except for the Tel Aviv District, in all other districts, the apartments that rose the most were 5-room apartments, which are not the target of real estate investors.
Although there were also impressive price rises for 2-room apartments, it should be kept in mind that naturally, cheaper apartments attract a larger segment of the population, and without sufficient supply, it is understandable that more buyers will seek these apartments.
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