After all the warnings and threats about how the credit crunch will destroy the real estate industry, it should be remembered that even without new, cheap, and available credit, the cranes will undoubtedly not disappear from the Israeli landscape. Exactly as all the cries for years about the terrible labor shortage did not hinder the industry's pace of construction.
In many ways, and this is precisely the point constantly made by people about a slow market such as real estate, tens of thousands of apartments have already passed the point of no return. Whether or not prices plummet, whether or not cheap financing is available, these apartments will have to be completed and sold.
If necessary, the seller will offer more discounts; if necessary, he will raise money on the capital market at high interest; if necessary, the bank will ease the terms, and extend more rope. Everything will be done to keep the contractor on his feet, so that his problems won't become the bank's problem.
19,290 new apartments were unsold at the end of November 2011, compared with an inventory of 15,000 apartments at the end of 2010 and 2009. In addition, state land for 18,000 apartments has already been marketed to developers. Although they have not yet begun building a single home, the loans they took to buy the land are already amassing interest.
Furthermore, at the end of September, there were 78,000 apartments under construction - the largest number in a decade. There were 10,690 housing starts during the third quarter, the fourth consecutive quarter in which the number of housing starts exceeded 10,000 units. The number of housing starts usually correlates with demand.
The closing of the credit tap now will not stop the flow of money already in the pipeline. Experience has shown that turning of the tap jeopardizes the nation, assuming that someone is supposed to build homes for the people, even in the medium and long term. In the short term, however, enough credit has been put into the pipeline.
When tens of thousands of investors are also trying to sell apartments, mainly because of the betterment tax holiday which expires at the end of the year; and when belying the ballyhooed housing shortage, no Israelis are really living in the streets; and with contractors knowing fully well that it is better to sell today than to wait for who knows what tomorrow; and when the Israeli government makes noises about trying to create a rental market (and financial institutions have enough money to finance such a market); the credit crunch will not necessarily change the downward trend anytime soon until the next turn in the cycle comes round.
Published by Globes [online], Israel business news - www.globes-online.com - on January 3, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012