Prices for larger apartments down in October

The "Globes"-Homeless Index indicates a cooling of the housing market even before the latest Bank of Israel restrictions.

Even before the Bank of Israel's new mortgage restrictions came into effect on November 1, the "Globes"-Homeless Index found that asking prices for apartments in October indicate a cooling of the real estate market, especially for large apartments.

Asking prices for five-room apartments fell in 10 of the 15 areas examined. For a long time, "Globes" has reported that prices for large apartments have reached insane levels - NIS 3 million in Tel Aviv; and NIS 2.5 million in Ramat Gan, Givatayim, and Kiryat Ono - making it difficult to find buyers, either people seeking an apartment to live in (including people seeking better apartments, for whom the difference in price between their current home and prospective home became unreasonable) or investors. This may explain the weakness in the market for large apartments.

Last Monday, when the Bank of Israel announced that it was cutting the interest rate for November to 2%, which is liable to reignite the housing market and further encourage investors to buy apartments, it also issued a directive to the banks capping the loan-to-value ratio on mortgages to investors to 50%.

This measure may boost demand for cheap apartments, which require relatively low equity. The "Globes"-Homeless Index found that prices for such apartments were stable in October, and rose slightly in some of the areas examined. Asking prices for four-room apartments, the preferred size for most buyers, fell in four of the fifteen areas examined, and asking prices for smaller apartments fell in five areas.

Asking prices for three and four-room apartments rose in October in Beersheva and the south, Haifa, Jerusalem, Netanya, Kiryat Ono and its environs, and in Ramat Gan-Givatayim. Netanya was the only city where asking prices for all types of apartments, including five-room apartments, rose.

Rent fall

Belying talk about rising rents, due to the difficulties faced by many people in buying a home, and because of the widening gap in recent years between the rise in home prices and the rise in rent, the rental market - where there are no mortgages, and the tenant directly pays monthly rent - continues to fall.

Rents for three-room apartments fell in October in 10 of the 15 areas examined. However, the asking rent rose in October in Tel Aviv for all types of apartments, reaching an average of NIS 5,820 per month for a three-room apartment.

Methodology

In contrast to other online classified ad sites, Homeless charges for all ads it airs, which makes sellers quote prices in accordance with their real expectations and avoids freeloaders. The index gives two figures: the asking price of the apartment, and the average rental yield in each area.

The listed rent is the gross rent. A month without a tenant, maintenance expenses, taxes (assuming that the rent is more than NIS 4,500 a month), and other costs can reduce the return by about 10% on average.

The index displays the yield per apartment - the price of the apartment divided by the rent. Even if there are distortions in listed prices for sale or rent, they should offset each other if they are in both the numerator and the denominator.

Published by Globes [online], Israel business news - www.globes-online.com - on November 5, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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