Banks control the real estate market

Dror Marmor

It is the banks which are the biggest player on the field in the capital intensive real estate industry.

The Government Assessor's report that the average price of a four-room apartment rose by 5% in 2012, coming on top of the Central Bureau of Statistics report that prices rose by 6.7% last year, once again demonstrates the helplessness of policy-makers.

We are all in the same boat: Minister of Housing and Construction Ariel Atias ("I tell young couples, you must not be tempted by slogans that prices will continue to rise" - October 2009); Minister of Finance Yuval Steinitz ("Until now, we've been using 500-gram hammers to beat prices. Today we are pulling out a 5-kilgram sledgehammer to deliver a serious blow to housing prices," - May 2011); Governor of the Bank of Israel Prof. Stanley Fischer ("The trend has begun to turn, and the rise in home prices is easing, and there is even talk about the start of a drop in prices," - November 2011); and, of course, Prime Minister Benjamin Netanyahu ("I will bring about a very dramatic change in housing prices," - May 2011). This is the same Netanyahu, who by the way promised us to bring down home prices by 30% during his third term as prime minister.

Somehow, in the most regulated market, where there is government planning, taxation, credit policies, and state-owned land which strongly affect the supply and demand equation, the nation's leaders are stuck in a mire that is dragging them and us every deeper into the muck.

The regulator is determined to bring down prices? Fierce competition between dozens of contractors for every homebuyer in cities like Netanya, Petah Tikva, or Yavne? You're kidding. Or maybe it is actually the banks, which have stood quietly on the sidelines for a long time, after discovering the ideal combination that promises them that the party will go on. If the housing and finance ministers will forgive us for a moment, it is the banks which are the biggest player on the field in the capital intensive real estate industry.

The banks also pump out cheap mortgages for us, at least so long as the interest rate stays low, in order to feed the housing demand monster. The banks also increase, limit, delay, and invent fees of various kinds for developers and contractors in order to control the supply and control of land purchases for new homes.

In truth, Supervisor of Banks David Zaken should be quite pleased by the banks' control of the market. This is what happens when two banks - Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI) - control 70% of bank financing in the real estate industry, which effectively constrains competition. Zaken's main problem is that the public's housing shortage is real, and the public's newly elected representatives are promising drastic measures to cool the housing market in the next Knesset.

All that is left for Zaken to do is to make cosmetic changes in an attempt to calm the market a bit. So he slightly ups the banks' cost of mortgages with loan-to-value (LTV) ratios of over 45%, but with the same breath, he cuts the cost of mortgages with LTVs of over 60%. A blow to the mortgage market? Not at all. This time, despite the screaming headlines, the Bank of Israel did not even bother to try calm homebuyers: "The measure is not intended to ease demand for housing loans or lower home prices," it stated.

If I understand this correctly, especially just before the publication of the banks' financial statements for 2012, Zaken is simply asking the banks not to smile too broadly.

Published by Globes [online], Israel business news - www.globes-online.com - on February 20, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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