Minister of Finance Yair Lapid is now mainly relying on panic in the second-hand homes market. The decision to exempt first-time buyers of new homes from VAT and to sell land for thousands of apartments at target prices is supposed to persuade homebuyers to seek new homes, which is supposed to pressure sellers of second-hand homes, who might not find buyers, to compromise on price.
However, asking prices at the end of March show no signs of panic. Although only a week passed between the housing cabinet's decisions and the end of the month (and more than two weeks since the media reported the pending measures, creating a strong public response), it can be said with certainty that there is no wave of sellers seeking to sell at almost any price, or even at a small discount.
According to the Homeless classified ads site, there has been almost no drop in asking prices for three and five-room apartments. Asking prices for four-room apartments fell in eight of the fifteen markets covered, but the most of the declines were negligible.
There is no change in the rental market either, and asking rents in most areas actually rose in March. In addition to the decision on zero VAT and target price tenders, which will cap apartment prices in scores of new tenders, the housing cabinet decided to set up a committee that will draw up measures for regulating the rental market, including price controls, which is naturally liable to depress demand by new investors and encourage current investors to sell their apartments quickly (or to try and quickly set a higher rent).
Whatever happens, it is hard to blame the public for being confused, and for perhaps even expecting a rise in prices soon. This was the forecast of Governor of the Bank of Israel Dr. Karnit Flug, who tried to prevent the housing cabinet from taking the zero VAT decision.
Prof. Zvi Eckstein, a former economic adviser to Lapid, told "Globes" the same thing. After trying to persuade Lapid to drop the proposal, he said, "In the end, supply and demand are what matters, especially in the housing market. If you analyze the steps taken this week, it does not seem that they will greatly affect growth in supply. This is a step that only creates noise, and the concern is that it might even reduce supply."
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 yield by about 10% on average.
The "Globes"-Homeless 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 April 7, 2014
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