S&P Maalot: Housing market stagnation could depress prices

New Bnei Brak housing project Photo: PR
New Bnei Brak housing project Photo: PR

S&P Maalot nevertheless sees the medium-term trend as likely to be upwards.

The S&P Maalot rating agency has published its annual review of key sectors represented by rated companies on the Tel Aviv Stock Exchange (TASE). The review includes a summary of 2017 and forecasts for 2018. It comes at a time of a continued near-zero interest rate environment in Israel, reasonable growth, and a low unemployment rate, while the global and domestic growth rate has been rising in recent months.

In housing, S&P Maalot says that, in the near term,stagnation in the housing market is likely to put downward pressure on prices, with a moderate drop being possible, mainly in outlying areas and areas with a large supply of housing units in the buyer fix price plan framework.

In the medium term, however, we can expect "a return to a rapid rise in prices in high-demand areas, especially if the downtrend in housing starts persists. In our opinion, political instability (early elections, for example), is likely to renew demand for homes on the free market and lead to price rises caused by uncertainty about continued implementation of the buy fixed price plan." The economists add, "If the slowdown in housing starts persists, it is possible that in the short term, upward pressure on prices will accumulate, among other things due to failure to match the growth in households in Israel. The low interest rate environment is meanwhile enabling leading development companies to maintain housing prices at the present inventory levels. The financial statements of a large proportion of the leading development companies show that they are maintaining average prices, despite the drop in sales volume. At the same time, in our opinion, continued stagnation in sales in the longer term is likely to generate downward pressure on prices, even for the leading companies."

In the ratings aspect, the S&P economists expect some erosion in profit margins of development companies in the next two or three years, given the fact that most of the land is being marketed under the buyer fixed plan, in which the profit margin is relatively low.

"We believe that the sector risk has increased somewhat, given the substantial decrease in the pace of sales and the likely erosion of profit margins. At the same time, development companies with a contracting arm have some advantage, reflected in the weight given to synergy in the assessment of the business profile," S&P writes.

In income-producing real estate, a change in the balance of power in the shopping centers segment is beginning, following years of consistent rises. Signs appeared in 2017 that rents are stabilizing, and even falling for certain properties. Occupancy rates continue to be high, but in a number of leading and top-tier shopping centers, proceeds fell in the first nine months of 2017. This resulted, among other things, from a rise in the proportion of ecommerce in the sector, a trend that is expected to intensify in the coming years, and Maalot's economists expect it to revolutionize the sector. On the other hand, there is considerable construction in the office sector, accompanied by high rates of leases agreed before the completion of construction.

Published by Globes [online], Israel Business News - www.globes-online.com - on December 7, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

New Bnei Brak housing project Photo: PR
New Bnei Brak housing project Photo: PR
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