Israel’s real estate market is still flat. The economy is growing and the Tel Aviv Stock Exchange (TASE) is close to its all-time high, but the real estate market refuses to recover. New housing sales totaled 12,372 in 2005, only 0.2% more than in 2004.
Moreover, the supply of new privately-built homes will suffice for only 11 months at the present rate of sales. The housing inventory in the north is sufficient for 19 months, and for 16 months in the Tel Aviv and central regions. Fairly high housing demand in the Jerusalem region improves the picture, with inventory sufficient for five months. Were it not for record purchases of apartments, mostly along the coast, by French Jews, the situation of Israel’s real estate industry would be far more dismal.
Expectations of a real estate recovery have been a recurring feature in the market for a long time. Ostensibly, figures on the ground indicate that the expected recovery began with the disengagement from Gaza and the improvement in Israel’s political-security situation, as well as country’s impressive economic recovery of the past three years. Even the tourist industry has finally begun to recover. But real estate is still stuck.
After the insane surge in prices in the first half of the 1990s, the subsequent ten-year slump has not been enough for the real estate industry to emerge from crisis. There are a number of demographic trends that undoubtedly underlie the delay in the industry’s recovery. The primary factor is the steady decline in immigration in recent years. Second is the growing trend of young couples to continue to live with their parents, lowering demand for apartments; and finally, there is the drop in the number of foreign workers, which has contributed to the drop in housing demand.
The astonishing fact is that while Israel’s real estate industry is flat, developers are investing billions of dollars overseas, in a trend that began several years ago. Huge investment in North America and Europe by Israeli developers has become the norm in the Israeli business scene, even as investment in Israel remains low, as if the local real estate market has become marginal.
This trend is even more amazing, considering that real estate prices in Israel are fairly low, compared with constantly record-setting prices overseas. There is a growing sense that real estate markets in the US, UK, and other countries are bubbles waiting to burst; it is only a matter of time. The insane rise in prices is creating a bubble that will ultimately end in a painful plunge in prices.
Anyone who expects the government to lead a turnaround in Israel’s real estate industry is delusional. Even if red tape for residential building permits were cut, and even if subsidies for new couples and for homebuyers in outlying areas were increased, a real recovery will only take place when the longstanding bleak sentiment towards the market changes, and is replaced by optimism, both by contractors and by the public, about real estate investment in Israel.
It’s hard to imagine that if Israel’s economy continues its present rapid growth that the real estate industry will continue to lag far behind. It, too, will ultimately begin to recover.
Published by Globes [online], Israel business news - www.globes.co.il - on March 5, 2006