Real estate agencies note that, in the past two months, banks have "turned off the credit tap" for commercial customers in the real estate market and that the number of buyers of income-producing properties has declined. Real estate experts predict a slowdown in the industry as a result of the banks' actions.
Real estate agents say that, as a result of the credit crunch, small developers lack the equity to compete against large ones. A source at the ERA Israel real estate agency said, "Before the present situation, banks demanded 25% equity; they're now demanding 45%. Previously, a customer with $1 million could get $3 million from a bank to buy a $4 million property. Today, a customer with $1 million can buy a property for $2 million. The number of buyers has therefore declined. If you have an office block for sale at $60 million, the buyer has to put up $27 million in equity."
The source added, "What's happening now is that only the big developers can stay in the market; the big developers and the insurance companies with capital reserves. The banks invested in these bonds overseas and lost money, and they must now tighten their belts. An example I encountered was an assisted living facility in Haifa with an asking price of NIS 45 million. The buyer had to put up NIS 22 million in cash to buy it, and he didn’t have it. Previously, he would have needed NIS 10 million. Small developers who want to expand, can't."
The source predicts a slowdown in the income-producing market in the next six months because all the big developers will buy up all the property inventory.
There are alternatives to bank credit. Anglo-Saxon Real Estate Agents Tel Aviv general manager Amos Glazer says, "People get financing from foreign sources, including foreign banks. Developers are also approaching insurance companies and other financial institutions to finance their various projects. What will happen is that the big companies will survive and the small one won't."
The banks, for their part, see a different picture. Bank Leumi (TASE: LUMI) deputy spokesman Yoav Poles says, "We have no guidelines, instructions, or general decision to reduce the level of financing for income-producing real estate projects. It's important to stress that the level of financing for different projects is set for each project, on the basis of the entity applying for the money and other factors that are taken into account, just as is the case for any other kind of credit. There will be cases in which the bank is prepared to finance 90% of a project, and there are cases in which the bank will refuse to finance 50% of a project, depending on the circumstances. The situation here and the sub-prime crisis in the US, which involves mortgage-backed securities are poles apart."
Bank Hapoalim (TASE: POLI; LSE:80OA) spokeswoman Ofra Preuss said, "Bank Hapoalim has not changed its policy for financing commercial projects. Today, as in the past, financing considerations are based on the quality of the property, its location, occupancy, and condition. Israel has not experienced, so far, any slowdown in demand for commercial properties. There is a supply shortage in high-demand areas, which is boosting prices. Obviously, this refers to well maintained or new properties."
Published by Globes [online], Israel business news - www.globes-online.com - on April 21, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008