Rosario sees Israeli real estate market halt as temporary

Hanan Mor project  photo: Eyal Izhar
Hanan Mor project photo: Eyal Izhar

Rosario Research & Consulting senior analyst Avital Igner: Kahlon's focus on investors is misguided.

"Residential real estate deals have come to a near total halt. In my opinion, however, the logjam created by Minister of Finance Moshe Kahlon's actions will clear up within a few months," Rosario Research & Consulting senior analyst Avital Igner told "Globes." She adds, "The entire market is treading water, not just the large and public companies, due to, among other things, uncertainty that is making many potential buyers sit on the fence, including many investors. The almost 2% increase in the mortgage interest rate over the past 18 months and the law imposing a tax on ownership of a third housing unit are also affecting the market."

"Globes": What do you think of Kahlon's measures to stop the rise in housing prices?

Igner: "He's taking aim at investors, and it's really wrong to address demand only from this source. A large proportion of investors have left the market, and that is one of the main reasons that the market has ground to a halt. What has happened? A situation has been created in which other people are also unable to buy homes for one reason or another. This action addresses some of the demand, instead of increasing the supply.

"We're in the eye of the hurricane now, because large sections of the public will not make investment decisions or buy until they know which way the wind is blowing. Incidentally, at present, price data show that housing prices are still going up on average. Deals may have stopped, but prices are still going up."

How well can public real estate development companies cope with the halt in deals?

"At the moment, they aren't in a bad state, because they have had years of prosperity, and they can also raise money cheaply on the bond market. It's obviously necessary to analyze each company individually. Talks with developers show that they believe that the market will revive in six months, and that's my opinion, too. In the end, housing demand is rather inelastic. The population of the country is still growing at a high rate, and the supply is not enough to meet the demand. I therefore think that this situation is a temporary result of uncertainty."

The economic situation is good, the unemployment rate is very low, the average wage is rising, and this should affect the real estate market in the medium and long term.

"Right, and the halt in the residential real estate market is therefore only temporary. There's no doubt that they still aren't building enough, and I see no drop in demand in the medium term. At the economic level, it makes no difference whether a housing unit is owned by an investor who rents it out or a family living in it. Who owns a housing unit is not a problem anywhere in the world. That won't lower housing prices."

Positive recommendation for Hanan Mor

Yesterday, Rosario published a positive recommendation for Hanan Mor Group - Holdings Ltd. (TASE:HNMR), with a price target range of NIS 21.40-23.40 per share, 32-44% higher than the current share price. Hanan Mor's share price has risen nearly 50% over the past year, pushing the company's market cap up to NIS 215 million. In contrast to share prices of other real estate development companies, such as Azorim Investment, Development and Construction Ltd. (TASE: AZRM) and Dunietz Brothers & Co. (TASE: DUNI-L), which have slid downward in recent months, Hanan Mor's share price is very close to its all-time high.

Rosario writes, "The company is in a period of growth in both residential construction and income-producing commercial real estate. During the coming five years, the company is scheduled to complete projects with high values with a relative high rate of certainty. These are likely to make a substantial contribution to its value and equity, and this is reflected in the company's current market cap."

Two weeks ago, Hanan Mor reported that its revenue had reached NIS 124 million in the first half of 2017, 44% more than in the first half of 2016. Its gross profit grew 77% to NIS 23 million, and its net profit was up 26% to NIS 12 million.

Among other things, the results were boosted by a NIS 5.7 million increase in value in a valuation of the commercial center that the company built in Harish. At the same time, the company reported that it had sold only 49 housing units in the first six months of the year, compared with 141 sold in the first half of 2016.

Published by Globes [online], Israel Business News - - on September 12, 2017

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

Hanan Mor project  photo: Eyal Izhar
Hanan Mor project photo: Eyal Izhar
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