What’s Happening in the Israeli Real Estate Market? | Perspectives on the Housing Market in Israel

Over the past month, the Israeli business press has been flooded with numerous articles and interviews concerning the state of the Israeli housing market. After seeing a steady increase in housing prices since 2007, at an average rate of 12% a year, prices rose over 15% in the last year, prompting many in the press and public to claim a bubble, due to these numbers being out of the norm for a developed country.

How connected are these rises to the actual fundamental principles to a real estate market? We all know the basic principle of “supply and demand”, with new construction throughout Israel only reaching a new high this year of 66,880 units, the highest since 2002. This, in combination with some of the western world’s most attractive real estate tax structure that has brought in investors domestically and from abroad, has created a rise in prices that must be expected.

Sales, however, have gone down in recent months, due to the drastic rise in prices and all the talk of the impending “bubble burst” in the Israeli real estate market. According to a recent survey, the Israeli public has reached a ceiling and are not willing to pay any more than the market currently offers. Contractors, developers, and brokers alike are feeling it in their pockets. All agree, that prices are about to come down, due to the flood of second hand apartments that have entered the market as of late. The availability of better deals and more supply, they claim, will surely bring down prices to a reasonable level again. Indeed, June saw a decline in asking prices. The appraisers of the major Israeli banks and the Bank of Israel, however, don’t agree. In a report published this week by the Central Bank, researchers determined that there is not, in fact, a bubble at all. Rather, they claim, prices are right on target and are in line with the market fundamentals. Meanwhile, the Governor of the Bank of Israel, says he is still quite concerned about the rise in prices, bubble or not.

What are we to make of all of this? We see a continual rise in prices, yet a decline in sales of 14%. The public cries bubble, the banks tell us that all is par for the course. Second hand properties are becoming more numerous over the past few weeks, awakening the market ever so slightly. Is the market slower than usual in these typically hot summer months for the housing market? Sure. With the added inventory and competition in the market we can expect to see a pickup in the volume of sales, with a correction, albeit a small one, in prices.

But where can one find the best deals in this torrential market? The real estate market in Jerusalem and Tel Aviv has slowed down, but is now picking up, and due to the high demand, and with rentals soaring. your best bets could be found here.  In Haifa, despite the price rises, demand and sales continue to also rise, making it an attractive place to invest should you find the right property. At the end of the day, people need homes and we must always resort to that most basic principles, “supply and demand”.