Steinitz: Housing prices slow down

Fischer warns home buyers to beware of floating interest rates.

December 22, 2010 23:44
2 minute read.
Apartment buildings in Beersheba

beersheba real estate 311. (photo credit: Courtesy)

Recent measures taken to cool down the real-estate market are bearing fruit, as the surge in property prices is moderating, Finance Minister Yuval Steinitz said Wednesday.

“Over the past decade, more housing was marketed than was built, which led to a problematic situation in the real-estate market,” he said during a Knesset Finance Committee discussion on the housing shortage. “The supply of housing needs to be increased, and prices need to come down.”

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Over the past few months, the Finance Ministry and the Housing and Construction Ministry announced measures to speed up new construction, increase the purchase tax on investment apartments and cancel the capital-gains tax on second and third apartments for two years.

“Based on data from the Finance Ministry, the Bank of Israel and the Central Bureau of Statistics, the surge in housing prices and rental prices has moderated in recent months,” Steinitz said.

Housing and Construction Minister Ariel Attias told the committee the largest increase in construction starts since 2002 had taken place during the last quarter.

“Currently, there are 66,800 construction starts for apartment units at various stages,” he said. “More building permits need to be given for small apartments, despite opposition by the heads of local authorities.

Local authorities won’t receive building permits [from us] unless at least 20 percent of the ones they issue are for small apartments.”

Bank of Israel Governor Stanley Fischer told the committee the rise in property prices had not yet been stemmed and said the government needed to take steps to avert a housing bubble.

“It’s clear to everyone that the persistence of the upward trend in housing prices, evident until very recently, is likely to undermine the economy’s financial stability and to have an adverse impact on the whole economy,” he said. “It is incumbent upon us to prevent that. There are early signs of the start of a slowdown in the fast surge of property prices seen in recent years. However, they are only early signs, and we must closely watch the data... to decide whether the trend is really changing.”

Real-estate prices have risen 18% over the past year and 35% over the past two years, according to the Bank of Israel.

Fischer said home buyers who take out mortgages at floating interest rates might have a hard time making their repayments when the rates rise.

“The Bank of Israel’s interest rate is currently 2%, and in the major economies around the world it is even lower,” he said.

“It is clear that this is not a normal situation; it is the result of a global crisis, and eventually interest rates will increase.”

Fischer said the central bank’s area of responsibility could have a bearing only on the demand side of the housing market.

“It is preferable, however, that the solution to the problem of housing prices should come from the supply side,” he said. “The Bank of Israel will continue to monitor the degree of success of the measures the finance minister and the housing and construction minister have already taken...

and if necessary will take additional steps in its own area of responsibility.”

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