The real estate industry in Israel is going through a period of
change. The government is intent on bringing prices down. It is
increasing the sale of government land for building purposes, but prices are
staying put. In addition, there is social unrest, demonstrations, tent
Real Estate held a panel discussion on the current
state of the real estate market. The panel was held in the board room of the
Association of Contractors and Builders in Israel. It just so happened that it
was held the day after Prof. Manuel Trajtenberg submitted the recommendations
of the committee he chaired and the Finance Ministry published its July summary
on the real estate industry.
The Trajtenberg recommendations contain an
important chapter on the real estate industry and ways to bring down prices or
at least to alleviate the current hardships. The summary of the Finance Ministry
shows that the real estate market is cooling substantially.
panel of experts was gathered to discuss the current state of the real estate
Eyal Gilad, CEO Gilad & Anat Construction and Development
Hacham, general manager Anglo- Saxon Real Estate
Moti Kidor, general manager
Association of Contractors and Builders in Israel
Dannus Ohad, chairman Real
Estate Appraisers Association
Roy Segev, vice-president Yad 2
Benzaquen, The Jerusalem Post
■ Moderator: The figures published by the Finance
Ministry show that the real estate industry is moving towards a recession. Do
the figures of the Association of Contractors and Builders correspond?
Kidor: The figures published by the Finance Ministry are for one month only. The
state of the real estate industry and market cannot be judged by what is
happening in one single month. Furthermore, the government does not
publish one single set of figures for the real estate industry but many. Besides
the Finance Ministry figures, the chief appraiser, an official of the Justice
Ministry, publishes his own set of figures. The Statistics Bureau does
the same, and the Housing Ministry also has its own set of figures. As you well
know, the figures differ.
But I must say that in the past months demand
for real estate has slowed down considerably. Since the beginning of the year
and even before that, senior government ministers have been giving the
impression that prices will fall in the very near future. Furthermore, the
Housing Ministry through the Israel Lands Authority has been increasing the
amount of land sold to developers,and the policy of the Bank of Israel has made
mortgages more expensive and more difficult to obtain. On top of this, we have
the social unrest which has increased the expectations for a fall in
Under these circumstances, prospective customers prefer to wait
it out. After all, why buy today if prices will be lower tomorrow?
The figures published by the Finance Ministry are for July.
show that demand had been falling even before that. But this is understandable.
I agree with Moti Kidor that everything that is happening, especially the
current social unrest, has had a very negative effect on the real estate
industry, and potential buyers are awaiting developments. Consequently, demand
is very weak and has been so since July.
I have the impression that
things will improve after the High Holidays. After all, some 40,000 new
households are formed every year, and they have to live somewhere.
to point out that despite the fact that demand is weak, prices are
steady. This proves that we are going through a temporary period of
canned demand. The demand is waiting in the wings for better
Moti Kidor: From studying the Finance Ministry’s figures, one sees
different parts of the country. Investor demand has slumped in the center; but
in Beersheba, for example, it is still very evident.
With regard to
prices not falling despite the fall in demand, they are not falling because they
cannot fall. Prices rose during the past three years because demand outstripped
supply. During the past 10 years, annual housing starts and housing completions
have fallen below the number of annual household formations. Consequently, there
is an accumulated shortage of approximately 100,000 dwellings. In such an
environment, prices cannot fall.
■ Moderator: If as you say there is a
shortage of 100,000 dwellings, there should be 100,000 homeless
Moti Kidor: They live in rented accommodation
■ Moderator: But
if they rent housing, it means there is no shortage of 100,000 residential
units. These families don’t own their homes, but there is enough accommodation
to house the population?
Moti Kidor: Rentals solve part of the problem, but many
young families live with their parents or families. There are not enough
dwellings to supply the needs of the population.
■ Moderator: Mr Gilad,
you are a developer with a large building project underway. Are you experiencing
difficulties in marketing your project?
Eyal Gilad: Demand has been falling
dramatically since the beginning of the year, and it is very marked at these
times. Nevertheless, prices are steady. They are not falling because
demand is temporarily depressed, which means we expect it to rise
But even if that were not so, I do not see prices falling because
building costs are rising all the time. The price of land is increasing, the
shortage of labor increases, labor costs, etc. The shortage of labor is
lengthening the time it takes to complete a building project. It should
take 24 months, but it is taking 30 to 36 months to complete. That is why
building completions are lagging behind building starts.
I want to point
out that the real estate industry, like all industries in a free market
environment, has its ups and downs. A developer must take that into
consideration. He must make sure of the necessary financial resources for the
■ Moderator: Can the developers survive a fall in prices? Has
the Association of Contractors and Builders taken this into consideration?
Kidor: We have not because all signs indicate that prices in the near future
will not fall, so we see no reason to go into hypothetical situations. But I
agree with Eyal Gilad. Every businessman, not only a developer, should be
prepared for the good as well bad times.
Ohad Dannus: Developers and the
Israel Lands Authority do not expect prices to fall in the foreseeable future.
In consequence, the authority is constantly increasing the price of land, and
the developers are increasing their bids to be able to acquire the land that
will keep them in business. The higher price of land is ultimately borne by the
consumer. The price of land alone prevents any falls in the price of real estate
in the foreseeable future.
But there are other reasons that prevent a
fall in prices. By the end of the year there will be an additional shortage of
10,000 apartments because housing completions will probably fall below 30,000 in
contrast to the 40,000 new households being formed. Secondly, if prices were to
fall in the future, housing starts would tumble because developers would slow
down their building projects, and this is contrary to what the government wants
I want to correct a misconception that the number of families
who own their home is over 80 percent. It is closer to 65%. Many who cannot
afford to buy an apartment rent one.
Roy Segev: Yad 2 is a website which,
among things, advertises real estate for sale. We have come to the conclusion
after analyzing the current trends that the market is frozen. Transactions are
few, and it takes a long time to finalize transactions.
From the trend on
our website, we cannot see if prices are going up or down. We can see the level
of supply and demand and the length of time of ads on houses for sale. Buyers
are waiting to see how things develop. Up to now they were waiting for the
Trajtenberg recommendations. Now they are waiting to see how they will
■ Moderator: Will the Trajtenberg recommendations have
an influence on real estate prices? After all, it was the price of real estate
and the high level of rentals that started the current social
Moti Kidor: With regard to housing, the committee headed by Prof.
Trajtenberg recommended increasing supply by, among other things, rebuilding
dilapidated areas or apartment buildings and increasing the number of new units
in the given area by increasing the supply of land and by encouraging building
projects for rental purposes.
I don’t believe that these recommendations
will solve the problem. They’re not holistic. They don’t take into
consideration two major stumbling blocks - the shortage of skilled workers and
the new regulations with regard to mortgages and loans to developers. If these
two problems are not solved, housing starts and especially housing completions
will fall in 2012 and prices will rise.
The industry needs 57,000 skilled
workers to be able to construct 40,000 units a year. At present we have much
less. In the 1990s we built 70,000 apartments a year and we had 83,000 foreign
workers. Now we have only 8,000 foreign workers. We have 20,000
Palestinian workers and 17,000 local workers, and that is not enough.
Moderator: What about the financing problem? Mr. Gilad, as a developer, why do
yo have problems with the new regulations?
Eyal Gilad: The problem is
simple. There is less financing. Mortgages are smaller because the Bank
of Israel’s new regulations limit the amount of mortgage as a percentage of the
cost of the property. Furthermore, developers need to invest 30% of their
own funds in contrast to 20% up to now.
If buyers can get fewer
mortgages, it means they have less money to buy an apartment. And if developers
get less money from the bank, it means they have limited financial means and
they build less. Moti is right. Under these circumstances, we will be building
less not more.
Ohad Dannus: Some of the recommendations may have a
long-term effect. They have changed the terms of the land tenders (of the Israel
Lands Authority) from that of selling to the highest bidder to selling to the
one who offers the lowest prices for the apartment to be built on the
I also believe that pinui binui - tearing down dilapidated
buildings and putting up modern ones with three times the number of apartments - is the only way to increase supply in the large cities.
Pinui binui can solve the problems of limited supply in the large cities. I want
to point out that because of the high cost of housing in the central cities,
potential customers are drifting to more peripheral areas. Prices in these areas
are rising. If we want to bring down prices in the peripheral areas, we first
have to bring them down in the center because prices in say Rehovot or Modi’in
are influenced by prices in Tel Aviv and Jerusalem.
■ Moderator: I
believe there is a clause about affordable housing and the government’s building
apartment buildings and renting them out at subsidized rates.
Affordable housing for whom? The current social unrest started because of the
very high cost for the middle classes. Their monthly incomes range from NIS
10,000 to NIS 15,000. It is they who cannot make ends meet. It is
they who cannot afford to buy an apartment or pay the high monthly rents in the
market. It is for them that affordable housing must be made available. It is for
them that we need to build apartments for rent.
■ Moderator: Given the
building costs, can developers make a profit? What is the current rent for a
three- or four-room apartment in the center of the country? And what is an
acceptable return on such an investment?
Adina Hacham: Renting in an acceptable
area would cost NIS 5,000 to NIS 6,000 a month for a three-room apartment and
NIS 7,000 to NIS 8,000 for a four-room apartment.
Eyal Gilad: An
acceptable annual return on the investment would be from 6.5% to 7%
To be economically feasible, there must be a package that includes tax benefits
and subsidized land.
■ Moderator: What developments can be expected in
Eyal Gilad: Prices will remain more or less unchanged in the central
regions but in the more peripheral area I expect prices to rise
Adina Hacham: Demand will increase anew. Not like in 2010, but
it will increase because people need a roof over their heads. I believe that
prices in general will rise by 5% to 10% during all 2012.
Roy Segev: If
demand for real estate does not recover, prices in 2012 will fall
Ohad Dannus: I don’t see any substantial changes at
Moti Kidor: There is no alternative to a home. Demand will recover,
and I believe we will see a rise of around 6% in prices during 2012.