Dollar decline shakes up property market

The dollar's weakening to a seven-year low against the shekel has left its stains on second-hand home buyers and sellers who are losing tens of thousands of dollars.

By SHARON WROBEL
May 4, 2007 03:37
3 minute read.

 
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The dollar's weakening to a seven-year low against the shekel has left its stains on second-hand home buyers and sellers who are losing tens of thousands of dollars and has increased pressure for a drastic change in the local real estate market from one that has been historically dollar-denominated to one delineated by the shekel. "The weakness of the dollar is shaking the local real estate market and causing embarrassment in the market. It's like a casino of currencies," said Hanan Schlesinger, chief executive officer of Anglo-Saxon Israel real estate brokerage. "Many property sellers are raising their prices by up to 10 percent to compensate for the dollar plunge but in shekel terms prices have not gone up." The main reason the dollar remains so influential on daily life in Israel is that so many prices remain denominated in dollars such as second-hand housing and rent, a tradition that goes back to the days of hyperinflation in the early 1980s. "The strength of the shekel is killing everybody," said Shelly Levine of Shelly Tivuch real estate agency. "People who have bought property 1.5 years ago priced in dollars at an exchange rate of 4.6 and who are now having to pay off their remaining installments have to pay 10 to 15% more." The shekel-dollar exchange rate in 2006 stood at NIS 4.603 and has since weakened against the shekel by 12.5%. Since the beginning of this year, the exchange rate lost 5% from NIS 4.225 against the dollar to nearly breaking the psychological barrier of NIS 4 at the end of April. The shekel strengthened to 4.0441 at 5:31 p.m. in Tel Aviv on Thursday from a Bank of Israel fixing of 4.0440 earlier in the afternoon and 4.0650 on Wednesday. The persistent strength of the shekel has left many property owners in a quandary over whether to determine prices for sale or rent in dollars or shekels. "There is a beginning trend in the market to fix prices in shekels rather than in dollars," said Schlesinger. "I would recommend everyone to switch to the shekel and I believe that within the next two years, the real estate market will be moving into a shekel-denominated market." Similarly, Bernard Riskin CEO of Remax Israel, said that the volatility in the US currency had created a new reality to which the real estate company had to adapt. "In some of our branches there was a switch to property price-fixing in shekels, in others a minimum dollar exchange rate was fixed in the contract to secure the owners with a minimum income and some branches saw property owners simply raising dollar-denominated pricing," said Riskin. According to a survey carried out by Levi Itzhak among 300 property owners, who put their flats up for sale during the months of March and April, some 5% priced their properties in shekels. "It is not much but it is a start," said Itzhak. "The property owners were not prepared to price their flats in dollars as they were worried that the price that they would get would be lower than the real price of the asset." Furthermore, Rafi Gozlan, head of the macro and strategic division at Prisma Investment House noted that the weakness of the dollar has decreased the buying power of those who want to upgrade to first-hand or new property by 10 to 15%. "They are selling their second-hand property in dollars but at the same time they would need to buy first-hand property, which is denominated in shekels," he said. According to Dror Ohev Zion CEO of the Dra real estate and marketing company, this has led to a preference on the part of buyers for second-hand over new or first-hand property. "Over the past month, we experienced a significant fall in the sales of first-hand properties," said Zion. At the same though, there has been an increase in demand and sales in the second-hand market. "Now is the best time to buy a flat. The current market conditions - weak dollar and low interest rates - have created an ideal situation, which might not last very much longer," said Michael Ben-Yishai, credit retail manager at Bank of Jerusalem. "With the weak dollar potential, buyers today need fewer shekels to get to the buying price, and therefore the mortgage they need to take out could be between 8 to 10% smaller than previously." Ben-Yishai added that in the first quarter of this year the bank had seen a significant increase in mortgage takers compared with the same quarter last year.

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