As the dollar continues to trade around nine-year lows against the shekel, Israelis are increasingly heeding the call of Bank of Israel Governor Stanley Fischer to stop fixing the prices of apartment rentals in dollars.
"Over the past six months we have seen about 75 percent of our rental deals fixed in shekels," said Hanan Schlesinger, CEO of Anglo-Saxon real estate agency. "Assuming the dollar remains at current levels, I believe that within a year nearly all rental contracts will be denominated in the local currency."
Minutes from the Bank of Israel's last rate-setting meeting released this week noted that the share of new rental contracts denominated in dollars dropped from about 85% of all contracts in January 2007 to 68% in October.
"We are very pleased about the significant decline in the last year in the share of new rental contracts linked to the dollar," a Bank of Israel representative told The Jerusalem Post. "This is a very promising development, which hopefully will continue in 2008. When the man on the street earns in shekels, there is no reason why he should be dependent on fluctuations of foreign currency."
The continued plunge in the dollar has increased pressure for a drastic change that would move the local real estate market from one that historically has been dollar-denominated to one delineated by the shekel. Since the beginning of the year, the shekel has appreciated by about 10% against the dollar, which currently trades at NIS 3.92.
"There is definitely a move and it is natural for this move to happen," said Bernard Raskin, CEO of Remax Israel. "In Israel, there is a certain addiction to the dollar although it is irrational. But more and more people are realizing that pegging your asset to the dollar and making it dependent on currency fluctuations is akin to playing at a casino."
Raskin added, however, that the shortage of rental apartments, in particular in the center of the country, was creating a situation in which apartment owners can pretty much dictate conditions of pricing.
"There are three types of pricing of rental apartments common in the current market," he said. "Either, they are linked to the representative rate of the dollar, which has become less common, or rental prices are pegged to the shekel, which is slowly becoming more common. And, most recently, more and more property owners insist on determining rental prices according to a fixed rate of NIS 4.20 against the dollar, which is not fair."
Looking ahead to 2008, Raskin said that assuming the dollar weakness continues, there would be no revival of the share of dollar-linked rental contracts to over 80%.
In an interview with Post at the end of last year, Fischer said many individuals who had specified prices of housing contracts and rental housing in dollars lost quite a bit since the dollar's sharp decline began in February 2006.
"If people realize they're just as likely to lose as gain by specifying in dollars, it [the practice of pricing property in dollars] will begin to change," Fischer said in the interview. "We had a discussion on this and it always gets down to people who want to use legislation versus people who don't. The other approach is that eventually it [the practice] will go away if the shekel continues to demonstrate its stability, which it's doing now."
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