To buy or not to buy? Is that really the question?

Home ownership rates in Israel have always been very high, as owning your own home provides a certain sense of peace and security that is lacking when renting.

By HAIM KATZ, SAM KATZ
A MAN LOOKS out of an apartment window 370 (photo credit: REUTERS)
A MAN LOOKS out of an apartment window 370
(photo credit: REUTERS)
It is a known rule of investing that when everyone is buying into the market, then it is a fairly good indication that it is time to sell. Does this hold true for today’s Israeli real-estate market ? Our columns typically discuss the various legal aspects of property in Israel, including contract laws, ownership, leasing, taxes, bureaucracy, etc. Since the publication of our last column, a massive reform was enacted regarding property taxation – a reform so broad that it could easily affect all home owners, especially foreign citizens who own property in Israel.
It would seem only natural, therefore, for this column to discuss the reform and its implication for our readers. We promise we will do this in the next few columns. However, as we emerge from the High Holy Days and Succot and the days of pondering, we’d like to utilize this column to take pause. For before we can pass through the gates of property law, we must first have the key to enter, a key that is becoming more and more exclusive: the means with which to purchase a home in Israel.
It is no secret that prices of property in Israel have soared over the past several years, placing Israel above all other OECD countries in the number of average salaries needed to buy an average home: currently 135 salaries in Israel, according to the Construction and Housing Ministry.
Compare this to 74 salaries in France, 64 salaries in England and 65 in the United States.
Two years have passed since the massive protest against the ever-rising cost of living. Since that time many headlines have announced various plans to enact change, to bring down prices and to make housing more affordable. The housing crisis took center stage in the latest Israeli elections campaign, with promises being doled out left and right.
As for results? Well, prices have only continued to climb ever higher. Whatever initiatives and reforms were actually set in motion, they have not produced the desired results. On the contrary, many changes have in fact made it even more difficult for young families to purchase homes, such as ever-tightening restrictions on mortgages. While some of these restrictions may be meant to both cool and secure the real-estate market, what we have seen thus far in the short term is that an even larger obstacle has been placed in the path of potential firsttime home buyers.
To make matters worse, it seems highly unlikely that we will see a drop in prices over the next few years, since housing starts have been dropping steadily, reaching a new low in the second quarter of 2013, with just 8,797 (compared to nearly 12,000 in the same quarter of the year before). What we can probably expect to see, therefore, are even fewer homes available for purchase in the next two to three years, when these starts are completed. The supply will be far lower than demand, in all likelihood driving prices up even further.
Many young couples and families see their dream of buying a home becoming more and more distant. For many of these young families, there is no dilemma, since they simply cannot afford to buy.
For these families the question is therefore not to buy or not to buy; the real question is can they afford to buy? And, even worse, will they ever be able to buy under the increasing tax burden and the low salaries young Israelis obtain.
But what about the people who can afford to buy. Should they? Is it a good time? Anybody who bought a home in Israel five or six years ago “struck oil” as prices have risen steadily and significantly since then.
Many would argue that it is not a good time to buy, pointing out all the indicators that we are currently in a real-estate “bubble” due to explode at any time: the sharp and disproportionate rise in property prices well beyond their fundamental value, the amount of average salaries needed to purchase a home and the ballooning size of mortgages, to name but a few. Indeed, some recent headlines seem to indicate a cooling of the market, with demand for apartments falling (in some cases) over the last few months and prices in some locations dipping ever so slightly.
On the other hand, in the main, prices are still sky high and there does not seem to be an end in sight to the upward trajectory.
There is no real, fully comprehensive action plan by the government to forcibly lower prices. There is no viable plan to provide affordable housing, and there’s nothing in the immediate future to show that the government is going to provide rentals in lieu of purchase.
Frankly it would seem that the government is at a loss on this issue. That coupled with the low building starts would seem to indicate a consistent rise in prices, and if prices will indeed rise, then it is obviously a good time to buy.
Of course, this is just an educated guess, and let’s not forget that buying a home involves not only financial considerations but also personal, familial and psychological ones as well. Home ownership rates in Israel have always been very high, as owning your own home provides a certain sense of peace and security that is lacking when renting.
As for the reform in property taxation, that will be discussed in our next column.
www.buyingyourhomeinisrael.com
office@drkatzlaw.com Dr. Haim Katz is a senior partner in a law firm with offices in Tel Aviv and Jerusalem that specializes in real estate, international trusts, family and inheritance law and corporate law. Sam Katz is a jurist living in Jerusalem.