Murky picture for real estate market

Subprime crisis hasn't significantly harmed local industry, though there are worrying signs.

By JOHN BENZAQUEN
July 17, 2008 07:59
2 minute read.
Murky picture for real estate market

tel aviv good 88 224. (photo credit: Courtesy)

Most real estate agents are afraid that the real estate industry in this country may be showing signs of a downturn. The subprime crisis in the US does not seem to have significantly harmed the industry, but it has been showing worrying signs in the first six months of 2008. Among the sector's current problems are a fall in housing starts, a sharp rise in input costs and soft demand from consumers. Prices seem to have peaked, suggesting the market will be steady or even fall. The local economy is also passing through difficult times - most experts expect a slow-down in growth - which should bring down the housing market as well. The hard times ahead for the industry are reflected in the weak performance of real estate stocks on the Tel Aviv Stock Exchange. Since the beginning of the year, the TA Real Estate Index has fallen by 44.78 percent. Such a sharp drop is an indication that the real estate industry is going through uncertain times. However, some real estate agents are more optimistic. Dr. Gadi Hasson, one of the owners of the Daniel Itzhaki construction company, is somewhere in between. Speaking with The Jerusalem Post, Hasson said, "The state of the real estate market at the start of the second half of 2008 is controversial. On the one hand, many real estate agents fear an economic downturn and complain of the effects of the rise in commodity prices, but on the other hand demand is not unsatisfactory." The entire industry seems to be on hold, as both buyers and entrepreneurs seem to be "awaiting developments." According to figures published by the Central Bureau of Statistics, demand fell for the first five months of the year and, naturally, building starts as well. According to the bureau, in the first quarter of 2008, housing starts fell to 6,900 - down 14% compared to approximately 7,860 in the first quarter of 2007. This trend will probably continue through 2008. Part of the weakness in the sector can be attributed to the business cycle. Three years ago, the industry was at the end of a seven-year downturn, the longest real estate bear market in the history of the state. That bust was caused by the drop in immigration and the bursting of the hi-tech bubble in 2000. Until the end of last year the real estate industry reacted with a vengeance - a real estate boom in which prices in the Central region rose by an average 20%. Now this boom seems to be over, marking a natural downward trend in the business cycle. But there is also another factor contributing to the distress of the housing sector - the rise in commodity prices, which has a strong impact on building costs. The price of building an apartment has grown by approximately 10% in the past 12 months due to the rise in the price of cement, plastics and PVC for the production of pipes, aluminum, wood, and, above all, iron. Many real estate companies are not sure that they can pass the increase in costs on to the consumer. A rise of over 10% in building costs translates into a rise of between 5% and 6% in the price of an apartment, because the rise in the price of building materials has not affected the cost of land, which in the center of the country amounts to 40%-50% of the final price of an apartment.


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