Rental prices expected to go up

Recent hike in interest rates and tighter Israel mortgage restrictions expected to cause rise.

By BUYITINISRAEL.COM
August 8, 2010 18:01
2 minute read.
Arched windows highlight the home's provenance.

Emek refayim house real estate 311. (photo credit: Uriel Messa)

 
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Rental prices in Israel are expected to rise as a result of the recent hike in interest rates and tighter Israel mortgage  restrictions. ”In light of stricter conditions on the approval of mortgages, the rapid rise in housing prices, the recent interest rate hike, and the increase in the purchase of apartments for investment purposes over the past year, we are expecting a moderation in the surge of residential housing prices and a greater probability of a continued rise in the pace of rental prices in the coming months,” said Ayelet Nir, chief economist at IBI investment house.

At the end of July, the Bank of Israel raised interest rates for August by a quarter percentage point, for the first time in four months, from 1.5 percent to 1.75 percent as way to stem the surge in Israel real estate prices. Over the past year prices in the housing market have risen over 20 percent and the Bank of Israel warned recently that if they continue to rise at this pace a housing bubble will develop.

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In view of this concern, the central bank’s Supervisor of Banks issued a directive to the banks in May, ordering them to carefully examine their housing credit portfolio and their policy in that field, and to make an extra loan-loss provision for housing loans in which the leverage rate exceeds 60 percent. In practice it means that banks are discouraged from agreeing to lend homebuyers more than 60 percent of the value of a property, when before the directive they would lend up to 70 percent of the apartment value, and sometimes even more.

Hence, banks are now likely to demand a down payment of 40 percent of the property price from homebuyers instead of 30 percent or even less before. The stricter conditions on mortgage approvals will make it more difficult for homebuyers to be able to take out a mortgage as home prices have continued to soar to levels which many potential buyers, in particular young couples, can not afford. As such, the Bank of Israel, is hoping that this measure will dampen the rise in the demand for housing, which was boosted by a low interest rate environment over the past year and bring down property prices.

The IBI showed that when comparing the development of Israel real estate prices against rental prices since the first half of 2007, it shows that housing prices have risen at a faster pace than rental prices. IBI investment house expects the Bank of Israel to carefully increase interest rates over the next year to 2 percent or 2.25 percent.

This article was provided by Buyitinisrael.com the official guide to Israel real estate.

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