The dollar syndrome

The real estate market in Israel enters 2008 at a time when the industry is starting to disengage itself from the US dollar.

By JOHN BENZAQUEN
The real estate market in Israel enters 2008 at a time when the industry is starting to disengage itself from the US dollar. The dollar is falling against the shekel, and interest rates are set to rise. How will this affect the real estate industry? According to experts, not much. Real estate prices were denominated in US dollars at the height of the hyperinflation, when the monthly inflation rate amounted to nearly 30 percent. Now that the dollar is falling against the shekel, the greenback is losing its attraction as a symbol of stability. And families selling their apartments are quoting prices in shekels, and landlords are drafting leases in shekels. But even at the height of its involvement, prices were denominated in dollars, but what mattered was the ability of buyers or renters to pay. "Prices were fixed in US dollars, but they were paid out in shekels; consequently, prices were fixed according to market forces. And since the economy was based in shekels, the price mechanism was oriented toward the shekel," said Erez Cohen, vice chairman of the Real Estate Appraisers Association. "Thus if there were sharp fluctuations in the US dollar exchange rate, it was reflected in the price of real estate." With regard to the expected rise in interest rates - which will, if it happens, make mortgages expensive - this is also not expected to affect the real estate market. The rise in interest rates may increase the costs of construction companies which are heavily dependent on bank credits, but the rise in the cost of mortgages is not expected to affect demand. As Hanan Schlesinger CEO of Anglo-Saxon real estate agency says, "because of the constant rise in rents for residential real estate, the impact of higher mortgage payments is canceled out, and I do not think that increased mortgage payments will affect demand."