Share of investment homes more than doubled from 2003

Bank of Israel study finds that rental prices influence investors more than interest rate

Tel Aviv apartment 311 (photo credit: Courtesy)
Tel Aviv apartment 311
(photo credit: Courtesy)
The percentage of households owning more than one home increased nearly 2.5 times from 2003 to 2012, according to a Bank of Israel study released Wednesday, although recent rules have stymied the trend somewhat.
While domestic investors accounted for 3.2 percent of home owners in 2003, that rate rose to 7.9% in 2012, the study found. Yet new rules meant to make investments in second homes less attractive pushed the rate down about 10% in 2011 and 2012 compared with the first eight years in the study.
“The decline of the share of investors in the housing market is still not significant as the state would like, and it will not make a significant contribution to the lowering of housing prices,” said Zvi Livneh, CEO of mortgage advisory group Livneh-Ben Canaan, who cited the historically low interest rates as the main driver.
“Investments in housing have become central for those who want a relatively solid return of 4% to 7%,” he said. “As long as the interest remains low, investors will be an inseparable part of the housing market.”
While rental yields and interest rates are linked, the study found that when it separated the effects of each on investors, the rental yield had a greater influence.
As rent prices go up, more investors flood into the field; each percentage-point increase in rental yield increased the likelihood that an investor would buy a home by 22%. But every percentage-point increase in the interest rate decreased the likelihood of an investment by only 8%.
The greatest investment demand throughout the entire period was in Tel Aviv, which accounted for 29% of the purchases. In general, people buying second apartments to rent out tend to prefer smaller places, which yield higher relative rents, located in Jewish communities within the country’s center.