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Mar 2, 2009 10:39 | Updated Mar 2, 2009 10:41
Real-estate prices expected to rise
By JOHN BENZAQUEN


The Israeli index of leading economic indicators, called "Hameshulav" in Hebrew, fell 1.2 percent in January - the sharpest monthly drop ever. And in the last quarter of 2008, the GDP contracted by 0.5%, which means that the economy is in recession. But despite these depressing figures, real-estate prices are expected to rise during the coming year because while demand is falling, supply is falling faster.

Housing starts are at a minimum, and according to figures released by the Association of Contractors and Builders in Israel (ACBI), the supply of new apartments will dry up by September or October of this year.

"The supply situation is nothing less than catastrophic," ACBI general manager Yossi Gordon told The Jerusalem Post recently. "The number of new apartments available to the general public is at on all-time low and falling. Housing starts have been falling for the past five years, and I very much fear that housing starts this year will be at the low end of our expectations and hover around 20,000 units.

"These figures have a very negative bearing on the amount of residential units 'on the shelf' for sale. At the end of 2008 there were 9,868 such apartments, compared to 10,990 in 2007. By the end of 2009 the number of available apartments may well fall to zero."

Expectations of a rise in real-estate prices and the rapid dwindling of available housing are based on an in-depth survey by the chartered accountancy firm BDO-Ziv Haft, which mapped the number and location of available new apartments in Israel.

The numbers are dismal. In Jerusalem, the number of new available apartments at the end of 2008 was 1,179, a fall of 12.3% compared to 1,345 at the end of 2007. In the South, the number of available new apartments has fallen by 33.6%, to 1,077.



In Tiberias, Safed and Acre, as well as in the centrally located cities of Yavne, Yahud and Ramle, there are no new residential units available, while in Beersheba there are only 51. In Haifa, the country's third-largest city, only 150 new apartments remain unsold.

It's the same all over the country: In Petah Tikva, Herzliya and trendy Givatayim, stocks of new apartments by the end of 2008 were down 35% compared to the end of 2007.

Most real-estate experts believe that the supply figures will exert upward pressure on prices, but that despite the low housing numbers, price levels will be determined by demand. If the current recession deepens and demand for residential units falls below 15,000, home prices will probably hold steady and may even fall slightly. If demand goes over that, prices will probably rise.

But the chance of demand dropping below 15,000 is remote. "According to our [statistics], 37,000 new households are added every year," Gordon said. "And since they need a roof over their heads, the normal yearly demand for housing is around 37,000 units.

"Even in a recession, couples get married and leave the parental nest, and new immigrants keep coming. Therefore, I very much doubt whether the construction industry in 2009 will be able to meet demand."

ira

What the article above doesn't relate to is the number of apartments that were bought for speculation and investment purposes. There are many new apartments that were bought by foreigners who will sell now into a declining market.

In Ashdod this is already happening. The next year will be an interesting one for real estate prices.

Rents and apartment prices are now falling in Tel-Aviv which shows that demand isn't strong. This is due to many foreigners leaving the Israeli market.

The big question is are there enough Israeli buyers with the ability and the willingness to purchase an apartment in a declining market.

Livni

I think prices will fall at least 5-10% more this year, if the recession continues then only mid-next year we will see prices rise again.
so far the local demand is down 20%. unemployment is jumping very month. the developers are coming up with all sorts of stories on how the supply is low and prices will not drop to make people buy now instead of waiting. Theres a huge supply of second hand apartments for rent and sale and of course they "forget" to take that into account.. In any case in cities with high demand it looks like people arent waiting and still buying.

Livni

from start of 09, 25% drop in new apartment purchase
but somehow the prices are still not falling.

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ira

As prices start to fall there is always resistance of sellers to hold on to their asking price. As time passes and their are no buyers those that have to sell get desperate and basically give up and sell at the new reduced price.

As the perception that prices are falling it creates a sell fulfilling prophesy. It now becomes a waiting game. Buyers wait for lower prices and postpone buying decisions. Sellers wait nervously. The desperate sellers cave in and this pushes prices lower.

This only ends when there is a balance of buyers and sellers. If there is suddenly easier access to mortgage money or foreigners coming to Israel to purchase the tide will turn.

To put a time frame on this assumes the economy strengthening. If it does prices will rise. If not they will continue to fall. The only thing that gives something value is that someone is will to pay.