Real Estate in Israel
An Israeli real estate development. Photo by Ofer Vaknin
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Home prices in Israel's 16 biggest cities climbed 1% in the second quarter of 2012, in annualized terms, based on data released Sunday.

Compared with the first quarter, the increase was 1.9%, the the Government Assessors Office said.

Inflation ran at 0.4% in the second quarter, ergo after adjustment for inflation, home prices were still higher.

The price of a four-room home in Tel Aviv jumped 6% in April through June compared with the previous quarter, rising to NIS 2.4 million on average, according to the state assessor.

The price jump in Tel Aviv seemed to have been driven by a brisk deal flow in the cheaper southern and eastern sections. Meanwhile, home sales in pricier northern and central areas fell, the figures show.

Chief Government Assessor Tal Alderoti said the rising level of home purchases and new mortgages pointed to a demand-driven market. The housing market had been weighed down at the end of last year by the summer's social justice protests, uncertainty about the global economy and steps by the Bank of Israel to discourage home lending.

"It appears that pent-up demand that accumulated over the past year was unleashed in the last quarter," Alderoti said. "Among other things, the government's decisions via-a-vis the Trajtenberg committee on housing reduced the level of uncertainty."

On the supply side, the assessor said there has been no significant change in the unsold inventory of new homes, which stood at the end of April at 20,665 units.

Hot towns, cold towns

Outside Tel Aviv, big price increases were seen in Modi'in, where prices rose 5% in the second quarter compared with the first, putting the average price for a four-room property at NIS 1.44 million. Eilat also saw prices rise 5% to an average of NIS 902,000. In Haifa, home prices climbed 4% to an average of NIS 1.18 million.

The assessor's office has been publishing price data on homes since 2008, complementing the work done by the Central Bureau of Statistics and the Finance Ministry's State Revenue Administration.

Every report has its strengths and weaknesses, but the assessor's report has the advantage of being focused in the country's biggest cities and on four-room homes that are the Israeli standard.

Not all of the country's cities joined in the price explosion. In Herzliya, prices for a four-room home fell 3% in the second quarter from the first to an average of NIS 1.72 million.

On the other hand, some cities have seen prices exceed the records set in 2011. Among them, prices in Ramle for a four-room house were 10% higher in the second quarter than they were a year ago, at an average of NIS 1.05 million. In Jerusalem, prices on the year were up 6% to an average of NIS 1.77 million.

In six cities, prices were lower than a year ago. Tel Aviv's were down 4%, Herlizya's 3%, Be'er Sheva's and Rishon Letzion's both 2% and Petah Tikva's and Rehovot's both 1%.

In the past three-and-a-half years that the assessor has been publishing reports, Haifa has led the way in rising home prices, with a 58.3% cumulative increase. Be'er Sheva and Tel Aviv were not far behind, with increases of 49.8% and 49.5%, respectively.

Prices in Ashkelon increased 47.3%, Jerusalem by 36.9%, Rishon Letzion by 35.21% and Modi'in by 34.2%.

One possible factor in the renewal of home price rises is the re-appearance of speculative investors in the market, as happened in 2009 and 2010. Recognizing the role they were playing in lifting prices, the Finance Ministry acted to deter them with more onerous property improvement taxes. That had the effect of reducing the proportion of investors among home buyers to 23% at the start of the year, from as high as 32% in the months before.

On Sunday, however, the treasury reported that property investors were back in the market. The proportion of investors to total home buyers in July was the highest since December 2001, creating demand pressure on prices.

Nisim Bublil, president of the Association of Contractors and Builders, said he was doubtful about the reported price rises.

"We have been witnessing in the past few months stable prices all in all," he said. "Since the start of the year, when buyers finally understood that prices would not be coming down because of the gap between supply and demand, they came off the fence, which caused gradually rising demand [but] stable prices."

He blamed the government for failing to reduce the supply-demand gap.

"A halt to home sales in the summer of 2011 and limits on lending by the banks caused several months of declining building starts," said Arnon Friedman, CEO of developer Ashdar.

"At the start of 2012 the number of starts dropped sharply after a period of uncertainty concerning prices, and people understood they were not going to go down - while rental prices were rising - so buyers started coming back to the sales offices," said Friedman.

He called the current rise in home prices "moderate" but warned that land sales, hence the supply of homes, were not keeping pace with demand. "Expectations that supply will meet demand don't seem anywhere on the horizon," he said.