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Real estate market collapses By Arik Mirovsky Nationwide apartment sales plunged 43% in the last quarter of 2008, and prices sank by 7%, according to a survey published by the State Revenue Administration. The data conflicts numbers released by the Central Bureau of Statistics, the survey states. Advertisement The Revenue Administration survey points to a more severe crisis in the Israeli real estate market than has been indicated by CBS figures and organizations involved in the real estate sector, chiefly the Association of Contractors and Builders in Israel. The survey also raises fundamental questions about the reliability of figures presented by the CBS. According to the survey, 2008 saw 91,500 apartment purchases, down 6% compared to 2007, and new apartment acquisitions were down 14% in 2008. Only 19,000 new apartments were purchased last year, or 21% of the entire market. The average figures for 2008 seem reasonable, but focusing on the market performance of the last quarter of the year when the major real estate crisis in the U.S. began to unfold reveals that nearly all parameters point to a real collapse. That quarter saw just 15,100 transactions, down 43% compared to the fourth quarter of the year before, and the lowest quarterly figures since the economic recession of 2002. The average price of apartments in the fourth quarter fell to NIS 760,000, down 7% compared to the second and third quarters of 2008. Price levels are similar to those seen in the first quarter of 2007, and 8% lower than peak prices seen in the third quarter of 2007. The crisis is manifesting itself clearly in sales of private homes to foreign residents. Sales in this sector fell off 54% in the last quarter of 2008 compared to the same period the year before, sinking overall sales for the year by 33% compared to 2007. Two areas where foreign residents have made themselves particularly scarce are the Sharon coastal plain region and Jerusalem, where apartment acquisitions were down 37%. The number of transactions in the luxury apartment market were down 40% in the last quarter of 2008 compared to the same period the year before. The survey also indicates that the State Revenue Administration is doubtful about CBS figures. So while the CBS index of apartment prices reveals that prices rose by 11% in 2008 compared to the year before, the State Revenue Administration finds that prices remained unchanged on an annual average, and emphasizes that the ceiling on real estate purchase tax exemption was increased based on the CBS's incorrect data, which will cost the state coffers about NIS 80 million this year. There are significant differences between CBS and State Revenue Administration data in some cases. State Revenue Administration data on average apartment prices from the third quarter of 2006 through the fourth quarter of 2008 are up to 7% higher than those presented by the CBS. In addition, while the Revenue Administration reports that price averages fell by 7% in the last quarter of 2008, the CBS talks of a drop of just 3%. Another fascinating figure is revealed in a comparison between contractor companies that issued bonds between 2005 and 2007, and large contractors who did not: The price of apartments sold by companies that did not issue bonds rose more steeply than those sold by contracting companies who did issue bond debt. "Bond issuing contractor companies may have responded to a need to shore up their cash flow," the Revenue Administration report says, "forcing them to be more flexible in pricing." Another interesting figure is a comparison between acquisitions by investors and individuals. While the latter, which include mainly young couples and upwardly mobile buyers, bought 7% fewer apartments in 2008, investors reduced the scope of their acquisitions by just 3%. According to the Revenue Administration report, "It may be assumed that the sharp declines on capital markets in the second half of 2008 caused investors to redirect money out of the capital market and into real estate." Nevertheless, the Revenue Administration believes that some of the investment acquisitions in 2008 were carried out under the title of investors' relatives rather than their own, out of tax considerations. At the end of 2007 the taxation gap between investment-oriented real estate acquisitions and apartment purchases for personal residence increased dramatically, and investors have found it financially sensible to register the titles of the apartments in others' names. Bookmark to del.icio.us   A new Mideast solution Obama looking to persuade Arab states to begin taking steps toward normalization. Iran flexes its missiles Tehran says it successfully test-launched a missile capable of reaching Israel.

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