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Last update - 04:24 23/01/2008 Developers unfazed by diving real estate share prices in TA By Nattan Sheva and Michael Rochvarger Tags: Israel, Developers  In an era of falling interest rates, cheap credit, high liquidity and euphoria, real estate prices generally shoot up. But everything has been turned topsy-turvy in recent months, and something more tangible has been added to the equation: fear. In a period of rising fears and risk, real estate shares become almost disposable, and not necessarily because of a decline in financial results. What has changed? The leveraged real estate sector relies on money, money has become more expensive, and companies will have to pay more to take loans, buy new properties or refinance existing loans. Analysts are currently talking about of 1% to 2% increases in loan interest rates in some companies. In addition, risk has increased, and such risk means lower real estate share value. For the meantime, the crisis is limited mainly to share prices, but only the coming months will tell whether it will extend beyond the stock market. The real estate index, which has risen to 150% since 2005, has lost 40% since its record of six months ago. Africa Israel shed 45% of its value, erasing NIS 12 billion - on paper, about NIS 8 billion evaporated from Lev Leviev's pocket as the value of Russian properties deflated. Delek Real Estate, exposed to European property markets, dropped 60%, erasing NIS 2.6 billion. Gazit Globe has lost 40% from the value of its traded shares, since its record levels of six months ago, because of its high exposure to income-earning real estate in the U.S. Other companies exposed to east European or Indian markets have been pounded, like Elbit Imaging, whose shares have dropped 30% since the heyday. Worldwide, European real estate shares have tumbled 40% and a Dow Jones real estate investment trust (REIT) composite index has shed 30% in the past year. Advertisement The damage to the sector is not limited to share prices. Bonds, and especially those linked to specific projects are deflated. The money-raising bonanza that took place here in 2007 allowed small companies with overseas land assets to raise bonds at 10% or more. Convertible bonds of Tesoua 10, active in Eastern Europe, Ofek Real Estate, with two projects in the U.S. and a few others, are trading on yields of nearly 20%. The high yield rate is an indication of the pervasive feeling that the companies will find it difficult to repay their debt. The question is whether the effect of the crisis is limited to investors, or whether there has been a real deterioration in the operative results of the underlying firms. For the time being, most seem to be resilient. "In spite of Elbit Imaging's tumbling share prices, there has been no change for the worse in Elbit Imaging's activities. Just the opposite," says Shimon Yitzhaki, CEO of Elbit Imaging, which invests mainly in Eastern Europe and in residential projects, office and commercial projects, and which has entered the Indian market recently. "We aren't feeling the effects of any crisis," Yitzhaki added, "if such a thing even exists. We have felt no change in our work with our investment bankers when seeking loans. We received four offers from the banks to finance our shopping center project in Romania. The sale of the hippodrome in Hungary was completed without a hitch, as far as we have heard." The banks are checking projects more carefully, Yitzhaki says. In India, U.S. money in search of investments sent land prices into an upward spiral, but it's safe to assume that this money won't be circulating in the near future, which will relieve demand pressures. "The credit crisis can continue for two or three quarters, and may have a bigger effect in the U.S." he says. "But the 30% drop in Elbit Imaging share prices is a result of sale pressures in real estate stocks. We're part of the stock market." Natan Hetz, one of the controlling shareholders of Alony Hetz, agrees. A differentiation should be made between what is happening in the stock market - over which a company has no control, since when sellers are selling everything, they sell real estate shares too - and real markets and the ongoing operations of Alony Hetz in Israel and all over the world. "We don't operate to please investors, but work in earning real estate, which by its nature, is a long-term business. This is a stormy period, and the best thing to do in times like these is to stay low and wait for the storm to pass," Hetz says. Hetz rejects outright any claims that the company is suffering from the shockwaves of the global credit crisis. "Not in the U.S. and Canada, and not in Western Europe." Hetz attributes financial losses on paper amounting to NIS 300 million to the drop in value of Swiss firm PSP and Italian company Pirelli. He adds that if the the share price of PSP continues to fall, Alony Hetz will buy more of it, while he acknowledges that his company's investment in the latter was very poorly timed. "Israel is currently an island of sanity in this area" says Ariel Even, chairman of Reit 1, which manages earning properties in Israel. "Obtaining financing is not a problem, there is no change in the price of real estate, and rental prices are rising. For the time being," he says, the events in the global financial world are not affecting Reit. "That could happen if there is a recession that affects office rental prices, but that's still a remote possibility." Bookmark to del.icio.us   The father of the victim Father of terror victim slams Olmert for letting PA try the killers. 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