Tel Aviv Tops All but One European City in Real Estate Prices in 2019

The Deloitte Property Index emphasized that the coronavirus pandemic has already shaken up the residential real estate markets

Adi Cohen
Apartment buildings in the residential neighborhood of Nahalat Yitzhak, Tel Aviv, February 13, 2020.
Apartment buildings in the residential neighborhood of Nahalat Yitzhak, Tel Aviv, February 13, 2020.Credit: Moti Milrod
Adi Cohen

Tel Aviv was in second place among European cities for the cost of housing and Jerusalem was in the top 10 last year, a residential real estate survey conducted by the accounting firm Deloitte shows.

The Deloitte Property Index shows that the average cost of a home in Tel Aviv last year was 9,769 euros ($11,579) per square meter, 2.5 times the average for the 67 European cities covered in the survey. In Jerusalem, it found, the price per square meter was 6,212 euros, although Haifa was a much lower 3,832. At 12,863 euros, only apartments in Paris were more expensive than in Tel Aviv.

The Deloitte report emphasized that the coronavirus pandemic has already shaken up the residential real estate markets. Ten out of 23 surveyed countries expect prices to stagnate this year and the number of transactions to decline. In six, both prices and activity are expected to fall.

“A positive outlook is being articulated by representatives from countries, which have strong fundaments for further development of the residential market,” the report said, citing on a tentative basis Belgium, the Netherlands, Norway and Israel.

Nationwide, Israeli homes were less expensive than most European countries for the average buyer. An Israeli has to spend the equivalent of 8.7 annual gross salaries to buy a 70-square-meter apartment, putting it in 13th place among 23 countries in the Deloitte survey. In terms of affordability, Portugal and Belgium led the Deloitte rankings, with the average home costing just four years of earnings.

For renters, Tel Aviv was surprisingly ranked only 16th highest among 65 cities, and Jerusalem was 22nd. That means that Israeli landlords got a lower return on their investments than their counterparts in many other European cities.

That’s an important finding as the government is now seeking to entice residential property investors back into the market by winning Knesset approval earlier this month to reduce the purchase tax to 5% for people buying second and third homes. The reduction may offset the relatively low return investors get.

Deloitte found that Israelis pay more for mortgages than Europeans – 3% on average, putting Israel in fourth place after Hungry, Poland and Ireland. At about 1.1% on average, Portuguese mortgages rates were the lowest in the survey.

The Israeli government’s efforts to increase the housing supply in order to rein in soaring prices seem to have little impact, according to the report. Deloitte found that Israel was at the bottom in terms of supply relative to the population at just 293.2 units per 1,000 people. By comparison, Portugal and Italy, which has the biggest housing stocks per capita, has 580 units for 1,000 people.

On the other hand, Israel was ranked relatively high for housing construction. In 2019, it ranked fifth for the number of new dwellings under construction at 5.56 units per 1,000 population. In housing completions, Israel was No. 4 with 5.54 per 1,000, according to Deloitte.

Doron Gibor, the head of the real estate industry group for Deloitte Israel, said the low number of homes to population in Israel was in part due to Israel’s relatively big households. He added that the figure for Portugal, for instance, was inflated by the country’s large number of vacation homes.

“Beyond that, the supply of housing in Israel had grown as has the population here by a wide margin of Europe,” he said. “The birthrate here is high, there is net immigration and so is the divorce rate, all of which creates demand for more and more homes – demand that is bigger than for the other surveyed countries.

Looking ahead to the impact of the pandemic on the real estate market, the Deloitte report noted that builders are now in better financial shape than they were when the global recession struck in 2008. Nevertheless, it said, construction activity has been virtually suspended for several months and real estate transactions in some countries have plunged as much as 80%.

Gibor said COVID-19 was already showing signs of bringing about significant changes in the housing market.

“We’re seeing in the field no small number of trends for remote work, which could affect demand, he said. “This raises a lot of question: How will this affect demand in city centers? Will people begin to live further away from their work, in places where prices are lower and the quality of life perhaps better? What will the transition do to the [Israeli] periphery?

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