This Israeli Investment Guru Believes Housing Prices Will Soon Go Down

Zvi Stepak worries about the disparity between the 1 percent and everyone else and reveals what could bring down housing prices. 'Inequality will be the plague of the 21st century,' he tells Haaretz, 'A harsher social uprising is coming'

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Zvi Stepak. "Wealth has to be taxed."
Zvi Stepak. "Wealth has to be taxed."Credit: Hadas Parush

Multimillionaire businessman Zvi Stepak believes Israel’s next social uprising will be much larger than the one that swept the country in 2011. “It’s all because of the disparity between the haves and the have-nots,” the founder of the investment house Meitav predicts, in an interview to mark the release of his memoir “My Investment World” (in Hebrew).

“Some argue that inequality in Israel has decreased in the last decade because our position on the Gini index has improved,” he says, referring to the coefficient in which 0 stands for total equality and 1 stands for total inequality. Last year, Israel’s Gini coefficient was 0.38. “But as I see it, the Gini index, which is affected mainly by income levels, is not a useful tool for the current situation because the cause is in the markets themselves, which deepen inequality.

“The wide disparity between people is not the result of an income difference: the main gap is in financial wealth,” he argues. “Imagine, for example, two people: After the 2008 financial crisis, one had no money left in the markets and hasn’t make any since. The other, though, had $1 million – which has since increased to $4 million. It’s way more than the actual salary income the first person would have gained during these 14 years. The disparity between these two only deepens.

Raising interest rates to 0.75 percent is a hell of a solution, and it will bring down housing prices toward the end of the year.

Zvi Stepak

“Inequality is going to be the plague of the 21st century,” Stepak warns. “If this continues, it will cause harsh protests. It can’t be anything else. There’s a fine line between silent protest and a violent one. Remember, protesters broke the glass doors of several bank branches in Tel Aviv in 2011. I warned about this as early as 2004. When it happened in 2011, I thought it would be much more violent. The inequality is too deep, it’s out of proportion. All it takes now is for a charismatic and populist leader to ride the current wave and a social uprising could get out of hand.

The tent protest in Tel Aviv's Rothschild Boulevard a day before it was dismantled in 2011. Will it be so peaceful next time?Credit: Moti Milrod

“I’m really concerned – inequality must be reduced,” he stresses. “Israeli society is divided enough between right and left, between the ultra-Orthodox and the secular. We don’t need to add to this.”

His solution? “Wealth has to be taxed.” Asked how we should achieve this – capital gains taxes? Property sales taxes? – he argues that if “you focus on capital gains, you will destroy the stock market. Also, you need to be careful with property sales. We don’t want landowners to hold on to them for years to avoid taxation. But we do need to tax high-value property. Someone whose assets are worth a billion shekels ($290 million), for example, must pay 1 to 2 percent every year. When it comes to assets held in shares, it’s desirable that the longer a person retains them, the lower the tax is. That way, we encourage long-term investment.”

We have one car, which I bought three or four years ago for about 200,000 shekels. What’s the name of that firm – Volkswagen? Ford? I can’t remember

Zvi Stepak

Stepak’s book, which was released in May, is a reflection on 40-plus years working in finance. He opened Meitav in 1979, together with Shlomo Simnovsky. He was then in his 30s and had spent 10 years working as a teacher. The decision to move into the world of investments turned out to be a smart one. In 2013, at the peak of a series of mergers and acquisitions, Meitav merged with Dash and thus became the second-largest investment house in Israel in terms of assets. Stepak is active on various boards of directors and investment committees, but is no longer the chairman of Meitav Dash Investments.

This may be one of the reasons why, at 76, Stepak has no hesitation in rattling off his strong opinions. Indeed, the only moment that leaves him somewhat flummoxed is when we ask about the car he is driving – since he and his family were always proud public transport users.

“We have one car, which I bought three or four years ago for about 200,000 shekels,” he replies. Pressed on what make, he struggles to recall. “What’s the name of that firm – Volkswagen? Ford? I can’t remember. It’s a well-known firm. When Avner [his son, the vice chairman of Meitav Dash Investments] was a kid, we used to walk the neighborhood and he’d say ‘This is a Mercedes’ and ‘That’s a Ford.’ I can’t tell.

Zvi Stepak. 'I saw the hypocrisy [in America]. It’s impossible to know if ‘yes’ is indeed a yes, or what they want and don’t want.'Credit: Hadas Parush

“I think we have a Peugeot,” he recalls suddenly with a smile. Later that day, he calls to update us that after checking with his wife, he must confess to an error: “We’re driving a Volkswagen.”

The subject of the car arose while we were discussing the meaning of money. Or, to be more precise, when we reminded him that, contrary to his socially oriented statements and warnings about the dangers of inequality, he works in an industry where practically the sole sign of success is money. Meitav Dash currently manages 223 billion shekels and its current value on the stock exchange is 1.1 billion. The family’s holdings are a third of the total share value, or about 360 million shekels.

'I’m not crazy for the Americans. I don’t like the business culture over there'

“You can say that money is the sole parameter that reflects success,” he nods. “But success can be achieved in several ways. Sometimes, luck rather than talent yields money – for instance, if you win the lottery. In the same way, a brilliant scientist is a successful person. In fact, a person can succeed and feel satisfied even if they make little to no money.

"I was a teacher at the beginning of my career, a good one, and I earned quite well teaching in places like the Ankori High School. My main satisfaction was from being with the students. So my perspective on money – and I think it’s one of the reasons I did well as an investment manager – is that it serves as a useful tool for achieving a good standard of living. But beyond that, it has no meaning. I despise all the nouveaux riches and do not hang out in such circles. If I go to conferences here and there, it’s only because I have to.”

Central Tel Aviv. Will the housing prices ever go down again?Credit: Tomer Applebaum

And yet you’ve conferred your wealth, those Meitav shares, to your children. You didn’t choose to donate it. Billionaires like Bill Gates and Warren Buffett have announced that they won’t do that.

“First, I’m no Buffett and am not close to having even one-hundredth of his fortune. The fact that my children work in the family business is a different scenario than when your children are abroad or when they go their own way. Am I supposed to transfer the shares to someone else while they’re in? Or maybe sell them? It’s reasonable to think that in a family business, the shares remain in the family.

'The claim that housing prices are always rising is untrue. We’re used to it here because since 2006 they have only risen, and the public thinks that this will always be the case'

"I signed an agreement with my children in October 2010, and in 2019 I transferred the shares to them, a third each. Avner got more because he has been working for the company since the age of 6. My daughter Rachel also works for the company. In fact, she has a Ph.D. in literature but has been responsible for digital innovation and the accessibility of financial literacy in our business for several years now. My son Amir lives in the United States. He also holds a Ph.D. and works in big data. He knew from an early age that he wanted to work there.”

How come? Didn’t you teach him enough about Zionism?

“He’s sensitive and has a strong political temperament. Already in high school he was politically involved. He was deeply disappointed with what took place in Israel, especially after the Rabin assassination” in 1995.

Weren’t you disappointed?

“I have concerns about many things. But I’m not disappointed in my country. I’d like [Amir] to live here.”

'The current crisis is different, both because of the COVID pandemic and because we’re now witnessing the end of the long period of low interest rates'

Are you politically active? Avner used to be treasurer of the Labor Party.

“I got it from my father. He was a socialist and he took me to political events when I was in high school. From a young age I voted for the Independent Liberals [a centrist party that existed from 1965-1992]. Today I’m not active. I think Israel is a better place to live than the United States.”

What makes you say that?

“I’m not crazy for the Americans. I don’t like the business culture over there. There’s huge ignorance there. Obviously, there’s a level of excellence in Silicon Valley, which is a magnet for talent. But the conflict between the right and the left here is nothing compared to what’s happening to them. Take, for instance, Donald Trump and Joe Biden, or the split in American society over the issues of abortion and gun ownership. There are issues there that divide the nation. New York and San Francisco are bubbles, and in other areas some suffer from a catastrophic low level of government spending on education.

Occupy Wall Street protesters rallying in a small New York park in 2011.Credit: AP

“I got to experience the business culture in America a few times. Actually, I’m currently writing a book about it. The year 2005 was a very good one for Meitav, and I tried to set up a mutual fund aimed at foreign investors who would invest in Israel. I met with representatives of pension funds and got to meet with many American businessmen. I saw the hypocrisy. It’s impossible to know if ‘yes’ is indeed a yes, or what they want and don’t want. Everything has a price. I was supposed to meet with a large fund and was told ‘You have to pay $15,000 for the meeting.’”

'I’m happy to be out of the ‘500 richest’ list. I really mean it. If you ask me what the most important word is in running a business with employees, customers and suppliers – it’s ‘trust.’'

$15,000 in cash or as an official payment?

“I don’t know how they wanted us to transfer the money. But when I’m faced with such a demand – I’m out of there.”

In the book, you mention negotiations to buy shares in the Prisma investment house, which wasn’t ultimately successful because you didn’t like the style of the person you were dealing with.

“They conducted themselves with a total lack of transparency, and in retrospect it became clear that they were negotiating with another firm simultaneously. In the end, Prisma sold its funds to Excellence, and its troubled provident funds to Psagot. We went in with good faith, but their two negotiators were not exactly our cup of tea. Personal chemistry is also important in mergers.

A large home being built in Savyon, central Israel.Credit: Ofer Vaknin

‘I’m happy to be off the rich list’

ESG funds are enjoying a moment in the sun, as it were, and we wonder what Stepak thinks about investing in companies that are harmful to the environment and fuel the climate crisis. “The question can also be extended to investing in tobacco, porn, gambling or arms companies. It is impossible to tell existing investors, who hold a fund in my company: ‘I stopped investing in these businesses.’ When they came to me five or 10 years ago, I didn’t tell them this was my policy. I may suffer legal consequences for this. The solution is for the legislature to give us protection in such a case, or to establish an investment route so that anyone who wants it can go for it in advance.”

In the division between the 1 percent and the 99 percent, you’re part of the 1 percent.

“Not if we consider all the exits in high-tech [when Israeli startups were bought out in multimillion deals] in recent years. Even if this were true, I think there’s something to be done to fix the situation. Meitav has been donating 2 million shekels each year for the last 15 years, and my wife and I have also been donating to various organizations constantly. In addition, we decided that the minimum wage in our company will be 15 percent higher than it is elsewhere.”

You wouldn’t be able to find workers who would agree to work for minimum wage today.

“Not today. But there were also years when unemployment was high. In 2008, Avner established a Meitav office north of Beit She’an, which employs 120 to 130 workers in customer service and sales. Today, the management is in Kibbutz Ma’agan and we serve as the largest employer in the Tiberias area. We do have a social agenda,” he says, referring to the fact that wages and opportunities are historically lower in the periphery.

Warren Buffett in May 2019.Credit: Nati Harnik / AP

But the financial markets do not reduce inequality.

“I agree. I’m happy to be out of the ‘500 richest’ list. I really mean it. If you ask me what the most important word is in running a business with employees, customers and suppliers – it’s ‘trust.’ Then comes long-term consistency in business management and in everything else. The key words are balance and an appropriate volume of work, also in profits. I’m a capitalist and am not in favor of equality. Every person deserves to be paid according to his skills and abilities. But today, there’s a total imbalance when it comes to inequality. In the ’50s, the salary of a CEO in an S&P 500 company was 15 times the median salary of their employees. Today it’s 350 times that.”

Where do you stand on the issue of inheritance tax as a tool for increasing equality?

“I’ve thought about it before and concluded that it’s not the solution. It’s too complicated – and in Israel it’s nearly impossible. It’s a fact that in countries such as Sweden, there’s no inheritance tax. You cannot impose an inheritance tax unless you also legislate a gift tax. The result would be that the rich would transfer all their capital. Show me an Israeli who wouldn’t plan to avoid paying inheritance tax. There aren’t any.

“In addition, there’s talk of imposing an inheritance tax on anyone who has more than 10 million shekels in financial and real estate assets. That’s not a hard thing to acquire. It’s enough to have financial savings worth about 2 million shekels, as many Israelis have, and an apartment that’s worth 4 million. Furthermore, there’s a problem with the realization of assets that would have to be done for the purpose of paying the tax. It may turn out to be populist.

“The solution lies on several levels,” Stepak declares. “First, we need to impose a wealth tax on the rich. In the United States, Democratic Sen. Elizabeth Warren proposed it. It’s a solution that would yield a lot of money. In America, the top 1 percent have more money than the entire middle class [60 percent of the public]. A second solution is donations to nonprofit organizations, which the government should massively encourage.”

A girl holding a doll made in the likeness of U.S. Sen. Elizabeth Warren last month.Credit: Charles Krupa/AP

Microsoft over Tesla

Stepak’s perspective is rare. He likes to point out that there’s very little similarity between the economy he deals with today and that of some 40 years ago. “There was huge government involvement back then. For example, there was no such thing as devaluation of a currency from the bottom up, but only as a result of a government decision.”

What stock would you buy today?


What about Elon Musk’s Tesla?

“No way!”


“My son Avner holds a negative view on it. It’s only a matter of time before other companies – Chinese or from traditional industries – catch up with its advantage. Tesla is a short even now.” (A “short” is investing in such a way that the investor will profit if the asset’s value falls.)

So where are the markets heading from here?

“The crisis today is different from previous crises. Simnovsky, my partner when we opened Meitav, and I foresaw the banking crisis of 1983. Then in 1994 there was a credit crisis, and in 2001 we suffered a global crisis and an intifada. There was also the crisis of 2008 when the global financial system almost collapsed. Then again in 2015 there was a crisis in China, and in 2016 the Brexit referendum. But this all served me well as an investment manager. I like to act against the obvious trends, and my great successes occurred in these situations.

A luxury apartment block being built at Park Bavli in north Tel Aviv.Credit: Hadas Parush

“However, the current crisis is different, both because of the COVID pandemic and because we’re now witnessing the end of the long period of low interest rates. Bonds’ worth goes down, and there are increasing yields on government and corporate bonds. At the same time, people who have earned a lot in stocks transfer money to bonds. So there’s a process of adjusting assets that takes time as the volatility decreases.”

How much longer will it take?

“Not more than three or four months. We were the first to warn of increasing inflation. The central banks woke up too late, so they must now seize the opportunity and be aggressive. They’re acting appropriately, but delayed. In the past, the markets were fearful of inflation and now they’re petrified of a recession. They worry that the Federal Reserve and central banks will exaggerate and stifle both inflation and any economic growth.”

This process of adjusting assets – what does it mean for the average Israeli?

“There will be a decrease in consumption and some increase, but not a large one, in unemployment. Financial leverage firms will face difficulty refinancing debts, especially the kind that has an affinity for the housing markets. In my estimation, inflation in Israel will fall to the target range of 1 to 3 percent in 2023.

“Raising interest rates to 0.75 percent is a hell of a solution, and it will bring down housing prices toward the end of the year. I believe that we’ll see a decline next year, especially in areas of demand such as Tel Aviv, where there’s a high price per square meter.

“I see it myself: For many years we lived in a family home in Ramat Gan, and then we moved to Park Bavli [in north Tel Aviv] – into a 170-square-meter [1,830-square-foot] apartment in a building. We bought in 2015 for 6 million shekels, and today such an apartment costs around 9 to 10 million.

“The claim that housing prices are always rising is untrue. We’re used to it here because since 2006 they have only risen, and the public thinks that this will always be the case. The real demand [in Israel] is for 50,000 to 55,000 apartments a year. This year, 75,000 apartments are being built. Contractors see that prices are rising, so they build more. And who is responsible for the excess demand? Those who have children around the ages of 16 or 17 – parents and grandparents who want to help their children and fear that rising costs will make it impossible.”

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