New Israeli Homes Getting Dearer, but Rise Is Slowed by Minister’s Tax Plan

Buyers who already own a home and foreign residents are accounting for a larger percentage of purchases.

Ofer Vaknin

The average new apartment in Israel sold for 1.61 million shekels ($437,000) in the second quarter, a 2.5% increase after adjusting for inflation versus the first quarter and 13% compared with a year earlier.

These figures were released on Wednesday by the Housing and Construction Ministry, which found no change in the prices of existing apartments versus the first quarter.

The ministry notes that the market is different this year. There has been a sharp drop in purchases of new apartments that cost 1 million shekels or less – 19% of all purchases in the second quarter versus 32% a year earlier – and also a sharp drop in purchases by first-time buyers – 27% compared with 38%. There have also been fewer apartments purchased outside central Israel.

Many potential buyers are presumably hoping to benefit from Finance Minister Yair Lapid’s plan, announced in March, to offer a VAT exemption to some first-time buyers whose homes cost 1.6 million shekels or less.

Less-expensive homes, which include many in the country’s outskirts, are more likely to be part of a VAT exemption for first-time buyers.

Thus buyers who already own a home and foreign residents accounted for a larger percentage of transactions, even though they did not actually buy more homes than they did a year earlier. These buyers tend to buy a different class of home compared to first-time buyers.

The average four-room apartment sold for 1.48 million shekels in the second quarter, a 16% increase in real terms from a year earlier. The rise is mainly because more homes were bought in expensive, high-demand areas. Around 32% of four-room homes purchased were in central Israel in the second quarter, compared with 22% a year earlier.

Meanwhile, 20% of purchases were in Israel’s cheaper north or south, versus 31% a year earlier.

The average price of a five-room apartment bought in the second quarter was 1.8 million shekels, up 8% in real terms from a year earlier. Again, there was a significant drop in the percentage of these homes in the north or south, although the homes bought there tended to be more expensive than those last year.

The average new four-room apartment sold in Tel Aviv during the second quarter cost 4.1 million shekels, up from 3.4 million shekels during the first quarter and 2.4 million shekels a year earlier.

Prices increased only slightly in Tel Aviv suburbs such as Ramat Gan and Rishon Letzion, where four-room apartments sold for 1.87 million shekels and 1.66 million shekels, respectively. This is a 5.3% decline from a year earlier.

In Jerusalem the average four-room apartment sold for 2.21 million shekels, up 14.3% from the second quarter of last year. In Haifa the figure was 1.58 million shekels, down 2.3%; in Be’er Sheva it was 1.1 million shekels, up 9%; in Modi’in it was 1.57 million shekels, up 6.2%; and in Netanya it was 1.81 million shekels, up 18.9%.