No Letup in Rising Home Prices in Israel During First Quarter

Prices for four-room units rose 4% year on year, while number of property investors soared.

Raz Smolsky
Arik Mirovsky
Nimrod Bousso
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There's an increasing presence of illicit money in Israel's real estate industry.
Construction in Israel.Credit: Nimrod Glickman
Raz Smolsky
Arik Mirovsky
Nimrod Bousso

Rising home prices showed no letup in the first quarter, as the market contended with a chronic shortage of housing stock and uncertainty over government plans to rein in the rising cost of buying a property.

Meanwhile, Yoav Galant (Kulanu), who formally took over as housing and construction minister on Sunday, did little to assuage fears, saying he was still learning about the issues while sending the message that army veterans should get highest priority for housing.

“The first challenge is [ensuring] that every soldier and everyone serving as an inductee, career soldier or reservist, gets housing of his own,” said Galant, a reserve general, at a ceremony marking his taking over the portfolio from Uri Ariel. “We have been studying the issue, and we’ll see how to advance things.”

The Government Appraiser’s Office at the Justice Ministry said Sunday that prices for four-room houses rose 4% in the first quarter of 2015, from the same time in 2014, and by 1% from the final quarter of last year. The sharpest year-on-year rises were in Ashdod, Ashkelon and Jerusalem, where year-on-year increases were about 7%.

In Ashdod, the average home sold in the first quarter for 1.35 million shekels ($350,000). In Ashkelon it was 963,000 shekels, while Jerusalem properties sold for 1.902 million, the appraiser’s office said in a report.

The appraiser only measures the price of four-room units, because there are a large number of homes of this size on the market and they tend to have fewer differences that could affect the price, thereby making them a good barometer of overall housing-price trends.

In Modi’in and Netanya, prices for four-room units rose 6%, while in Be’er Sheva and Rishon Letzion prices were up 5%. The only major cities where prices didn’t move were Tel Aviv and Holon, where prices averaged 2.737 million and 1.58 million shekels, respectively.

On a quarter-to-quarter basis, however, Be’er Sheva showed an unusually sharp rise of 7%, while Modi’in prices increased by 3%. Meanwhile, Jerusalem, Kfar Sava and Rehovot saw rises of just 1%. Seven other cities, including Herzliya, Netanya, Petah Tikva and Tel Aviv, showed no quarterly increases at all.

Prime Minister Benjamin Netanyahu’s last government tried to rein in housing prices, proposing to exempt some buyers from the 18% value-added tax and tendering state-owned land for development at lower prices. But the programs either never got off the ground or did so slowly.

New Finance Minister Moshe Kahlon has vowed to put a lid on rising home prices, including plans to sell land to contractors and others at lower prices. These savings will be passed onto buyers when they buy the units built there.

Kahlon is also weighing plans to impose heavier taxes on real estate investors, in order to reduce competition for buyers seeking a home to live in. However, many economists argue that reducing demand by investors won’t alter the fundamental supply-demand balance, because most investors rent out the homes they buy.

In any case, the Tax Authority on Sunday released figures showing a sharp increase in home-buying by investors over the past six months. The number of private individuals owning five properties or more rose 6.4%, to 5,760 individuals – a record high. Of these, 331 owned 10 or more properties, an increase of 7%, the authority said.

In fact, the number understates how much multiple-home ownership there is in Israel, because the figures don’t include companies or trusts owning multiple dwellings, or individuals who registered properties they own in the name of relatives. They also don’t include foreign residents or people who inherited a home.

The numbers testify to the growing interest in residential real estate investment, despite efforts by Yair Lapid, the previous finance minister, to quell it. Lapid raised the real estate purchase tax to a minimum of 5%, up from 3.5%, at the start of 2014.