Prices of New Homes in Israel Are Down, Housing Ministry Report Says

The Housing Ministry attributes the downwards trend to massive land sales by the state, but figures in the real estate industry say the data is dubious.

The Housing and Construction Ministry proudly announced Wednesday the results of a comprehensive review of home sales in 2012 that showed prices for new homes dropping 3% compared with 2011. Prices for second-hand homes rose, it said, but by just 4%.

Housing and Construction Minister Ariel Atias was cheered by the report and took partial credit for the declining prices.

“The figures show the declining trend in the price of new apartments that began in the second quarter of 2011 continued this year ‏(2012‏), too,” he said. “Massive land sales by the Housing and Construction Ministry and the Israel Lands Authority in the past year reached a 15-year high and brought the construction industry to a peak level of activity."

But the real estate industry reacted with scorn, calling the Housing Ministry figures superficial and not indicative of any trend while the ministry qualified the results for 2012 as not yet final.

“High housing prices push homebuyers towards smaller and cheaper apartments, and excess demand in this market starting to have an impact in a direction that isn’t positive,” said Ohad Dannus, chairman of the Real Estate Appraisers Association.

Ami Peretz, CEO of Bonei Hatichon, said the proliferation of housing price indices put out by various organizations creates a fog around price trends and makes it difficult for homebuyers to see the real picture. “The published figures are superficial and lack detail so it’s hard to reach conclusions,” added Adina Hacham, CEO of the Anglo-Saxon real estate agency chain.

Figures released by the Central Bureau of Statistics last month showed home prices rose by 6.7% in December last year, compared with December 2011. Two days later the government assessor’s office reported that prices climbed 5% in 2012 and by an average of 1.6% in the fourth quarter from the previous quarter.

Fear of bubbles

The assessor’s survey is deemed the most relevant of its kind for the country because it only includes four-room apartments, considered the most prevalent and homogeneous in the market.

The state of the housing market is cause of worry for policy makers, who fear a bubble is in the making. The Bank of Israel has clamped down on mortgage lending while the government has sought to spur construction.

But according to the Housing Ministry, the average new home cost NIS 1.4 million in 2012, while second-hand homes sold for an average of NIS 1.09 million. But the study said nothing about the geographic distribution of the transactions. The decline may reflect the public’s desperate quest for cheaper housing by compromising on locations more distant from the center of the country where prices are lower.

Breaking down the figures by apartment size, four-room units averaged NIS 1.18 million in 2012, 1.1% more than in 2011. The average price of new apartments in this category dropped 0.7% to NIS 1.26 million while second-hand apartments averaged NIS 1.15 million for a 2% gain.

The average selling price for a five-room apartment in 2012 was NIS 1.64 million, down 0.4% from the previous year. New homes this size averaged NIS 1.60 million, 2% below their average price in 2011 while second-hand five-room apartments rose 2% in price on average to NIS 1.68 million − NIS 80,000 pricier than newly-built units. The explanation provided for this odd finding was that a disproportionate number of second-hand transactions occurred in Tel Aviv where price levels are especially steep.

But Hacham of Anglo-Saxon said: “There’s a major difference between a four-room apartment with elevator and parking in a five-year-old building in northern Tel Aviv and a four-room apartment in a 30-year old building in the city center. Most demand in 2012 centered around smaller and cheaper apartments and in the periphery.”

The Housing Ministry figures appeared to confirm this, as cities off the beaten track experienced the sharpest price increases last year, led by Nesher, where average prices soared 35%. The only centrally located city with prices rising significantly was Givatayim, with a increase of 34%. Other cities where prices rose sharply included Beit She’an (32.5%‏), Arad (26.3%‏) and Nazareth (24%‏).
Average transaction prices in many central cities fell significantly, including Kiryat Ono where it dropped 8.5% and Ra’anana, where it was down 8%. Rishon Letzion prices fell 7%, in Netanya 6% and in Petah Tikva by 5%. In Tel Aviv the average transaction price rose 3.6% while in Jerusalem it dropped 1%. 

Avishag Shaar-Yashuv
Tomer Appelbaum