Despite Israeli Finance Minister's Efforts, Housing Market Is Shrinking

Figures show 22% drop in new-home sales in the first half. Both housing starts, supply of unsold homes are falling

Moshe Kahlon, Israel's Finance Minister.
\ RONEN ZVULUN/ REUTERS

The Israeli housing market is shrinking, pointing to a growing crisis that threatens to undo Finance Minister Moshe Kahlon’s efforts to increase supply and rein in prices.

The Central Bureau of Statistics said Monday that new-home purchases fell 22% in the first half of the year to 10,150 units. The pace was down even more sharply from the first half of 2016, when 16,440 homes were purchased, and of 2015, with 16,590.

The pace of new-home purchases was similar to crisis periods in the housing industry in the wake of the 2011 social-justice protests and again in 2014, when then-Finance Minister Yair Lapid was preparing an abortive scheme to exempt many home buyers from the value-added tax.

Moreover, the CBS figures showed that new-home buyers were increasingly purchasing in the center of the country, rather than the Negev or the Galilee.

In the first half of this year, 21% of new homes that were bought were in the Tel Aviv area, up from 17% the same time a year ago. For the Central District that figure was 35%, up from 32% in the same period in 2017. For Jerusalem it was 10%, up from 8%.

Slumping sale
Number of new homes purchased, monthly, '000s

However, the Northern District (Galilee) accounted for only 6.5% of new-home purchases, down from 8% a year ago, and in the south (Negev) they dropped to 11% of the total from 14%.

The preference of buyers to purchase homes in the center of the country usually characterizes a real estate market in crisis. Contractors have recognized the phenomenon as well as the decline in purchases and have been reducing the pace of construction since the start of 2017.

The latest figures from the CBS for June 2018 showed that the number of homes under construction was just 23,640 units, its lowest since the CBS began collecting the data 18 months ago.

Trend data from the CBS showed that the inventory of unsold homes has been declining at a rate of 0.6% a month since last October after rising the first nine months of 2017 by 0.3% a month.

Kahlon has chalked up some success on housing prices, which he has made top priority since he took office three years ago, by imposing taxes on property investors and the Mahir Lemishtaken (buyer’s price) program that sells land at a discount to contractors, who pass the savings on the buyers.

Building bust
Inventory of unsold new homes in private sector,

However, the rate of month-on-month prices declines has dissipated and in May, the last month for which there are figures available, prices showed no change at all. For the 12 months through May, they were down by just 0.1%.For new homes — the segment regarded as reacting faster to market developments — prices rose 0.9%

Meanwhile, the latest figures for home construction starts show a 22% decline to 43,350 units in the 12 months through last March.

The figure on declining housing inventory and starts, however, will likely to exert upward pressure on prices going forward.

Meanwhile, repeated requests by TheMarker to the treasury and to the Construction and Housing Ministry for figures on the number of homes actually occupied by buyers in the Mahir Lemishtaken program reveals how small an impact the program is having on the market.

Of 55,000 homes that have been marketed through the program over the last three years, keys to only 1,000 have been delivered to buyers as of today. Given construction times, that’s not a surprising figures — if all of the homes that were built under the program at its start in 2015 had been completed and delivered on time, the number would have been about 3,300.

Nevertheless, the treasury’s chief economist said in a report that first-time buyers (young couples) were opting not to join the Mahir Lemishtaken lotteries and turning to the private market because of the long lead time between buying and getting possession of a home.