Foreign Purchases of Israeli Real Estate at Its Lowest Since 2003 Intifada

The severe downturn in the market was evidenced this month in the absence of the housing fairs aimed at foreign buyers that typically occur in August

A housing fair in Shoham.
TheMarker

Foreigners bought fewer homes in Israel in the second quarter anytime since 2003, when the violence of the second intifada deterred buyers, the Finance Ministry’s chief economist said in a report released on Wednesday.

Foreign residents bought just 391 homes in Israel during the quarter, an 11% decline from the first quarter and a 70% decline from the second quarter of 2015 when foreign buying peaked at about 1,200 units sold, the treasury said.

Home sales to foreigners dropped precipitously after that, adding up to no more than about 700 in any subsequent quarter.

The severe downturn in the market was evidenced this month in the absence of the housing fairs aimed at foreign buyers that typically occur in August, the peak of the tourist season. Meanwhile, fairs overseas are drawing fewer and fewer visitors.

“A few months ago I was at a real estate sales convention in London. In previous years we would end a fair like that with 60 or 70 potential buyers at least. This time, there was nearly no interest in buying a home, and there were even a few Brits asking to sell properties they already own in Israel,” said Anat Riesenberg, who has the Anglo-Saxon real estate agency franchise for Netanya.

In fact, Netanya was the only one of the five big centers of foreign home buying to see a rise in home purchases in the second quarter. All the others, which include Jerusalem, Ashdod, Eilat and Tel Aviv were all down, led by a 30% quarter-on-quarter decline by Tel Aviv.

A combination of factors has led to the collapse of the market. One is the rise in Israeli home prices over the last decade. Since they began climbing in 2008, prices have climbed about 130% according to the Central Bureau of Statistics housing price index By one estimate, it costs It costs about $920,000 on average to buy a three-bedroom apartment in Tel Aviv -- more than it does in London or Amsterdam.

For overseas buyers, the rise in Israeli home prices has been compounded the exchange rates, especially for people buying homes in sterling or the euro – though less so for the dollar.

After hovering for years at about six to the shekel, the Brexit referendum in June 2016 sent to the pound into a nosedive that saw its value fall as much as 25% to as little as 4.47 shekels last march. It has since recover to 4.6347 as of Wednesday.

The euro, which traded in a range of 5.50 to 5.70 shekels in 2008-09, began depreciating to a rate of 4.90 at the end of 2014. It then tumbled 24% to reach a low of 3.82 shekels last march and has since recovered to 4.2677.

In terms of home prices, it meant that a French buyer purchasing a property priced at 1.5 million shekels would have cost him or her 300,000 euros in early 2015 and 390,000 euros two years later. For a buyer paying in sterling the price would have risen from 250,000 to 330,000 pounds.

In any case, irrespective of exchange rates, the price would have risen 15% on average during the two years.

Another factor undermining the market is Israel’s crackdown on tax evasion and money laundering over the last two years. A phenomenon it once ignored, Israel has more recently joined a joint drive by the Organization for Economic Cooperation and Development to tighten rules and step up coordination between tax authorities in member countries.

Yet the absence of foreign buyers in the market isn’t likely to relieve Israeli buyers, the treasury chief economist noted. Besides being a small part of the market, in Jerusalem and Tel Aviv foreigners mostly bought luxury properties whose properties are far out of the reach for ordinary Israelis.

However, the treasury said in Netanya that gap was only on average 10%.