Housing Market Trends Point to Price Rises Ahead

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The Housing Ministry had very little good news for home owners in its report released Monday on market trends for 2012.

While the ministry reported last week that prices fell last year, a trend that runs counter to figures published by other arms of the government, the underlying trends point to tightening supply and higher prices head.

The Israel Lands Administration put on the market land designated for some 38,000 new homes, about the same level as in 2011. But the land that was actually sold over the course of the year was equal to 15,400 housing units, a 40% drop from 2011’s 25,500, according to the ministry.

In fact, it was the lowest level of sales since 2008, which will have a negative impact on housing construction starts over the next two to three years. Against that, a large number of transactions have occurred since the start of this year, among them marketing of land for 4,300 homes in the new Galilee city of Harish.

The Housing Ministry ascribed the drop in sales to the credit crunch the building industry is now experiencing.

“An examination by the ministry found that one of the main barriers to increasing building starts is the limits on credit to the industry,” it said, citing as well a shortage of equity for contractors and higher loan charges. “The relative cost of building has risen, making it less attractive to participate in [ILA] tenders,” it said.

Two initiatives to create more affordable housing in the wake of the 2011 social justice protests resulted in land designated for some 6,700 homes marketed by the ILA. But the amount of land actually sold under the two measures was relatively small, suggesting that contractors don’t find the terms attractive.

Under the first program, called Mechir L’Mishtaken (“The occupant’s price”) programs one in which land is awarded by bidders offering to sell homes at the lowest price to buyers land for some 5,100 homes was put up for market, but only enough land for 2,250 homes was sold. Of the rest, tenders for 1,740 units were cancelled and land for another 1,100 has not yet be completed.

For the second program, designed for builders developing apartment buildings for long-term rental, land for 1,600 units was marketed. Only land for 312 units, less than 20% of the total, was sold, with the rest of the tenders cancelled.

In the rental market, meanwhile, the average rent in Israel rose 4.9% in 2012, according to the Housing Ministry. The sharpest increases in home rental costs were felt in Tel Aviv, to an average of NIS 4,790 a month, where they rose 6.7, and in the southern region and Haifa’s northern suburbs, where rents were about 7% higher than in 2011.

Since January 2008, the cost of renting in Tel Aviv has soared 50.3%. In the Gush Dan region and the Sharon, the rise was nearly as steep at 48.4% and 47.4%, respectively. The national average over the five years was a rise of 42.7%, ministry figures showed.

Behind the sharp rise in rents is the rise in home prices in recent years. Property investors, who had grown accustomed to returns of 8% and 10% on homes they rented in cities like Be’er Sheva today are getting return closer to 5% and need to raise rents just to meet this benchmark.

The outlook for rentals is for more increases because the number of investors buying homes is shrinking, putting pressure on the supply of rental apartments. Last year, according to treasury figures, they accounted for only 23% of all purchases of homes, down from 30% in 2009.

In terms of the number of monthly salaries it takes to buy a home, the figure remained unchanged in 2012 from the year before at 131. However, last year’s figure comes after a steady rise in previous years, from 103 months’ salary in 2008 to 116 in 2009.

Construction site on Tel Aviv's Salma Street.Credit: Daniel Bar-On

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