Sales of New Homes Plunged 45% in May

Government plans sink housing market into deep freeze as buyers wait and see; Jerusalem and Tel Aviv are notable exceptions.

Nimrod Bousso
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New upscale housing under construction in north Tel Aviv.
New upscale housing under construction in north Tel Aviv. Credit: Nir Keidar
Nimrod Bousso

Sales of new homes slumped 45% in May from the same time a year earlier, part of an overall slowdown in the Israeli housing market that appears to be intensifying.

Real estate experts said Monday the slowdown comes in response to a number of plans from the government to lower housing costs.

Housing and Construction Minister Uri Ariel said he was pleased with the drop in sales. He is proud Israelis are waiting to buy, he said, adding that it expressed confidence the government would succeed in lowering home prices.

The latest figures, which the Central Bureau of Statistics reported Monday, also show the number of new homes sold in May was 20% less than the number sold in April, when sales had already slipped after the government announced its plans.

The data showed there were some exceptions, however: Home sales barely dropped in Tel Aviv and actually rose in Jerusalem.

The new government programs will exempt sales of new homes costing up to 1.6 million shekels ($470,000) from the 18% value-added tax for first-time home buyers and a create a “target price,” in which developers will be able to buy land at a discount if they commit to offering at least 80% of the new units built on it at about 80% of the market price.

Both plans are now in the process of being legislated, prompting prospective home buyers to wait and see how prices are affected.

Next week the council of the Israel Land Authority is scheduled to approve the target price program, with the goal of putting it into effect at the end of the summer, said Ariel. “Next year we will be sitting on the balcony,” he said, echoing a popular folk song, adding: “And it will be cheaper.”

But Nissim Bublil, president of the Israel Builders Association, was less sanguine. He said the association has warned that Finance Minister Yair Lapid’s zero-VAT plan would lead to a freeze in new home sales and, later, to higher home prices. Once it becomes law, he said, it will create huge demand, without a corresponding increase is supply.

“The Knesset and the cabinet must immediately move forward the date the law takes effect, which is now September 1,” Bublil said.

About 8,700 new units were sold from January through May, a 16% drop from the same period last year. The inventory of unsold new homes rose to 26,000 at the end of May, 17% higher than a year earlier.

The steepest drop in sales came in the north (excluding the Haifa area), where sales plummeted 25%. They fell 21% in the center of the country and 18% in the southern and Haifa regions.

Jerusalem and Tel Aviv bucked the trend, with sales down only 4% in Tel Aviv, while Jerusalem actually saw a 3% increase, the statistics bureau said.

The new law was meant to speed up residential construction by streamlining the planning process.Credit: David Bachar