How is the Israeli housing market bearing up?

“In terms of sales and purchases, Israel’s property market has been stagnant for quite some time now. It has not changed much since the COVID-19 outbreak.”

Apartment for sale in Jerusalem (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Apartment for sale in Jerusalem
(photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Is now a good time to purchase real estate or should you wait? Should you be more flexible on your selling price? Should I haggle with my landlord and try to get him to lower my rent? These are just a few of the questions that have been asked lately about Israel’s real estate market.
“In terms of sales and purchases, Israel’s property market has been stagnant for quite some time now. It has not changed much since the COVID-19 outbreak,” says Tzachi Kutinsky, a real estate consultant. “The only thing that’s changed is that a new layer of uncertainty has been added to the equation, and so nobody really has any idea how the wind is blowing at the moment. A huge number of renters are finding themselves lacking the cash to pay their monthly rental costs, and many homeowners are finding it difficult to pay their monthly mortgage installments. In short, the entire property market is in complete chaos.”
Eli Baider, an accountant and real estate consultant at RE/MAX Israel, claims that the COVID-19 crisis has hit the property market hard.
“People who were trying to sell their properties have been uncomfortable having strangers traipsing through their homes during the epidemic, and so very few homes have been sold recently,” explains Baider. “On the other hand, deals that had already been started before COVID-19 hit have for the most part successfully closed.”
What do you think will happen now in the property market?
“In the luxury real estate market in Tel Aviv, for example, clients have been much less affected by mass unemployment than in other parts of the country. Most people who are purchasing luxury units are not in danger of being fired from their job and for the most part, they are also not taking out mortgages for these homes. I think that there might be a few deals in which sellers are willing to go down in price so that they can move on with their purchase of a different home, but from what I’m seeing now, prices aren’t in fact falling more than 3% to 5%. There’s no new construction going on at the moment, and in the luxury home market in central and northern Tel Aviv, supply is extremely limited. For this reason, I don’t expect there to be a decrease in prices in the near future.”
Baider explains that sellers are still hesitant to let potential buyers into their home due to contagion.
“That’s why at RE/MAX we’re using advanced technology to overcome this obstacle,” he adds. “In the past, we always brought clients to view apartments in person, but nowadays we’re offering virtual tours so we can first check if the client is specifically interested in that place.”
“The property market has still not settled into the new reality,” admits Kutinsky. “At least until the end of 2020, I believe the market will still be reacting to the crisis. The only people who will be selling their apartments now are people whose businesses have run into financial trouble, who purchased properties with unnecessary leverage and now don’t have a way to pay for them. Or there are people who’ve already bought another property and are desperate to sell their current home. Most of the deals that will be finalized in the near future will be by people who have no choice or who are experiencing financial difficulties.”
“Once the restrictions were eased, and things started getting back to normal, the property market began to wake up and the number of sellers and buyers returned to previous numbers,” says Rotem Dror, who works for the Anglo-Saxon brokerage chain in Gedera, Gan Yavneh, Bnai Ayesh and other communities in the area.

Stay updated with the latest news!

Subscribe to The Jerusalem Post Newsletter


“As everyone knows, lots of people have recently been put on unpaid leave or were fired when the COVID-19 crisis hit. This put the market into a state of uncertainty and lack of financial capability vis-à-vis the banks. Some of our clients have put their plan to sell or purchase a new home on hold since they’ve lost their jobs, and they realize that they would not be in a position to come up with monthly mortgage payments in such a state of instability. On the other hand, some people had already bought a new home, and so are desperate to sell their old place.”
“This slow-down in activity hasn’t been so extreme since July 2015 [when there was a drop of 43% compared with the previous month] which followed a buying spree by investors in June that year in an attempt to preempt worsening taxation rates [when then-finance minister Moshe Kahlon planned to raise purchase taxes by more than 60%], according to a real estate survey prepared by the Chief Economist’s office. According to CBS, there was a 11.4% drop in the number of housing units sold during the months January through March 2020, compared with the same period in the previous year.
Kutinsky, however, claims that there will many great real estate investment opportunities over the next six months for experienced investors.
“Because there will be fewer buyers, investors who are extremely familiar with the real estate sector, who have funds available, and know how to recognize a good deal, will definitely find worthwhile investment opportunities.”
Do you think property prices will fall?
“I predict that there won’t be a drastic fall in the next six months, except in specific cases where the owners are desperate to be rid of their asset. There will probably be some adjustments in the rental market. Apartment owners whose rental tenants have been placed on unpaid leave or were let go from their jobs have two options: Either they can evict their tenants or they can reduce the amount of rent. Whether they want to or not, many landlords will have to lower how much rent they charge.”
“We had a discussion with all the franchisees spread out all over the country,” explains Dror. “It’s too early to say that property prices have gone down. The starting prices we’re seeing are about the same as they were before the crisis, but families who’ve already bought a new home are definitely willing to be more flexible now with their selling price. But it’s too early to tell if this will be a trend or not. Real estate market trends can only be measured over an extended period of time. The few months of the COVID-19 epidemic is not nearly a long enough period of time to predict a trend. The only change we’ve seen so far is a slight drop in rental prices.”
“Assuming things return to normal within a month or two, there are a number of factors that can affect property prices,” says Prof. Aharon Namdar, dean and head of Real Estate School at Netanya Academic College. “The first component is the number of housing units available. It’s highly probable that contractors won’t start new building projects, since they are concerned potential clients won’t have the requisite capital to purchase apartments. As a result, I believe that the decrease in supply will definitely affect prices. If there are fewer building starts, then supply will fall. The longer the epidemic lasts, the more supply will be reduced. In addition, interest rates generally rise during times of crisis, since fewer people are willing to take out mortgages for fear of not being able to keep up with monthly payments, mostly due to uncertainty regarding employment. In a situation in which there are no new building starts, prices will either remain stable or will rise slightly. On the other hand, if people are worried about losing their jobs and are discouraged by high interest rates, then sales rates will fall. And if there are fewer sales, then prices will definitely begin to fall. But young couples can only live with their parents for a certain amount of time.”
Do you think the government’s Mechir Lemishtaken affordable housing program will continue to affect the property market in the future?
“The Mechir Lemishtaken program is a big fraud. At the end of the day, there is only one market, and you can’t djust create a second one. The program itself is trying to paralyze the free market. This failed program is unfair and should be canceled. If a smart person who is familiar with this issue from the inside joins the government, he will hopefully request that it be rescinded. If it gets canceled, I suppose it will take another three to four years until new programs start to have an influence on the market. There won’t, however, be any immediate impact now.”
“I predict a fall in prices in the short term,” concludes Namdar, “but it won’t be dramatic, and it won’t affect every region. For example, it will affect Eilat and cities in Israel’s periphery much more. Prices might decline as much as 10% in the immediate future in these areas. However, in Jerusalem and central Israel – Tel Aviv, Ra’anana, Givatayim and Ramat Gan – prices will remain steady, or at most drop up to 5%, for the simple reason that supply has fallen greatly. But all of these predictions are predicated on Israel coming out of the epidemic within a month or two. If the virus continues to hang around for years, it’s very difficult to predict how it will affect the property market.”
“Regarding the apartment rental market,” continues Namdar, “I predict that there will be country-wide drop of 10% in prices. And this amount could continue falling. A huge number of young people lost their jobs when the COVID-19 outbreak hit us. So, either landlords lowered rental rates or they’ve been forced to use savings. Many people have stopped receiving financial help from their parents. All of these factors will lead to a reduction in rental rates across the country.”
“In the rental sector, there’s been a huge rise in supply since some renters who find themselves unemployed have given up their flats and returned to live with their parents,” adds Baider. “In Tel Aviv, there are also a lot of flats that were rented out on a daily-basis through sites like Airbnb. Owners of these flats are now willing to lower rates considerably just so they can cover their real estate tax payments. There hasn’t been much of a change in the number of housing units available for sale, whereas supply in the rental market has skyrocketed now due to the lack of demand for daily and short-term rentals. Airbnb prices will probably see a drop of 30% to 40%, especially because there are no foreign tourists in the country now. I predict a drop of 10% to 15% in long-term rental rates.”
“I predict that the property market will have a huge spike in 2021, for a few reasons,” explains Kutinsky. “People are quickly getting used to the new normal – they have an extremely short-term memory span. A reduction in the supply of apartments due to the current inactivity of the property market will lead to a rise in purchases of residential properties. In addition, new players will enter the market; Key players in the property market will realize that they are in need of a more stable and safer environment, and the residential property market has proven to be extremely stable.
“Even in periods when prices fell, they eventually rose back up,” continues Kutinsky. “Currently, there is a shortage of more than 100,000 housing units in Israel. This is a result of contractors having stopped all housing starts, and also because the Mechir Lemishtaken program misled potential buyers who then became inactive players. Many young couples have been waiting around and hoping to be picked for this program, and therefore have not purchased an apartment. The government promised that prices would fall, and so the market has been stymied. Now, the market will finally go back to normal and prices will spike in 2021. All of this depends on the assumption that the COVID-19 outbreak will not return.” physiotherapist may be sitting next to you, but you are in charge. 
Translated by Hannah Hochner.