Jerusalem Periphery – Needed Expansion, Prices rise

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On the heels of one of the Kerry visits controversy stirred around the dual announcement that 1400 new housing units would be released for building, 700 of which would be in East Jerusalem. At the same time came the announcement that as a gesture towards peace, 26 convicted terrorists would be released from Israeli prisons.

The majority of the homes, will be built in established Jerusalem neighborhoods, 387 of them in the Ramat Shlomo, and 311 in Gilo. Last summer there were already tenders given for building in Har Homa, 400 units in Ramat Givaat Zeev, and Gilo.

Prices have been consistently climbing in Jerusalem to the point where a softening had come due to high prices and the existing market in Jerusalem not offering what families are looking for in their budgets, parking garages, balconies and a minimum of 3 bedrooms. Thus surprisingly areas that had seen a decline in prices and buyers, such as Maale Adumim, Givat Zeev and the peripheral neighborhoods of Jerusalem, Pisgat Zeev and Har Homa are seeing a 10-15% gain in the last year.

To put it simply, a four-room apartment in Maaleh Adimim that would have sold for 1,190,000 last spring is now closing at 1,250,000 to 1,300,000.

80 story Tower in Tel Aviv to be city’s tallest served by new underground metro

Several months ago the transaction of the large parcel IDF (Israeli Defense Forces) owned land was sold for development for housing to help relieve the housing shortage in the Israel’s largest and fastest growing city, Tel Aviv.

Plans have been released for the 2 new 80 story towers which will be in the central location on the corner of Shaul Hamelech and Weisman streets. The complex will include the office towers and three other apartment towers which will provide 770 new housing units. The new complex is affectionately known as the “toblerone tower” for its triangular shape and resemblance to the famous Swiss candy bar. The project itself is called the “Rockefeller of the Unstoppable (or city that doesn’t sleep) City”. The units will be small, two and three room apartments all measuring 65 and 83 meters.

The eight acre parcel will also includes park areas and bike paths as well as underground parking. The new project will also be serviced by a planned underground tube which is known as the “green line”. The metro will run on the Ibn Gvirol route.

Tel Aviv, along with Ramat Gan and Bat Yam continues rapid growth becoming as I have coined it, the Singapore of the Middle East in the “start-up nation”.

Taxes to Double on Empty Units

A law doubling property tax (arnona) on empty units, enacted in 2012 is soon to go into effect. Minister of the Interior Gideon Saar has signed regulations to double arnona (local property tax) on empty apartments, Minister of Finance Yair Lapid will complete the regulations.

In 2010 the government began taking steps to prevent a real estate bubble which began in 2005 where property prices were exponentially increasing in value. Austerity measures on mortgages went into effect in early 2011 as well as incentives given to investment property owners to release their apartments without paying the usual sales taxes on non-primary residences. These actions definitely put a chilling effect on the market which has lowered prices nationwide for two years.

This new measure is intended to place negative pressure on those holding empty units, builders, heirs, owners hoping for a higher return on sales, by doubing their monthly property tax rate. The government action is attempting to encourage placing empty apartments on the market for sale at reduced prices or for rent and increase the housing supply. The regulations are in line with government decisions to expand the housing supply and lower prices.

Based on figures of closed services from the Electric company, there is an estimated nearly 50,000 empty dwellings in Israel.
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Young Couples/Adults are Waiting out markets

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A decline in apartments sold was felt all over the country in the first quarter with a 15% drop in sold apartments from the last quarter of 2012 to the first quarter of 2013 according to the Central Bureau of Statistics. Statistics reflect Hadera to Beer Sheva, where there was a 27% drop. This statistic differs from my April 23rd post which also included housing starts bringing that figure to 20% from the prior quarter.

Most affected by the current real estate market are young couples and young adults where sellers still hold on to high rental prices as well asking prices for sales. The young demographic is choosing to remain at home, living with parents. High real estate prices and the austerity measure of 40% down payment required by the bank of Israel are the main cause.

In Israel unemployment levels are healthy at about 4.5% but the basic salaries for those entering the job market are hindering affordability to young people. Young adults and parents here  are choosing to wait out the trend downward hoping for lower prices as well as a change in government policy making housing more accessible and affordable. Traditionally parents in Israel will help their children to purchase, but wary parents are also looking for a decline in prices and required downpayments.

A similar situation can be found in the United States but has been created for different reasons, housing and rental prices are still affordable in most major US cities but the lack of even minimum wage jobs is causing a staggering 85% of college grads with bachelor’s degrees to return home to live with parents according to Time Magazine study.  Of these grads 54%  are unable to find work and instead move on to higher degree education hoping to be in a better position while waiting for economic recovery.

Change in tax codes – will it really help or hurt homebuyers?

The new finance minister, Yair Lapid has announced a change in the tax rate on the purchase of apartments to alleviate the difficulty “for young couples”.  The new tax rates announced that will go into effect on May 5th are that a home costing up 1.47 million NIS will not be subject to purchase tax. From May 5  a purchase of a home of any price for a first time buyer only will be a flat 3.5% for any priced home costing more than 1.24 million.
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The plan is designed to help only first time home buyers and to finance it by creating a betterment tax for those buying a larger or more expensive home even if it is their primary residence.

The current maximum purchase tax rate is 7%, on purchases of homes for investment costing NIS 3.26 million or more. On May 6, this rate will be lowered to 5%, and the threshold will be lowered to NIS 1.05 million. In 2011-2012 a tax freedom for the sale of an investment property (any home other than your principal dwelling) was temporarily offered to entice those holding investment properties to sell in order to create inventory which would help lower prices.

This new code primarily attempts to help the new home buyer. The government’s plan to finance this new tax plan will place a new burden and revenues on those who are moving up the housing ladder on a larger or luxury home, in essence the 2nd home purchase. Sale of investment properties or second homes will no longer be exempted from sales tax.

It is this writer’s opinion that the government has succeeded in its stated goal in late 2010 to forcibly burst any development of a housing bubble by increasing the minimum downpayment to 40% from a former more open market where the bank could opt for as low as 10% down to qualified customers. The effect of all of these measures has been to overall depress the housing market and impede first time home buyers who would be far more assisted with a low downpayment than a release from a purchase tax which might have formerly amounted to only a few thousand US$.

Q1 Statistics reflect downward Housing Demand

The Central Bureau of statistics reflects what realtors around the country know, demand is down for housing both in the rental and sales markets. Compared to Q1 last January, 2012, apartments sold or built reflect a drop of about 20%, since the prior quarter, demand is down 6%.  This drop affects mainly the markets of Tel Aviv and environs and the southern sector.

Demands were slightly better in Haifa and Jerusalem.  Many are asking what exactly is the cause of this drop in both the rental and sales markets. Chairman of the Real Estate Appraisors Association, Ohad Danus, claims the drop is a direct result of intentional government sanctions and austerity measures in the marketplace instituted in 2011. He stated,  “the developing trend is extremely troubling, because while the natural growth in Israel cannot be suppressed and should even be encouraged, the housing market can be suppressed – and this is what the government has been doing successfully in the past year.”

The recent trauma of rocket attacks last fall as well as the significant drop in foreign currencies such as the US $ and the Euro as well as the British pound are factors in this author’s opinion that cannot be overlooked.  Even if foreigners are not entering the marketplace with their currencies, many Israelis have their capitol invested in foreign currency savings accounts. Foreigners entering the Jerusalem market has long been a significant factor and with their currencies down and fears of war heightened fewer foreigners are entering that marketplace.
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The good news is for those who have the capital to invest the contrarian view is that 2013 is the year to purchase while prices decline.  Experts predict 2013 spring and summer months may see increase in activity but no change for the better in prices for sellers and landlords. There is still plenty of inventory in the major cities but only sellers with realistic goals and who need to sell will be willing to drop their prices to a real market value.

Mortgages granted up in March

Even with the Passover holiday falling in March (most banks give only partial service in that time) the number of mortgages granted was up this March as reported by business news magazine Globes. Good news considering that prices continue to drop with a general malaise in both the sales and rental markets in major metro areas.  This increase in mortgages reveals that in spite of the Bank of Israel restrictions put in place in early 2011, primarily the requirement of 40% down payment to obtain one, that there are those who are able and now willing to pass through the restrictions.

Concerns of rapidly rising prices in 2010 after five years of steady incremental climb, the head of the Bank of Israel announced banks would have to follow austerity measures in order to prevent a real estate boom to bust cycle, or bubble. At the time financial leaders here indicated that restrictions would be in place for two years.

 

Statistics and Reality

bakaa balconySometimes statistics and reality just don’t seem to align.  Recent news indicates that housing prices are up 4.5% in 2012 and yet agents like myself will tell you the market has never been slower since 2000-2004.  As one who primarily deals with real estate in Jerusalem and Tel Aviv and their peripheries, most sellers have had to lower prices 10-15% lower from the highs in 2010 to secure a buyer.  It’s possible the statistic reflects this year only and not in relationship to the past three.

Still the price of housing here remains almost punishing in that Israel in its large cities is a market that affords only a small apartment for the price of 128 salaries.  Boiled down it means that the average couple earning an average salary each cannot afford basic housing in a major city or periphery with a 30 year mortgage.  And yet, somehow they buy.

Traditionally young couples are helped by their parents and moving up the housing ladder has allowed Israelis who already owned for a decade or more to see a significant increase in their property value enabling them to cash out for significant profit.  Before the shekel stabilized property was seen as the only way to have a savings account when runaway inflation regularly ate up the value of one’s money. Investors in those times now see a tremendous return, unlike those who invested in real estate in the USA.

 

Israel Home prices down in Q1

A U.S. magazine ranking housing markets globally has removed ISrael from the top ten in housing growth markets. In real terms the statistics reflect a minimum of a 5% drop in major cities where increases had been higher in 2010-2011. Israel has now dropeed to number 27 since the begining of 2012.

It is this author/realtor’s note that around the Jerusalem and Tel aviv markets where I have the most experience, prices have dropped in certain neighborhoods more than others.  Due to the recent strength of the US dollar, buyers with capital and the desire to own property in Israel are looking in traditionally Anglo-saxon locations, such as Raanana and the central neighborhoods of Jerusalem, such as Baka, German Colony and other residential areas close to city center. there prices have remained the same as Q2 2011.

Peripheral areas or the cities that are traditionally lower priced have finally made the adjustment that in order to sell and beat competition prices have dropped on popular advertising sites such as Win-Win and Yad2 8-10%.

 

Tel Aviv – Singapore?

We recently attended one of the national housing fairs and were bombarded with helium balloon carrying uniformed young people asking us as we entered, “Are you interested in a tower in Givatayim?” We thought, why not, tower living seems to be the hottest trend in Tel Aviv real estate and the on-paper price before construction is often very attractive. By finish date based on present values it could seem that the invest on paper could pay off with an apartment in a luxury tower that is worth nearly 40% more.

It seemed like a lot of hype was involved in pushing this project which will be the tallest tower in Tel Aviv. We found it interesting enough to stop into their offices to check out time frames and prices and to our surprise with all that hype at the fair that there were almost no units left.  Because of the height of the tower and the glass corners, three sides will have a sea view.

I began to look at other tower prospects to see that there is enough construction going to say that it is a definite trend.  Plots of land are being purchased in Tel Aviv, existing buildings then torn down and a new mega-tower built on the site. On Rothschild Blvd. alone there are two projects heading up to the sky that were sold out almost immediately on offering on paper.

Real Estate markets around the world have placed Singapore and Tel Aviv consistently in the top ten markets.  Will the present Tel Aviv skyline soon look like Singapore?  The two seaside commercial cities are moving that way. I just hope enough of the beauty of the old Tel Aviv remains, while the development will redeem parts of the city that were shabby anyway and offer more housing to a fast growing metropolis.