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”.

Ashton Kutcher property hunting in Israel

Café on Tel Aviv's Rothschild Blvd.

Café on Tel Aviv’s Rothschild Blvd.

Ashton Kutcher, who is a serious Tora student, according to co-star from “No Strings Attached” Natalie Portman, was not in Israel for religious study recently, but is looking into investing in property on Tel Aviv’s Rothschild Blvd.

The actor is business partner with Guy Oseary, a producer in the US music industry who have invested together in a number of social media companies. The partners looked into the project at 22 Rothschild Blvd which is slated to rent for $35-41 a sq. meter. They are seeking a location for an office locally from which to run a center in Israel for high tech start-ups focusing on social media.

Kutcher has expanded his personal fortune with early investments in social media start-ups, including Twitter. He also heavily invested in Yoav Shoham’s Katango, Israeli professor at Stanford University, which was sold to Google for tens of millions of dollars about two years ago.

Military releases Tel Aviv lands

view to Sde Dov, northern coastal area to be developed

view to Sde Dov, northern coastal area to be developed

The famous Kiryah base in Tel Aviv, where inductees countrywide first arrive for their military service is releasing their 47 acre campus for development for housing and commercial real estate. It has been a city landmark for generations in the heart of central Tel Aviv.

The Tel Hashomer base is located in what has become some of the priciest real estate in the country, the land itself worth an estimated $14 billion. The military will move its central operations to new mega-bases in the Negev.

The move is an attempt to alleviate the severe housing shortage in Tel Aviv. Sde Dov Airport will also be shut down to release its land for residential development along Tel Aviv’s northern “gold coast”.

30,000 military families will be moved from Tel Aviv to Beer Sheva which will create a real estate and jobs boom in the Negev. Citigroup and Morgan-Stanley have shown interest in financing the military projects.

Taxes = Revenue vs. Taxes = Slowed Growth, or Au Revoir Arak, or ‘let them drink Cognac’

I usually write about matters relating to real estate, and since real estate is intimately tied with economic growth and downturns I sometimes address economic issues.

The current administration in the United States is in process to drastically increase taxation, even in anticipation of the perceived actions of the Obama administration, businesses pulled back on hiring and expansion in fear at the beginning of his first term. Conservatives argue that taxation inhibits growth which would naturally increase revenue if taxes were affordable and incentivized to small businesses. Liberals argue that social programs need to benefit the poor and elderly so the rich and luxury should be taxed.

A small demonstration of this principle occurred here in Israel which is an everyman concern. Arak, especially the Israeli version of the middle-eastern anise flavored drink, has sometime in the last forty years in Israel become the national drink of Israel. There are many nearby countries producing the drink, but the most popular by far is the Israel brand based in Haifa, Elit and Aluf HaArak.

Unnoticed by myself, since too much Arak (two shots) can give me a headache, I decided to buy some while in the Jerusalem shuk Mahaneh Yehuda market. I love the drink, but its not one of my everyday favorites. I was shocked to find out that in recent days the price had doubled from 35-39 NIS a bottle to 70-80, if you could even find it on the shelves. On the contrary, the pricey liquors such as Grey Goose or Ketel One, were dropped by about 25-30%, but still prohibitive. The public outcry, after the informed cleared the shelves before the price hike, has been to put pressure on new Finance Minister Yair Lapid, who is blaming the previous administration FM Steinetz for preparing the hike.

Essentially the nearly double price on a drink as popular as beer has even my local grocer telling me to “boycott”. The tragedy is that this will hurt the most popular Israeli companies who are producing the most purchased brands. In the end the artificial rise in cost of locally produced goods only harms local industry thus ultimately reducing the revenue gained on popular products as consumption will decrease naturally.

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.

 

Why isn’t my apartment selling? Pearls of wisdom from a former sales manager.

remodeled kitchen in contemporary trends

remodeled kitchen in contemporary trends

“Why isn’t my apartment selling?” This is a question in any market, but especially one experiencing a slow-down that sellers ask.  To quote a former sales manager of mine there are three primary reasons; “terms, PRICE, and condition” his sage words also included “anything will sell for the right price”.

Since sometime in early 2011 when government enforced Bank of Israel austerity measures went into place and the market overall began to trend downward.  In the eyes of the government as well as astute individuals in economics this was a necessary correction.  Other factors have also entered into this equation; two of the world’s major currencies are experiencing losses, the Euro and the US Dollar, as are their respective economies.

Israel is not an economic island.

Both the sales and rental markets here have experienced downward slides.

Unlike the buying and selling personality of the States, the Israeli seller doesn’t have a vast reservoir of information like the Multiple Listing Service where over 90% of properties are listed exclusively with agents with all its data of solds, listed, etc. Statistically only 1/3 of properties on the market here are in exclusive listing agreements.The mentality is “my neighbor is asking this, my property is better than his, so I should get this.” Meanwhile ‘that’ price may have no basis in real market value but just owners overestimating their values. Appraisers often fall victim to the statistics of “what are people in the area asking” and have little familiarity with the real grit looking at numerous properties with buyers and seeing what’s selling for what price and who is in the market buying it, even they can often give a false view of value and not a real market value.

Another deceptive reality in the marketplace is with the prevalence of such do-it-yourself for free websites such as Yad2 or Win-win, whether its homes or vehicles, individuals can instantly place free ads that are “trial balloons” just to see if the fish will bite at an inflated price and are not serious sellers. This is common enough that it can give a false impression of true market value.

A universal truth regardless of country is that unless you have an educated seller who is critically aware of his marketplace, sellers overvalue their own homes.

Real market value can usually be hit on fairly closely by an experienced realtor in the area. Another judge is an individual in the buying public who is seriously looking to purchase also seems to have an innate feel after a bit of looking as to what’s overpriced and what’s priced right and they are not influenced by emotional attachment to the property ‘for sale’.

Another factor mentioned earlier is the strength of the present reserve World currency, the US Dollar.  Even though rentals are now pretty much quoted in shekels, when it comes to sales there is still a background thought of the $ value even if the buyer has his money in British pounds or Euros.  If you listed when the dollar was at 4.05 to the shekel and now its 3.68 your price should be adjusting to the loss of the dollar rate.  To make it simple, we’ll use 1 million $ as a reference; if you listed at 4,05000 NIS (when it was equal to 1 million US) if the shekel is now 3,680,000 you need to lower to that.  If it wasnt selleing after a couple months of trying, you may need to lower to and equivalent 0f 10-20% less.

Since 2011 property values have dropped to where sellers here are having to ask and get about 15% less than they could have gotten in 2010. Although terms and condition do make an impact, referring back to my former manager, “it’s always price” and “any offer within 5-10% of asking price is a good offer, not an insult”.

The good news is for those who are truly priced right at the gate, they will still be able to sell to the educated buyers out there who know what the right price is.