Two Scandinavian Banks Boycott, threaten Israeli Banks

According to the popular Walla Hebrew news site the Swedish Nordea Bank, which is the largest bank in Scandinavia, and the Norwegian Danske Bank, have announced that they will boycott Bank Hapoalim for funding projects in what they call “occupied territory”.

The Nordea Bank also demanded that Bank Mizrahi Tefahot and Bank Leumi immediately make public their financing operations over the green line. The most familiar areas where building continues to be financed and flourish are the formerly outside the green line Jerusalem neighborhoods of Arnona, Pisgat Zeev, and Har Homa.

The action taken by the banks is the first bank to bank boycott. An Israeli authority highlighted that these are not decisions by the governments of Denmark and Sweden, but of private companies, making it impossible to for Israeli political leaders to protest.

Billboard for Bank Tefahot In Arnona, Jerusalem

Billboard for Bank Tefahot In Arnona, Jerusalem

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Dubious Honor

Israel was recently revealed in a Goldman Sachs study released in the beginning of November to have the dubious honor of being the nation that has seen the highest jump in real estate prices. Prices have soared 40% since 2009 and 72% since 2007. Israel is followed by the nations of Norway and Switzerland that have seen significant rises in the costs of housing but income to housing ratio is more affordable than Israel’s that has seen the greatest gains.
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The pent up demand for housing after the slow years of the intifada created a demand for housing that remains unmet. In 2010 the Israeli government took steps that took effect in 2011 hoping to suppress what it too late perceived as a “housing bubble”. The Bank of Israel put into effect down payments restrictions to 40% down minimum and tried to release those holding on to investment apartments by lightening taxes on their sales in hopes of suppressing buyers while releasing more inventory into the market place.

Prices have come down as a result of these actions, but almost as much from the perceptions of buyers that now would not be the “time to buy” in expectation of prices coming down. coinciding with these hopeful perceptions of prices coming down, sellers are still anticipating the expected gains in their prices so that only the desperate who must sell are willing to lower their prices to meet the current market.

New housing coming into the market finds little competition with existing with prices just as high while offering more amenities such as elevators and underground parking but have shrinking rooms for the net meter amounts.

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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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.

 

 

 

Israel now World’s 3rd Hottest Real Estate Market

According to an independent survey published by Yediot Aharanot, one of the top three news outlets in the country, Israel is the third hottest real estate market in the world with China and Hong Kong as #1 and #2 respectively.

Although 2011 showed a decline in housing prices and closed transactions, a decline in interest rates recently offered by Israeli banks is seeing a resurgence of buyer interest.

Restrictive measures such as the requirement of 40% down payments have still not been lifted, and this author observes there is still a softening of prices from the peak years of 2009-10, but market interest and activity has increased as sellers compromise on prices.

Housing purchase tax reduced

The treasury department announced a change in the purchase tax rate to allow the tax exemption on the purchase of a home for the first 1,350,000 NIS.  Although the move is said to benefit at least 8000 couples who will purchase this year rising prices continue to strain the new buyer who will have to come up with a 40% cash downpayment on that amount.

The 40% guideline is in effect to try to restrain the rise in housing prices which rose 17.3% since 2008 with the average four-room apartment rising in cost 29% within that same time period according to the government assessor’s office’s statement published last Monday.

Some areas have seemed to have capped that were on a steep rise, such as central and north Tel Aviv and central Jerusalem, but prices in the relatively more affordable areas of Maale Adumim, Modiin, Beer Sheva and other outlying districts are now seeing more rapid rises in valuations as demand increases.

Home prices expected to rise

According to today’s Jerusalem Post home prices are expected to rise quickly across Israel. The  Bank of Israel’s government appointed head, Stanley Fischer will likely take macro-prudential measures to try to control this expected price rise.

Israeli’s traditionally believe in housing as the most  solid investment for themselves and their offspring. In order to combat this national tendency Fischer is raising the interest on funds deposited in the bank 2.25%  as an incentive to keep the populace’s money in the bank rather than invested in real estate.

In spite of actions taken in the summer to increase cash downpayments to 40% the number of loans given was 10%higher in Oct.-Nov. than last year Dec. 2009.  Last year, house prices increased 17.3% as interest rates remained low and the supply of houses fell short of demand.

Last quarter areas in the country that had not seen steady rises suddenly rose sharply, Beersheva and Hadera 8%. Jerusalem and Tel Aviv steadied at a 3% rise. Only Eilat saw decreases at 4%.

Housing prices since 2008 have risen overall in the country a whopping 29.4%.