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.

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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 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%.

 

Prices lower in Q3 except Jerusalem

Jerusalem maintained its status as the country’s now fastest growing city with a rise in housing prices of 2% while other communities such as Tel Aviv fell 6%, and Beer Sheva fell 3% in the third quarter.
It is this writer’s conviction that prices will continue to rise in the periphery as prices and communities such as Maaleh Adumim and Modiin which have seen close to a 12% increase in the last year. Major metropolitan areas will probably see a continued slowdown in the sales and rental markets.
Although Tel Aviv prices are expected to drop an additional 4%, rental prices continue to rise making the central and northern neighborhoods where rents are the highest an attractive investment. Tel Aviv being a “landlocked” with little area for development, where the trend is to tear down and rebuild where existing buildings stand may experience a temporary drop in existing prices that will exceed the present drop.
According to Ynet News the questioned dilemma is; “we expect rents to raise so at the end of the day, flat purchasers have a dilemma on their hands: should they wait for the big price drop in the future and pay higher rent today of should they take advantage of the low interest rate on mortgages?”
These present trends are caused by uncertainty in the world marketplace as well as steps taken by the Israeli government to restrict thepast  rapid rise in prices.
This author foresees growth in Israel with the secular population at well past replacement rate at 3.6 children per couple. These trends are temporary as the housing needed to fulfill these families will create demand and raise prices.

Is there a real estate bubble in Israel?

For those hopefuls waiting for a future of lower prices, sorry to say the answer is “no”. According to Ha’aretz, July 27, 2010, the rising prices in the housing market are what this author agrees with, what is going on now is a correction.  Prices dropped from 1999-2004 where there was little growth or development.  This has created pent-up demand with no end in sight. There are growing numbers of households in the country exceeding new construction rates driving all prices upwards.

Ha’aretz describes a “real estate bubble” as created when the financial conditions enable land and housing prices to climb and climb, and borrowers base their decisions on the assumption that asset prices will continue to increase.

Throughout history, real estate bubbles have been characterized by a rapid increase in borrowing by buyers: They bring less and less equity to the deal, and borrow a greater and greater proportion of the home’s value.

Israeli banks have held to tough lending policies for decades, demanding an average of 20-40% down ensuring equity as well as qualifying buyers.  The banking crisis in other Western countries is not happening here.

What is happening is rental prices are being driven up due to the fact that older couples, new immigrants and young couples cannot afford to own in the hubs in which they are working. This may indicate a slight correction in prices, but little hope for those who will continue to look outside their work areas to farther flung suburbs for their housing needs.

Oil, Israel and Real Estate

The largest reserve of natural gas, over 16 trillion cubic feet, has been discovered off the coast of Israel, and is estimated to be worth more than $95 billion, U.S. company Noble Energy Inc. announced on Wednesday, according to Ha’aretz.   

The Israeli economy is considered to be one of the best in the West, which should favor Israel as a continuing strong contender in the investment real estate market.

New housing starts rise 10%

Although the government continues to admit to a housing shortage which is driving prices of the existing market up, housing starts rose 10% over the first 3/4’s of 2010. 66,800 apartments were under construction in 2010.

After a visit to a recent housing fair where prospective buyers have the opportunity to compare building contractor’s latest offerings, prices for on-paper purchase were shockingly higher than previous years.  This author believes this will continue to drive the cost of the existing market up. 

With stats like these it is doubtful there will be a housing bubble with demand still exceeding supply.

Israel economy charges ahead

The Israeli economy charges ahead with 4.7 % growth in the last quarter according to Ynet news.

Personally the author has seen continued rise in interest in investing in real estate in Israel in spite of restrictions from Israeli banks on mortgage amounts.  Local and foreign buyers continue to be able to find ways to get 75% financing with local banks, properties that are priced well are often met with multiple competing buyers.