Recent months saw a sharp drop in new home sales in Israel, according to data released Tuesday by the Central Bureau for Statistics, indicating that rising interest rates and new purchase taxes could be helping to cool off the country’s overheating property market.
From February to April 2022, just over 12,380 new apartments were sold. Seasonally adjusted, these numbers represent a fall of 9.12% in the volume of new apartments sold.
However, despite the slowdown in purchases, mortgage borrowing remained at record high levels and there were no immediate signs that property prices had begun to drop off.
Having seen growth in new apartments sold every month from April 2018, this slowdown seasonally adjusted suggests that demand for new apartments has decreased since November 2021.
The busiest markets, in which at least 700 apartments changed hands over the three months from February to April were Tel Aviv and Yafo, Rishon LeZion, Beit Shemesh and Ramat Gan. Those markets which saw the most significant slow down in the number of apartments sold were Be’er Yaakov, Netanya, Ashkelon, and Bnei Brak.
At the end of April 2022, approximately 44,000 new apartments remained for sale in the market, a volume that is reasonably spread across the country.
Analysts attributed the drop in new home sales to buyer caution amid rising interest rates and steeper purchasing taxes imposed on those buying second properties in November, a move meant to deter investors.
However, the April drop could also be attributed to the Passover holidays which meant that there were fewer working days to complete transactions. It may also be because people are turning in increasing numbers to the second hand market.
But many anticipate that signals something more substantial on which everyone watching the market can agree — that rises such as the 16% year on year increases seen recently are unsustainable given much slower rises in wage inflation.
But despite the decrease in the number of new apartments changing hands, Bank of Israel numbers for mortgage borrowing showed NIS 418 million of new borrowing in April, the highest monthly total since January 2022, taking total borrowing to around 12 billion shekels. This reflects the higher prices people who are buying property are paying, assuming that they are borrowing the maximum permitted (75% of a property’s total value), as well as the increased costs of mortgages as interest rates have started to rise.
In the coming days, further data will be published looking explicitly at market prices. In the first quarter of this year, the last period for which there is data at the moment, the average apartment cost in Israel rose to NIS 1,757,000 ($505,840), from NIS 1,756,000 (quarter 4, 2021) while the average monthly rent rose to NIS 4,153.6 (about $1,220) (from NIS 4,112.6). These relatively small increases do not reflect much more substantial rises in the most popular Israeli real estate markets — in Tel Aviv the average apartment was priced at NIS 2,505,000 ($721,189) , an increase roughly ten times that of the market as a whole. Despite a 2.6% increase through the year, the average monthly salary in 2021 was NIS 11,773 ($3,389).