Is the housing bubble finally about to burst ?
Overall housing prices in Israel saw a barely noticeable drop of 0.1% over the past 12 months, according to a report released on Tuesday by the Central Bureau of Statistics.
In an interview with Army Radio on Thursday, Finance Minister Moshe Kahlon attributed the decline to the mass production of homes over the past year, noting that “construction leaped from an annual average of 30,000 units built in previous years to 130,000 this year.”
Kahlon added that despite this movement being a difficult one to sway, “this is a trend that is just starting; there is no doubt that this number will continue to drop.”
The CBS report also showed that demand for new housing has been on the decline for the past year and housing prices have gone down by a cumulative 2.15% over the past five months.
The report also revealed a breakdown of apartment prices by city and region, showing a price increase of 1.2% in Jerusalem and 0.4% in the North and Haifa. On the other hand, housing prices decreased in Tel Aviv by 0.9% and by 1.5% in the South.
Despite optimism from Kahlon over this data, those in the industry warn that this is not the whole picture.
Erez Cohen, former head of the Israeli Appraisal Association, told The Jerusalem Post: “Minister Kahlon and the Finance Ministry are making a mockery of everyone; what he is saying is not true and does not reflect the real estate market objectively.”
Cohen warns that the loss of interest by foreign builders and a sharp decline in overall construction will put Israel at risk of suffering a recession in the real estate industry.
“Foreign investors – mostly Jews from Europe – are running away from the market and taking their projects elsewhere in the world,” Cohen said.
He added that “what Kahlon is doing is focusing on the mass production of cheap and subsidized apartments in the periphery that nobody wants. But the reality is that the market is in crisis and that many construction companies have been backing out of projects due to instability in the market and in the government.”
Cohen suggests that we should focus on building homes for the middle class and encourage foreign investment as a means of stimulating the market while reducing property taxes.
“If Kahlon doesn’t change his current policy, we will go into a recession,” he warned.
However, Kahlon sees the overall drop reflected in the CBS report as a victory for young couples searching for an opportunity to own a home in Israel.
Kahlon said in a statement released on Wednesday: “At first everyone said that this was impossible – the housing market was in flames and there was no chance that anything could improve – but we did it.
“This isn’t my victory or anyone else’s – this is a victory for young couples, who after so many years are finally able to afford a home of their own,” he said.
“And to all of the skeptics who attacked us for the past three years and said this couldn’t be achieved, I suggest you come to terms with this new reality – the housing market has relaxed and prices will continue to fall,” concluded Kahlon.