February 11, 2020

Housing sales in Israel hit 4-year high

Globes, Arik Mirovsky, 11.02.2020

The number of real estate deals in December 2019 was the highest since June 2015 and the third highest monthly total in the past decade. This month, which featured an especially large number of homes sold under the Buyer Fixed Price Plan, made 2019 the year with the fourth most home purchases in the past decade, according to figures published today by the Ministry of Finance chief economist.

2019 was a good year for real estate developers, with 32% of all deals involving new homes. Almost half of these new home deals were under the Buyer Fixed Price Plan. The Ministry of Finance chief economist found that the developers' potential cash flow (proceeds from the homes sold) in the last months of 2019 is closed to the record in May-June 2015 - a figure that goes far in explaining the optimistic periodic reports recently published by listed real estate companies.

2019 was the year of young people, who dominated the market, accounting for 51% of all deals, compared with 40% in ordinary years. Young buyers flocked to purchase new homes under the Buyer Fixed Price Plan, and many who did not win discounted homes under the plan found homes in discount projects on the open market. The result was a poor secondhand housing market that created difficulties for move-up buyers, whose proportion of the overall housing market fell from 40% to 36%.

Young people purchased 6,000 homes in December, two thirds of which were on the open market, despite the intensive pace of Buyer Fixed Price Plan deals, which accounted for 28% of all deals, indicating that housing purchases among this population segment were also intensive on the open market in 2019.

One possible explanation of this pattern is political uncertainty, a resumption of price rises, and a shortage of apartments offered in the recent Buyer Fixed Price Plan lotteries, in addition to the criticism of the Buyer Fixed Price Plan and whether it is worthwhile participating in it.

Investors bought 14,000 housing units in 2019, just 13% of all the deals during the year. As has been the case since April 2016, most activity by investors was getting rid of surplus housing units. In the past three and a half years, investors have sold more housing units than they bought, as a result of the deterrent effect of high taxes on home purchases, falling monthly returns, and a leveling off of housing prices. The stock of housing in the hands of investors fell by 22,000 during this period.

Investors and young couples not infrequently encounter each other in the outlying areas, where the cheap housing prices attract investors, and cheap homes sold in the framework of the Buyer Fixed Price Plan attract young couples. Home sales took place in December under the Buyer Fixed Price Plan in the Carmei Gat neighborhood, which was very popular among investors five years ago.

The chief economist found that young couples buying homes as investments, a not infrequent phenomenon in Buyer Fixed Price lotteries in outlying areas, did not take place in Carmei Gat, where half of all buyers were already Carmei Gat residents and 73% of the home buyers in the lottery were residents of southern Israel, who probably bought the homes in order to live in them. On the other hand, buyers of apartments from central Israel, many of whom were charedim (ultra-Orthodox Jews), earned low salaries, and therefore were undoubtedly planning to live in their new apartments. For their part, investors are abandoning Carmei Gat and selling the apartments they bought there, as reflected in the large number of secondhand apartments sold in the neighborhood, starting in the second half of 2017.

Published by Globes, Israel business news - en.globes.co.il - on February 11, 2020