Calcalist, Amitay Gazit, 07.05.2020

Some 2,000 construction projects in Israel, most of them residential and some for offices, have recently been halted due to financial difficulties. In addition, some 500 projects are currently for sale at a discount of about 15% of the market price and even at a loss, and danger threatens to continue the activities of hundreds of construction companies - this is the gloomy conclusion drawn from a review by credit risk management company Dan & Bradstreet and reached Calcalist.
The survey shows that banks have tightened the conditions for granting credit to construction companies, and consequently there has been a 50% increase in the number of construction companies' requests for credit from non-bank entities. Another worrying aspect is Dan & Bradstreet's estimate that there was a 25% reduction in the number of projects that eventually received funding, which means that many construction companies do not have enough money to complete the projects: "We are seeing more and more companies failing to complete projects due to inflow and lack of accessibility To sources of financing, including well-known companies. " The solution that companies are forced to adopt is the introduction of a partner or the sale of the project at a significant discount.

The number of Palestinian construction workers remaining in the country has dropped from 65,000 to 15,000, and due to restrictions on aircraft traffic and restrictions on labor in Israel, there is a 30% -20% reduction in inputs used for construction. Against this background, the construction industry is currently less than 50% in production, and delays in the dedication of many projects are expected.
 
By law, in the event of a delay of more than 60 days in the delivery of the apartment, the construction company pays its clients 150% of the rent over the entire period of delay. The only way to avoid such a payment is to convince the court that the delay was caused by a non-controlling power of the construction company.
 
This is what Dun & Bradstreet writes: "Unless there is an improvement in credit terms, and in the absence of recognition of Corona as a supreme power, the collapse of hundreds of companies is expected in the coming months."
 
On the demand side, too, the review's editors identify difficulties in light of the huge increase in the number of unemployed people: "There is a decrease in housing purchases due to job insecurity in the labor market. At the peak of the crisis, the unemployment rate reached 27%, compared with only 3.4% before the crisis broke out." Another reason for the decline in the purchase of apartments is "the rise in interest rates on banks' mortgages and the restrictions on traffic in the economy".
 
However, Dun & Bradstreet is a bit more optimistic for the medium term, and it is estimated that when the economy returns to its path demand will rise. Efrat Segev, Vice President and Director of the Economics Division Information and Research at the company: "Housing prices depend on what will happen in the economy in terms of the purchasing power of the public. How far people will return to work and feel safe buying an apartment. On the supply side, it is clear that in the center there will always be a shortage of apartments, so in the long run prices of housing will continue to rise.
 
Segev emphasizes that the residential construction industry has entered the Corona crisis in an unstable state of instability and uncertainty: "In 2019, more than 1,000 construction companies and construction contractors collapsed. It was a year of uncertainty in the industry, around the cost of housing and urban renewal, which in previous years Growth engine ”.