With God’s Help

Real-estate prices – where to? – Advocate Ran Sivan

“Since the Temple was destroyed, prophecy has been taken from prophets and given to fools and children” (Article of Rabi Johanan, Babylonian Talmud, Baba Bathra Tractate, Sheet 12, Page B).

A never-ending debate in the Israeli society among various experts and experts on their own behalf (almost every Israeli) has focused for many years on the issue of the increase of the real-estate prices in Israel.

Will the engine of real-estate in Israel accelerate, stop or may be even reverse to historical prices from time immemorial?

We will attempt to study the forces of the Israeli market in the field of real-estate, and in the case of the society in Israel – the psychological aspects that affect this forecast as well.

First, we should recognize the fact that in spite of the declarations of politicians, ministers of finance and housing through the ages about the “critical need” in the reduction of the prices of housing, the various direct and indirect taxes that are imposed on real-estate actually constitute a significant share in the Israel’s income.

Thus, the typical interest of Israel (to distinguish from the interest of the citizens) is the high real-estate prices which increase Israel’s income.

Furthermore, the most significant market factors all the time push the market towards record prices which frequently break:

Israel leads the Western Countries with a birthrate of more than three children per household – approximately two times the European average and the average in USA. This rate increases all the time thanks to the percentages of the religious women in Israel, while the ongoing trend is a steep increase in these percentages compared to a trend of a reduction in the birthrate in the Western World and even in most of the Muslim World and in the Far East to such an extent that there are many countries, such as Japan, in which the natural birthrate is negative (these countrie gradually dilute the population, probably a type of a “boomerang” for those who try to rule the world).  As mentioned above, the birthrate in Israel reaches almost two percent (!) per year or in number Almost 190,000 new children per year.  After offsetting the number of the deceased every year, we will roughly reach approximately 150,000 new inhabitants per year.  Just to get a clearer picture, i 2031, in only ten years, the population of Israel will grow by at least one and a half million people.  This central datum is expected to be significantly large as the graph of the aforementioned birthrat has been for many years in constant increase, and as far as it continues to increase accordingly, the population of Israel is also expected to increase even more.

The decade of immigration

The nineties were a temporary record in the number of immigrants, particularly from the Commonwealth of the Independent States, and according to these estimates, approximately one million people immigrated to Israel.  The rate of the immigration to Israel in recent years stands at approximately 35,000 immigrants per year.  Following the increasing antisemitism in the world, the high economic tide and the success of Israel in many arenas including the hi-tech industry, many experts predict that the next decade may hit the record while immigration to Israel is concerned.  Even if these forecasts are not completely fulfilled, the immigration of hundreds of thousands and may be even one million people per decade will not surprise anyone.  We should remember that they are usually immigrants from Western Countries who can be categorically defined as wealthy and as people of means.  If we connect the datum of natural birthrate and the datum of immigration, while cautiously estimating, it is reasonable that the overall population of Israel in a decade may increase from 9.2 million today to more than 11.5 million people in a decade.

          Only the data that are mentioned in these paragraphs lead to a simple conclusion: While assuming that these people will not live in tents, there is a shortage of tens of thousands of apartments per year for occupancy.  What does it mean? The race of the price increase is limitless.

Economic incentives and benefits

The interest in the world has stood on zero percentage for a long period.  The layman’s alternatives for investment almost do not exist.  Concurrently, as an additional incentive, the purchase tax on non-”single” apartments – i.e., for a family that buys an apartment for investment – was recently reduced, and the tax for a small apartment declined from 8 to 5 percent.  This extremely significant change for small and medium-sized investors pushed many to invest in apartments in Israel, which, of course, removes many apartments from the market in Israel and by itself causes an increase in price.  We must remember that one datum is added to the powerful inventory (according to the data of the Israel Central Bureau of Statistics) according to which there are at least 250,000 apartments in Israel today which are defined as a non-single apartment for a family (simply, an apartment earmarked for investment).  This trend of purchasing apartments from whatever is available is, in my opinion, expected to increase a lot due to the following – a decrease of tax in the purchase as mentioned above, the decline in the motivation of the Israeli investor to purchase apartments in Corona-Stricken Europe, and problems of double taxations for a person who holds apartments abroad.The psychological dimension

The public in Israel sees that one government after another, one minister after another fail with belligerent declarations and unfounded promises about reducing the prices of real-estate – from the “Zero V.A.T.” Program of Yair Lapid when he was the Minister of Finance which failed before it started, through the central platform of the Minister of Finance Kachalon who recorded a huge quantum leap (almost 20% in real data of price increases in three years) during his period.

When the market starts to take off in Israel, everyone abandons their patience and their pessimistic assessments (“Everything is a bubble.  It is only a question of time until the fall”) and buy one real-estate or another.

It seems that we arrived to this stage – and on a large scale.

The lack of planning and assessments for many reasons whatsoever, the lack of long-term political stability, bureaucratic difficulties and the lack of coordinating a number of beginnings of construction of contractors, which should have taken off in light of the difficult situation, do not improve at all and in some cases, even deteriorate. Thus, instead of starting with a mass and speedy construction, such as “the Built Project” that was led by Ariel Sharon in the nineties, the pit of the shortage of new apartments gradually grows from one year to another, which, as we have already understood, increases the prices of the apartments.

In conclusion, it seems that one should not be a prophet at all to assess that the wave of the increase of prices is not expected to end soon.  If we are already dealing with prophets, it will only be to know which prices we will reach…