Bank of Israel to avert housing bubble
Posted on 11. Jun, 2010 by Buy-It In Israel Staff in Israel Real Estate
The Bank of Israel said this week that it will continue to watch the country’s booming real estate market and take measures, if necessary, to prevent a housing bubble. The Bank of Israel’s Supervisor of Banks Rony Hizkiyahu, said that although there is no bubble in the Israel real estate market developing according to the definition of of a bubble by economists, academic and analysts, the direction is worrying.
A few weeks ago, the central bank issued new and more stringent regulations for banks, in an effort to cool the country’s hot property market. Thenew mortgage regulations will make loans more expensive for home buyers seeking a mortgage of more than 60 percent of the value of the property. The measures are part of the central banks supervision policy to strengthen the financial system in general, and the banking sector in particular, before a crisis can form and develop.
In the report on economic developments in the months of January to April 2010 published this week, the central bank said that despite numerous efforts by the Housing and Construction Ministry and the Israel Lands Administration to boost the supply of housing through the release of land tenders over the past 18 months, there has been no significant change in the situation and the sector continues to suffer from a shortage of available and affordable housing.
The Bank of Israel expects the recent marketing of land tenders and permits for construction approved by the Israel Lands Administration to start to have an impact on the supply of housing only in two years time.
In the report, the central bank emphasized that despite an increase in the base lending rate in the reported quarter, the demand for residential housing is continuing to rise, and there is more borrowing activity to purchase housing probably boosted by low mortgage interest rates. The Bank of Israel has raised its benchmark interest rate from 1 percent in January to 1.5 percent in April. Still, overall housing credit has risen by 15 percent, while bank credit in general has declined.
The inability of the supply side to satisfy demand is reflected in the continued surge in real estate prices into 2010, although at a slower rate than in the last two quarters of 2009. According to the report, property prices have risen by 22 percent over the past year and by 30 percent over the past two years. The Bank of Israel concluded that the continued rise in property prices shows that the supply of housing and volume of new construction starts are not enough to satisfy high demand.
New construction in Israel
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