Decline of foreign resident buyers is recovering
Posted on 14. Jan, 2010 by Buy-It In Israel Staff in Israel Real Estate
The sharp decline in the sales of apartments to foreign residents in the Israeli real estate market seen during the global economic crisis is showing signs of a recovery.
©iStockphoto/Keith Reicher
As a result of the global economic crisis and the collapse of the dollar, foreign residents, who represented a major factor leading to the price increases, mainly of the luxury apartments in Tel Aviv and Jerusalem, have shown less interest in buying a home in Israel in particular in 2008 during which there was a large fall of 33% in the purchase of apartments by foreigners. The economic crisis severely reduced their financial stability and limited investment opportunities at high prices which characterized the Israeli property market. However the most recent figures for 2009 show that the sharp decline in the foreign resident buyers experienced in the previous year is showing signs of a recovery. Over the past year, 2,800 apartments were bought by foreign residents, which is only 13% less than in 2008 compared with the large drop of 33% over 2007.
Despite a weak global economy, Israel’s residential sector has remained strong over the past year and is seen as leading the global property market recovery. This has been the result of a combination of low interest rates, tax incentives and availability of attractive property with sound investment potential. According to the Knight Frank Global Price Index for residential houses, Israel has been the strongest performing country in attaining price growth for residential property.
Looking ahead to 2010, which is showing signs of the beginning of a recovery in the global economy, foreign resident buyers are expected to turn their heads back to the Israeli real estate market. The purchase of apartments in new developments in Israel may provide the foreign buyer with opportunities to find favouable deals, as real estate and development companies are still expected to face debt repayments and will therefore be more willing to reduce profit margins, as they are more concerned with a partially sold project on their books and are in greater need of recovering their investment at a time when credit is difficult to obtain.
Furthermore sellers could be expected to show more readiness to lower prices due to the unwillingness of buyers to pay current levels in light of the economic climate. Another indicator that sellers are more willing to compromise on price is that purchases of real estate for investment has almost doubled the level of 2008.
Market analysts believe that the recent Bank of Israel interest rate hikes, which are expected to continue, are liable to halt the rise in housing prices seen over the past year from the beginning in the second quarter of 2010. At the same though many real estate agencies predict that apartment prices will continue to increase this year albeit at a slower pace because of the relatively mild impact of
the global economic crisis on the Israeli economy and the high demand for real estate in the central part of the country, while supply is continuing to decline.
Last year, apartment purchases by foreign residents accounted for 2.8% of the overall apartment sales in the country, a decline of 13% compared with 2008. However in high demand areas such as Jerusalem, Tel Aviv and Netanya, foreign resident buyers still accounted for 6% to 11% of all apartment sales. Furthermore in the luxury housing segment foreign residents accounted for 30% of purchases in Jerusalem and 10% in Tel Aviv in 2009 although activity was down 19% in numerical terms and down 22% in financial terms.
Total value of apartment sales by foreigners amounted to $4.3 billion out of which one-fifth was generated from sales in the luxury property market, 36% by sales in Jerusalem and 26% by sales in the Tel Aviv area.
On the back of rising property prices in Israel, in contrast to the large falls in the US and Europe and the financial drawbacks suffered as a result of the global financial crisis, foreign residents sold 2,400 apartments in 2009, 10% more than in 2008. About 19% of the sales were for apartments bought over the previous four years.
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