Coronavirus hits rentals in Israel

More than 10% of residential tenants in Israel fail to pay their rent; price of rentals in Israel is falling

The residential rental market in Israel has been noticeably affected by the Corona crisis. With a substantial percentage of renters in Israel suffering economic loss as a result of the pandemic, for many it has become difficult to continue to pay the agreed rent. According to people who deal in rentals in Israel, the situation has led to countless cases in which the landlord has agreed to a temporary reduction in rent until the tenant’s financial situation improves.

A recent study conducted by Tel Aviv University together with the Hebrew University, found that one out of eight tenants was not able to pay their full rent during April 2020, and out of those, 40% did not pay any rent at all. As a result of the crisis, the Municipality of Tel Aviv-Yafo, where 50% of households are rented, announced the establishment of a special hotline for residential tenants and landlord, while the Mayor Ron Huldai warns of a situation in which “thousands will find themselves on the street.”

While traditionally, most households in Israel prefer to own apartments, renting is common and has gained popularity in the country over the past two decades. According to data from the Central Bureau of Statistics, 28% of Israeli households rented in 2018 compared to 24.3% in 1997.

This upward shift has occurred despite the many shortcomings of renting a home, in particular the lack of stability that it presents. Contrasted with most Western countries, Israel does not have an institutional market for long-term rentals, and almost all leases are one-to-two-year contracts with private apartment owners. With increasing demand for rented homes, greater than the supply available, rent prices have steadily climbed over the last decade.

With the outbreak of the Corona crisis, which has severely impacted the payment capacity of many tenants, it seems inevitable that rental prices in Israel will come down sooner or later. In the Tel Aviv neighborhood of Kiryat Shalom, which attracts many young families, the residents are already witnessing a reduction in rent prices. According to Oded and Na’amah, parents of two children living in a three-room apartment in the neighborhood, during negotiations on the renewal of their lease, their landlord reduced their rent by 1,000 shekels per month. “We’ve lived in the neighborhood for over a decade, and I don’t remember a time when this was  possible.  Prices have always risen. We see what is happening, prices of apartments that go on the market, are even less than last summer’s prices.”

According to Aliza Friedland, franchise holder of the RE/MAX Vision in Jerusalem, “at this stage the dominant emotion in the market is fear. Owners are afraid to rent their apartment to tenants who may lose their source of income, and tenants fear economic uncertainty. As a result, someone who may have considered moving to a 4-room apartment, is now choosing to stay in his 3-room apartment in order to save costs.”

These concerns, according to Friedland, are absolutely founded, in a city that that relies substantially on tourism. “Tourism area has been completely frozen, as has the entire restaurant business. These are two particularly important industries in Jerusalem, thousands of residents have lost their jobs and business owners have entered debt.”

However, according to Friedland, a decline in rental prices has not been detected. “There have been tenants that have requested not to pay rent for a month, but this has not led to a price drop. There are some stories about people who have been forced to go back to live with their parents, but they are rare. At the end of the day, the market demand is relatively inelastic: a family with children must have a roof over their heads.”

A particularly interesting development caused by the epidemic is in the new city of Harish, which was built in recent years on the outskirts of the northern part of Israel’s high demand zones, approximately 20 km east of Hadera. Many apartments in the city were purchased by investors, however, over the past two to three years there has been little demand for renting thousands of these apartments. This created a low rent price and attracted a problematic population. However, with the Corona crisis, according to local real estate dealers, the cards have changed.

“Families from Tel Aviv and the center of the county who are no longer able to pay the high rent are starting to come to Harish” says Ilana Breslausky, owner of Eco House Brokerage Office, which operates in the city. “In Harish, a five-room apartment, brand new from the contractor, can be rented for 2,500 shekels, a price which would not even cover a one-room apartment in Tel Aviv”. According  to Breslausky,  Coronavirus “saved the city”. “We are now seeing more and more people from Raanana, Holon and Bat Yam who understand that the infrastructure here is good, and that Harish is a city with potential. This would never have happened without Corona.”

Unfortunately, there is no reliable way to check rental prices in Israel. The Central Bureau of Statistics publishes a monthly index that is intended to reflect behavior and trends in the residential rental market, however  in recent years its reliability has come into question. A measure that is commonly used is offered by Yad2, but it relies on the asking prices of  apartment owners rather than on the actual closing rents, which are usually lower.

The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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