As societal tensions grow over the judicial reform bill, the impact has not sidestepped the Israeli real estate market, with a drop in home purchases, investment outside of Israel, the sale of investment apartments, and a reduction in new development. While the market was slowing down even prior to the legislation process, fear and uncertainty surrounding the legislative changes appear to be impacting it further, however, the effects of the reform itself on the economy and the real estate market in particular, are hard to predict.
The judicial reform is a series of laws intensively promoted by the new government, designed to change the balance between the authorities in Israel, and significantly weaken the Supreme Court and its ability to carry out judicial review of the government’s actions.
The revolution is led by Justice Minister Yair Levin and Constitution Committee Chairman Simcha Rotman, and backed by Prime Minister Benjamin Netanyahu, who claim that the court currently has excessive powers over the government. On the other hand, critics of the revolution argue that the reform will turn Israel into a formal democracy, similar to what is happening in Turkey and Hungary since it is expected to eliminate the sterility of the separation of powers and lead to the violation of minority rights. Critics also claim that Netanyahu, who has been charged in three criminal cases, including bribery, deception, and breach of trust, has a personal conflict of interest in promoting the reform, and that his goal is to sabotage the legal process.
Among the series of laws promoted in the framework of the revolution is an overwhelming clause that grants the Knesset the power to re-enact a law that was invalidated by the High Court of Justice, thereby overriding decisions made by the Supreme Court, alongside toughening the conditions under which the heads of the Supreme Court invalidate a Knesset law; changing the composition of the committee for the selection of judges in a way that will give the government a majority in the committee; turning the position of the legal advisor of government ministries into a position of trust of the minister; and more.
Throughout extensive public discussions on the judicial reform concerns have been expressed about the far-reaching impact the legislation could have on Israeli democracy and society, and much of the conversation has also been devoted to potential damage to the Israeli economy. From professors and Nobel Prize winners to credit rating companies and bank corporations, many are concerned that approval of the proposed laws may lead to capital flight and loss of investments, a prolonged depreciation of the shekel, and loss of quality manpower.
Not much attention, however, has been given to the effects on the Israel real estate market, although from conversations with various parties in the industry, it seems that the effects of the dispute over the reform and the growing societal tensions between different segments of the population, can be felt in the field.
Initial concerns about the effect that the judicial reform may have on the real estate market were reported to the stock market by various key players in the industry and included a concern that the process of the legislative reform may be increasing risk to their activities. The first to do so was the public real estate company Meshulam Levinstein, in their 2022 financial reports submitted in February, where they wrote that “the changes that the government is promoting in the legal system may negatively impact the economic environment in which the company operates, in terms of sources of financing, on the credit rating of the Israeli economy, and more,” adding that “at this stage, the company is unable to estimate the abovementioned impact.”
Has there already been a noticeable effect of the legislative debate on the real estate market? Real estate professionals say there has been, and that this is reflected mainly in the halting of purchases as buyers are waiting to see things how to develop. Furthermore, investors who have benefited from the dramatic price increases in the market over the past few years, are showing interest in selling off their assets, in case of prices falling.
An example of the mood among investors is provided by Gil (alias), a Tel Aviv resident who owns an investment apartment in Modi’in, which he says currently constitutes the majority of his household’s capital. “My wife and I are concerned about the economic consequences of the reform, mainly because our assets are linked to the value of the shekel, and if the shekel falls, then the value of our assets will fall too,” he says. For this reason, the couple is currently discussing the sale of the property and investment of the proceeds in real estate assets abroad. These comments join other reports in the economic press in recent weeks regarding the increased interest on the part of Israelis in purchasing real estate outside of Israel.
In the residential sector, the luxury real estate market is most vulnerable, due to its reliance on both local tycoons and foreign investors – many of whom are holding off on new investments in Israel and/or moving their money out of the country. In an article recently devoted to this market in The Marker, realtors specializing in this market argued that the political uncertainty is a fatal blow to them.
Another effect of the raging debate over judicial reform is reflected in the activity of developers, who, after enjoying several “fat” years, seem to prefer to wait for the purchase of new land and the start of construction of new projects until the picture becomes more apparent. But we must bear in mind that even before the legislative process began, the market was already slowing down, with a marked reduction in transactions, due to the sharp rise in interest rates in the past few months and high inflation rates.
While it is difficult to estimate the impact that the judicial reform will have on the housing market, if it goes into effect, none of the parties we spoke to have any doubt that the atmosphere of uncertainty and the fear of what may be to come as a result of the reform, has played a critical role in intensifying the slowdown in the market.
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