Contrary to initial estimates that rent would drop due to the economic crisis brought on by Covid-19, the Central Bureau of Statistics (CBS) published surprising data indicating a steady rise in rental prices in Israel. The cities of Tel Aviv and Ashdod are leading the trend, with an average increase of 3.5% in rental prices in the past year. The figures also show that those buying apartments as an investment have returned to the market, likely thanks to a tax break granted in the summer.
Even the Covid-19 pandemic has failed to halt the constantly raising prices in Israel’s rental market. According to data published by the CBS, during the third quarter of 2020 (July to September) the average rental price for an apartment in Israel was NIS 4,060 per month, reflecting an annual increase of 2.5%. This figure was 0.8% more than the average rental price in the first quarter of 2020, before the effects of the pandemic impacted the Israel real estate market.
These numbers are surprising, considering that young people have been hit the hardest economically by the pandemic. According to the Israel business newspaper, Globes, about half of the hundreds of thousands of workers put on unpaid leave due to the crisis are between 20-34 years old. Experts assumed that the financial impact to this age group would significantly weaken the market for rentals in Israel, which relies heavily on those who have not yet established their own families and purchased their own homes. The data, however, suggests otherwise.
Almost all cities in Israel have seen an increase in rental prices in the past year
In Tel Aviv, the average monthly rent in the third quarter was NIS 5,910, an increase of 1.1% from the first quarter of the year and 3.3% compared to the third quarter of 2019. According to the data, the average monthly rent in Tel Aviv is as follows: NIS 4,670 for a two-room apartment, NIS 5,766 for a three-room apartment, NIS 7,140 for a four-room apartment, and NIS 9,380 for a five-room apartment.
In Jerusalem, on the other hand, rental prices have almost frozen this year. The average monthly rent in the third quarter was NIS 4,350 per month, only 0.3% higher than in the third quarter last year. On average, a two-room apartment in the city is currently rented for NIS 3,326, a three-room apartment for NIS 3,990, a four-room apartment for NIS 5,050, and a five-room apartment for NIS 6,233.
The coastal city of Ashdod has seen the sharpest rise in rental prices this year. The average monthly rent climbed from NIS 3,480 in the third quarter of 2019 to NIS 3,600 in the same period this year, an increase of 3.5%. In Haifa, there was a more moderate increase of 2.5%, from an average price of NIS 2,674 per month in the third quarter of 2019 to NIS 2,742 in the third quarter of 2020. In Beer Sheva in the Negev, considered “the investors’ capital” of Israel, there was an increase of 2.6%, from an average rent of NIS 2,584 in the third quarter of 2019 to NIS 2,652 in 2020.
Housing prices in Israel have remained relatively stable throughout the pandemic
While the price of rentals in Israel has continued to rise, the most recent housing price index, also published by the CBS, indicates that there has been no change in real estate prices in Israel since March 2020, when the pandemic hit Israel. However, a comparison of different geographical areas throughout the country reveals interesting trends.
In the Jerusalem district, which includes Bet Shemesh, housing prices rose by 3.7% from May/June to August/September 2020. In the northern district, which includes Carmiel, Tiberias, Afula, and Nazareth, prices rose at a rate of 3% in the same three-month period. In the Tel Aviv district, on the other hand, prices dropped by 1.5% within two months. This district includes Tel Aviv, Herzliya, Ramat Hasharon, Ramat Gan, Givatayim, and Bat Yam, some of the most expensive cities in Israel.
The Ministry of Finance also published data on the state of the housing market in Israel throughout September 2020. According to the figures, approximately 9,600 apartments were sold in Israel during September – the same amount as in September 2019. These numbers are especially surprising because the government imposed a general lockdown due to the pandemic on September 18. To explain this figure, the Ministry of Finance suggests that many buyers rushed to close deals in the three days leading up to the closure.
Thanks to a reduction in purchase tax, investors have returned to the housing market
According to the reports, 1,700 of the apartments purchased in September were bought by investors – 54% more than in September 2019. The increase is attributed to the reduction in purchase tax for investments applied in July – reduced from from a minimum threshold of 8% to 5%. This marks the continuation of a trend that began in August, in which the number of apartments purchased for investment purposes was 64% higher than in August 2019.
The price of rentals, number of sales, purchases for investment, and housing prices in Israel are all positive indications toward a strong and stable real estate market that has managed to withstand two lockdown periods brought on by Covid-19. The question is, will the market be able to weather the storm if there is a third lockdown approaching this winter?