A huge supply of new homes that have not yet been sold, the weakening of the shekel, and an informed assessment that the constitutional crisis will soon be solved. Buyitinisrael presents three good reasons why the coming year should be a year of opportunities in the Israeli housing market.
Even those who by nature always look at the glass “half-full”, will find it difficult to define the Jewish year 5783, which ended a few days ago, as a “good year” for the Israeli economy in general – and the Israeli real estate market in particular. The sharp increase in interest rates, the crisis in the high-tech industry, the legislation to change the judicial system, and the strong protests that ensued – all led to a significant slowdown in the housing market, which was reflected in a decline of tens of percent in the number of annual transactions compared to the previous year, as well as a minor decline of about 1.5 percent in home prices in recent months.
Naturally, in such times, characterized by a high degree of uncertainty, many are reluctant to perform major transactions, particularly in the housing market. But such periods can also present opportunities. As investment guru Warren Buffett once said, “It’s wise for investors to be fearful when others are greedy and to be greedy only when others are fearful.”
If we translate this statement into the Israeli housing market, the following current conditions might actually present good investment opportunities:
1. Home supply is at a record high; developers are under pressure
When the housing market entered a slowdown at the end of 2022, it happened in the midst of one of the strongest periods of the housing market, characterized by record demand and price increases that peaked at 20% a year. This period also led to the fact that developers began to build at a high pace in order to meet demand and enjoy the top profits of the period. At the peak, which occurred at the end of 2021 and the beginning of 2022, the pace of residential construction reached 70,000-80,000 building starts a year – apartments whose construction has begun. Only two or three years earlier, the pace was still 50,000 apartments a year.
But as we know, shortly thereafter, demand began to drop rapidly, and developers found themselves with a huge number of unsold apartments. According to the Central Bureau of Statistics, as of the end of July 2023, there are about 60,000 new unsold homes on the market – an increase of 27% compared to a year ago.
Naturally, construction companies today are trying to increase their sales in every way, offering a myriad of attractive prices and terms. The same is true of the second-hand housing market, where it is also possible to find bargains among sellers who are forced to sell their apartments.
2. Weakening of the shekel
One of the clear consequences of the constitutional crisis in Israel is the strengthening of foreign currencies relative to the shekel. In the past 8 months, the dollar exchange rate has risen from about NIS 3.4 in January to about NIS 3.8 today, while the euro has risen from about NIS 3.7 in January to about NIS 4.1 today, an increase of 12 percent and 11 percent, respectively.
This is good news for those whose wealth and main source of income are in these currencies and who wish to purchase an apartment in Israel, granting a “reduction” of more than 10% in home prices.
3. The constitutional crisis in Israel
This time it is not a factual figure, but an educated guess, according to which the constitutional crisis will come to an end within a period of several months. In light of the opposition and the refusal of the more moderate wing of the Likud to continue on the unilateral legislative path, it seems that Justice Minister Yariv Levin’s original judicial reform plan may not be implemented.
In the coming weeks, the Supreme Court is expected to rule on petitions against the two laws that have already been approved – the law abolishing the “grounds of reasonableness” and the “incapacitation law,” as well as a petition against the justice minister’s refusal to convene the committee for the selection of judges, and whatever the decision – it is hoped that one way or another the crisis will get closer to a resolution. When the crisis does end, the effect on the housing market is expected to be immediate and to be characterized by a sharp increase in demand, and a subsequent increase in prices.
Interested in purchasing a home in Israel? Whether you’re purchasing a vacation apartment or retirement residence, making a financial investment, or thinking about Aliyah, drop us a line, when you’re ready to talk. Whatever the reason, Buyitinisrael!