Israel Struggles with Rising Home Prices

Israel Struggles with Rising Home Prices

Is there property bubble in Israel? Experts have differing opinions on this. The question is, is this the right time to sell your property in Israel fast?

That’s a tough question to answer, as property prices in Israel, as of now, are heading north.  Even a simple middle class apartment in Tel Aviv costs $250,000 these days, so it’s not just the high end of the housing market that has benefited from the recent economic boom in the country.

A report published in The Economist said that home prices in Israel have increased by 87% since 2008. That is massive.  There are many who are deeply worried about this and have called for government intervention. But some experts disagree.

 Elli Kraizberg, a professor of finance and real estate at Bar-Ilan University and a co-founder of Israeli credit rating company Midroog says, “Not only is government intervention at this stage too late, but if it has a role, it must take into account the possibility that the next stage will be a significant price decline whose implications could be much more significant.”  

According to Prof. Kraizberg, fears of a property bubble in Israel are overdone and home prices in the country are by no means out of line with other OECD (Organization for Economic Cooperation and Development) countries. “There’s a tendency to say that there’s a real estate price bubble in Israel, and that prices are too high. I’m not convinced there’s a basis for this,” he adds.

Others say that even if the prices are slashed by half by getting rid of bureaucratic inefficiency in the property market, they would climb right back up, such is the demand for homes in Israel.

What’s feeding the craze for properties for sale in Israel? Are speculators responsible for the property frenzy? According to Adam Iranyi of Union Investment Real Estate’s Adam Iranyi, it’s not a single factor, but a combination of several that’s behind the property boom in Israel.

Mr. Iranyi says, “The bottom line is that there is too much money and too little product. There is a huge amount of new participants in the market who are driving up prices, many of them from Asia, and the high-net worth buyers from Europe and the US are also buying more.”

 The point made by many experts is that if the prices were to go down, the demand would decrease considerably as many people would give up their plans to buy expensive properties. So this would force many banks to foreclose, which could possibly lead to the sort of recession seen in the USA in 2008.

So, experts have advised the government against taking any deliberate action to bring property prices down. Mody Kidon is a highly regarded Israeli businessman with real estate interests in both Israel and the US.

Mr. Kidon says, “You can’t fight the Fed, and that goes for governments, too. We’ve already had a scenario where Israeli interest rates were higher than the Federal Reserve’s, and all that did was bring more foreign investors here, causing a too-high valuation of the shekel that made Israeli exports expensive. Israel is now part of the race to the bottom of the interest rate pile.” For this reason, he says demand for real estate will remain high in Israel for the foreseeable future. 

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