2010 Is Done, What Should We Expect In 2011?
So 2010 has come to a close, and what a year it’s been. After a huge 2009, homebuyers and market observers alike foresaw a “bubble burst” in store for for 2010, which to homebuyers’ dismay, and to sellers’ advantage, did not happen this year. In fact, the two year trend of rising prices only continued steadily, despite the significant drop in deals made and customer demand.
Prices throughout the country rose by double digits in 2010, with the average Tel Aviv 3 bedroom apartment scaling in at 2,740,000 NIS (768,367 USD) in December, a 28% increase from December 2009’s average of 2,500,000 NIS (701,000 USD). If that number isn’t interesting enough for you, in 2006 the average 3 bedroom in Tel Aviv was 1,100,000 NIS (308,500 USD).
The southern city of Beersheva saw the greatest increase in prices, with a 30% rise from December 2009 to December 2010, with experts predicting an even steeper rise in price and demand in the coming year. Jerusalem prices rose 22%, 29% in Haifa, 25% in Bat Yam, 21% in Petach Tikva, and 20% in Rishon Le-Tzion, the three later of which are all Tel Aviv suburbs.
How much more could the market rise? Are we facing a bubble? This has been the question on the table for the past three years now, one that no one can answer with any kind of assurance. Let’s look at the facts. It has been well documented that Israel’s economy has been the envy of the world since the world financial crisis, immigration to Israel has increased steadily, Israel’s standard of living has gone up, the average salary has risen, and the country’s cities are becoming more developed and modern by the month. As long as Israelis continue to expand their economy and come into more comfortable financial situations, the prices of property here, can only at best, plateau. The sheer fact of the matter is that Israel, at the end of the day, is a small country with a highly centralized center of life. Tel Aviv and its suburbs will always be in demand, and the prices here will not, and cannot be influenced by any other force besides simple supply and demand. Cities like Haifa, Beersheva, and Rehovot, in the periphery are only becoming more popular, with location and threat of war having no effect on their property markets.
With new interest rates and tax structures in place for 2011 we will likely see a slow down of the market, with prices reaching a more or less plateau, with small, more stable rises in prices, as opposed to the erratic double digits we have seen in the last two years. Whether you’re in agreement, disagreement, or just have something to say, I’m very eager to here what you have to say, please feel free to contact me or leave comments here for open discussion on our Israeli Market in 2011. Happy New Year!
Totally agree Mr Bortnick that the market won’t crash. As you say, the reason why is that its not built on hype solely (although I agree that the market has been hyped past, thats not the case now). Factors that have contributed to the rise of the Israeli property market are;
1. Repressed market due to political issues such as 90s bus bombings and Intifadeh II. Therefore, the market had to catch up soon after 2003 when the situation stabilized.
2. Israeli Lands Authority not making enough land available for new buids thus creating a huge surplus of demand by Israeli buyers.
3. Major foreign investment especially by the French in 2007 was a major factor in propelling the market forward. The speculation amongst foreign investors continued even after the French slowed down because Israel became known to be a “great place to buy”.
4. The 2008 “slowdown” was not initiated by Israel but rather a general uncertainty in the world by countries that really do have economic issues. However, Israeli buyers and sellers were caught up in the world’s problems and therefore the market paused between Mid-2008 and 1st Qr. 2009 whilst the market evaluated whether Israel really was affected or not. This pause was akin to shutting off the oxygen to a fire which continued to burn. When traders realised finally that Israel had nothing to worry about, the “windows were re-opened” in Spring 2009, the buyers rushed in and the market roared!
At this point I agree with the prognosis for 2011, the market will calm down. However, prices won’t go down, they won’t go up by double digits either. There is likely to be a plateau but a continuation of a general shortage of properties. There will be a greater defining of markets within Israel; old, unrenovated properties will gain slightly in value however the disparity between unrenovated and renovated will continue to exist therefore the opportunities for investors and developers will continue to exist.
Going forward, the market will be affected by the Israeli Lands Authority releasing large amounts of land for new builds. The influx of the “new build luxury condos” is going to weaken that area of the market.