Real estate consultant, attorney Ohad Shpak, in early March issued his report on Israel’s real estate market in 2017, citing the Finance Ministry’s data which suggest 2017 was one of the weakest years in the last decade in terms of the number of market-price (meaning unsubsidized) transactions.
Summing up the past year, the share of investors in real estate purchases declined, adding up to only 17,400 apartments, a sharp drop of 22% compared to 2016, which marked its own sharp decline of 29% compared with 2015.
It should be noted that 2017 also marked the lowest rate of investors’ purchases since 2003, a year that was shadowed by an economic recession.
Also, the total number of housing units purchased by foreigners in 2017 was a mere 1,700, a terrifyingly sharp drop of 25% compared to 2016, which had its own terrifyingly sharp decline of 32% in foreign investments in Israeli real estate. This was the lowest level of foreign purchases in Israel since 2002.
In an economy with historically low-interest rates, Israeli investors have turned over the past decade to the real estate market for long-term investments. Apartment values usually go up, and even if you don’t get rich on your investment, you can always leave them to your children. The low-interest rates also helped in getting reasonable mortgages, and the fact that Jews from abroad, most notably from France, were investing in Israel real estate, brought up prices, especially of luxury apartments.
So, what could be wrong with that? The real estate market is thriving, money comes in from European investors, construction jobs are plentiful and even the media are delighted, becoming flush with real estate advertising.
But according to Finance Minister Moshe Kahlon (Kuanu) and his team of advisors, the rapid growth of the market for luxury apartments was stifling construction for lower and middle-income people, especially young couples. There were no incentives for developers to build those more humdrum apartment buildings, when there was so much money to be made building for the rich folks.
And so, the Finance Ministry worked out a program it calls “Mechir Lamishtaken” (special price for the new dweller), where in order to get the jobs developers must compete for the lowest price per square meter for an apartment. The developers receive a large discount on the price of land. The program applies to high density housing, complexes with each building a minimal of two stories high, including at least six apartments with at least one apartment on each floor.
The Mechir Lamishtaken project has been criticized heavily over its choices in location (just how many housing units went to the periphery and how many stayed at the already very dense center), and just how those units really comply with the quality specifications determined by the Ministry of Construction and Housing. But that’s not our concern here – our concern stems from the fact that Israeli contractors were not so eager to submit their tenders because there wasn’t too much money to be made.
And so, the Finance Ministry decided to kill the investment apartments market. They did it openly. Finance Minister Kahlon actually declared before the TV cameras: I will fight the investors! To remind you, his prime minister prides himself on running a free market government…
Kahlon came up with a new tax to be levied on the purchase of three or more apartments. The tax comes to 1% of the value of the apartment, up to $435 a month, or $5,220 a year – for each apartment.
According to the Finance Ministry, more than 60,000 Israelis own three or more apartments, with about 38,000 owning three apartments, 10,000 own four, 3,000 own more than five, and about 400 own 10 or more apartments.
The ministry was hoping to bring in about $23 million in taxes to the state coffers from this tax, but that was not their real goal: their real goal was to make investing in luxury apartments so unattractive, that those reluctant Israeli contractors would have to dive into the Mechir Lamishtaken project.
It is not clear just how successful the government project has been in alleviating the suffering of young couples eager to own their own first home (there is almost no for-rental housing in Israel, it’s just not something Israeli do – almost the entire rental market is owned by landlords who one or two, possibly three apartments).
Roni Cohen, CEO of Eldar Real Estate Marketing, told The Marker in February that “people did not stop buying, they just started to buy abroad more than before. Anyone who has accumulated $100,000 to $150,000 is currently investing abroad.”
“In my understanding, the treasury knows that the state exports billions of shekels abroad,” Cohen said, noting that a similar process is taking place in the diversion abroad of office investments, which has increased in the past six months. “It’s not that people have stopped believing in real estate, they just channel their investment elsewhere,” he said.
Incidentally, while Kahlon has championed the young couples who are eager to own their first home, by stifling the growth of investment apartments which comprise much of Israel’s rental stock, the Finance Minister has caused a rise in the cost of rents in Israel, affecting a population that is even more vulnerable than young couples: students, the elderly, olim. So, way to go, Minister Kahlon, you really showed those evil investors…
@ Hugo Schmidt-Fischer:
Hungary in 1977? I wandered around and shopped in different stores. Didn’t look that way to me. If what you are saying is true, then it all just needs to be nationalized and allocated on the basis of need.
Or done on a cooperative basis. In the 60s, landlords weren’t trying to abolish rent controls (which rewarded them with a subsidy in exchange) because there was a housing glut thanks to white flight.
In the 70s, landlords in the Bronx began abandoning and burning down their buildings for the insurance.
In the 80’s, the city (this is NY) began releasing abandoned buildings to the market for a dollar but only a few at a time and not to community groups that wanted future tenants to do the work themselves and then inexpensively own and live in them. There are still some low cost coops left. Problem with low rent can be the tenants will try to become mini-landlords and exploit sub-tenants with high rents, illegal in NY.
If less land is Judenrein in the land of Israel, obviously that will contribute to bringing down prices, but look, rents and housing prices in NY and in the US were never like this before the 80s. Ever. And in Israel from what I am reading before the 90s.
However it is managed, If only luxury apartments are plentiful, then only those who can afford them have any reason to care.
@ Sebastien Zorn:
Of course you saw no homeless loitering the streets. They would be arrested.
They also had no unemployment. But they had plenty of hidden unemployment. I visited their department stores, their restaurants, their factories and administration. Tons of people in every nook and cranny. But when you inquired, no products and no service could be supplied, by coincidence, just at this moment. It is not something I wish for Israel.
I visited East Bloc countries after the iron curtain came down. It is not something I wish for Israel.
Buildings were derelict, crumbling facades and really horrible. People would live in tenements, families sharing kitchens, bathrooms out in cold corridors, grown up children sleeping on cots with grandma, waiting for decades to move to an own flat, bending over backwards to please the party line, humiliating themselves so that they would get that other room.
In the West, 2% employed in agriculture could feed an entire country, and sell surpluses to the East. In the communist bloc, 25% of the population was still working the land, like in the 19th century and with that standard of living. They could always build a shack for their children. It is not something I wish for Israel.
You were allowed in Hungary to emigrate and even encouraged to seek a job elsewhere. Many did. Unlike Israel, few returned or chose to immigrate into that country. Israel needs a growing housing stocks, not one in decline.
Wherever there is rent control, shortages ensue. Whosoever can, never vacates their subsidized apartment, even if it is left empty. You keep it just in case you might need it. It is so cheap. And so inefficient. You sublet the flat and pocket the premium for yourself.
Landlords stop building for this segment. It does not pay. They stop maintenance and upkeep. Whole blocs deteriorate into slums. In the end, it is cheaper for landlords to just abandon these properties. Thousands and thousands of homeless, and almost as many empty houses. I’ve seen plenty of boarded up buildings in New York. Not something I wish for Israel.
If you kill the goose, you will not have golden eggs anymore. Same goes for those capitalists that built the houses. Some will leave in disgust, others will transfer their properties among their children to avoid the taxes, accountants will profit, taxes raised will plummet, nothing will be achieved and there will be less new housing stock.
Mr. Kahlon is hard working guy. Not very smart though. He lectured at some third rate Mickey Mouse academy. That was likely a launching pad, tailor-made for Kahlon by a tycoon seeking his favors in future, or a well-meaning wealthy crony convinced he can do good. And like the indefatigable energizer bunny in the end Kahlon may. But Mr. Kahlon is stupid, and until he finds out better, his mistakes are fateful.
If you discourage investment, you will only harm the housing market.
@ david melech:
Well that’s because you likely don’t live in Ireland. “Common” is the commodity of which the average Irish Goy has most of. And how….!! Irish Jews are very much different. Believe me I know “whereof I speak”,…. to use the cliche….
Educated Irishmen are also different, but they are comparatively few. Felix is obviously highly educated.
@ Edgar G.:
Just think of the communities of Jews STILL living in countries that are totally against Israel; many Muslim countries, Poland, Germany, Norway Denmark and Sweden, the Baltic States, Hungary, Greece, all Jew-haters, and still the Jews cling to them. The French Aliyah, where Israel was setting up special offices, and hiring extra staff for the massive rush, all this has faded away to a trickle.
@ Hugo Schmidt-Fischer:
IF they do start “pouring” in, it will be a process that will take 20-30 years. Because at the same time, there will be undoubtedly Right Wing Nationalist Groups forming by the hundreds and there will be blood in the streets, but leaving the Jews alone. This same thing happened in the 1916 Irish Rebellion, and 1922 Civil War. The Jews were basically unnoticed and unharmed. It also happened during the late 20th century IRA and British Army battles in Northern Ireland. I’d expect the same in the situation described above.
@ david melech:
Ha ha ha. {I prefer that to LOL. Thanks to Mr. Orwell, abbreviations — even though sometimes I can’t resist the urge to be lazy myself and use them — fill me with suspicion.}
see:
http://definitionsinsemantics.blogspot.com/2011/12/george-orwell-on-advantages-of.html
and
https://en.wikipedia.org/wiki/Newspeak
Edgar G. Said:
none of my acquaintances are common!
@ david melech:
Of the 5 posts above 4 are from 2 people, and the 5th lives in NY. I was born in Eire but haven’t lived there since after your barmitzvah. I’ve lived in Canada for over 50 years. Hugo (the only one left) “may” live in “Eire”. Nobody (except-maybe- some Gaelic speakers) calls it that since before WW2 they call it just Ireland.
I’d be interested to know, as we might have common acquaintances.
@ Sebastien Zorn:
You and I are more or less on the same page with this. Has anyone heard what is to happen to that huge amount of land in central Tel Aviv which was the largest military base in the country. They moved everything down to the Negev, and are building suburbs and even connecting complexes around it for the families of the military as well as service people and businesses etc. That would be a massive acquisition, but I bet only the ultra wealthy will be able to get a piece of that pie. This is where cronyism and protexia still rear their ugly heads. They probably already have it share dout amongst themselves, the huge building corporations.
Communism had a lot of things wrong with it but housing wasn’t one of them. When I visited Hungary in the summer of 1977, right after graduating high school, I remember being very impressed that I didn’t see a single homeless person. I liked what I saw very much.
@ Hugo Schmidt-Fischer:
Who cares if the ample supply only consists of luxury housing only the rich can afford? Better the rich pay low rents, too, and have more money to invest in productive job-producing not fictitious capital.
Real estate contractors who can’t figure out how to make a living making housing that is affordable for all like they used to are better off not even being in this field, in the first place.
Luxury housing should be the exception not the rule which it is now. And hoarding apartments during a shortage should be illegal.
“Investors” who speculate in scarce essential resources are the worst, little better than black marketeers. Such markets should be eliminated entirely. The market should be flooded with low-rent housing for rich and poor alike. Or perhaps, it should all be state owned like most of the land already is. All it would take would be the application of eminent domain.
Obviously that will be easier when the Arabs are out and Jews can live on the whole land.
Then the glut will naturally crash prices as should happen.
@ david melech:
So there are no poor Israelis?
“A report issued by the OECD in 2016 ranks Israel as the country with the highest rates of poverty among its members. Approximately 21 percent of Israelis were found to be living under the poverty line – more than in countries such as Mexico, Turkey, and Chile. The OECD average is a poverty rate of 11 percent…Housing
Most Israelis live in apartments. According to the Israeli Central Bureau of Statistics, 33% live in three-room apartments, 28% in four-room apartments, and 13% in five-room apartments. CBS statistics also showed that 5% live in one-room apartments, while only 0.6% of Israelis live in a property with eight rooms or more.[25]
In 2014, home ownership in Israel stood at 67.3% of the population.[26] This figure stood behind many other developed and developing countries, although still higher than some other developed countries including the United States, France, and Germany. Housing in the country is notoriously expensive, with homes costing an average of 148 monthly salaries.[27] A 2013 report found home ownership was found to have noticeably declined between 1997 and 2012. Many Israelis require mortgages to purchase homes, although mortgages are easy to obtain.[28]”
Standard of living in Israel – Wikipedia
https://en.wikipedia.org/wiki/Standard_of_living_in_Israel
above 5 commenters 2 live in Eire 1 n y 2 any time any place. not one has suggested having spoke to an ISRAELI (surprised T B did not comment on this.) ISRAELIS invest in property as they don’t trust the t a s e, banks charge outrages fees, banks pay little or no interest, so ISRAELIS buy property. often the parents have some extra cash or can qualify for a mortgage, the property is then rented to the kids. simply passing on the estate whilst alive. now then you suckers who wants to buy my place 1,500,000 NIS on the beach, indoor + outdoor pools, gated community, looking north west.
T B may know the place 5 buildings 1 new hotel, area is being built up like crazy.
roll out of bed for an early morning med sea swim. ya been to givat olga? Ted
Makes no sense to me. It’s the meat of his argument. He should have elaborated. Not obvious at all. I live in a rent stabilized tenement apartment in New York. I pay just under a thousand because I have been there almost 40 years. My neighbors who moved in recently pay around $4,000 a month. They just raised the minimum wage to $15 dollars an hour. The rent controls, which have to be renewed every 6 years by the state legislature are on condition that the availability of non-luxury housing is below 5%. It’s below 1%.
@ Edgar G.:
There is this commandment: You shallt not steal! If somebody paid for it and built it, taking it away is never an option.
You can get rid of the investors only once. The communists tried that in Czech, Poland, and Hungary after the Second World War. Killed the stragglers coming back from concentration camps, sent off suspected capitalists to Siberia, removing recalcitrants to ‘educational retraining’ colonies, kicked out Jews in the 1950s or 1960s. This only creates some very limited space for a very short time. The following housing shortage is certain.
Getting rid of the investors does not solve a problem for the long term. Making it attractive for investors to build ample supply, that’s what creates housing and drives down prices.
And by the way, Israel is an immigration destiny. It needs new a continuous fresh supply of housing. Wait until the Jews from Germany, France, Sweden, Belgium, England, Holland etc. etc. really start pouring in.
@ Hugo Schmidt-Fischer:
Hugo, the :disaster you are describing to come, is happening NOW and has been for the past 15-20 years, increasing every year, as the numbers who can’t marry or who do, and move in with their parents grows all the time. I recall in the early 1980s they were bringing in a law that heavily taxed anyone from abroad who had an apartment that was lived in only for 2-3 weeks a year, and heavier taxes on those who had a second apartment. Of course “there’s many a slip ‘twixt the cup and the lip” and I don’t know where the matter went, but it was a very big issue at the time.
I was booted out of a 5 room apartment we’d lived in for over 4 years, because my family was on a prolonged visit to my wife’s ailing parents with our 4 very young children, and I couldn’t guarantee that they would be back in a month. I think it was illegal, but the Moetza Mekomit and I had never been friends. I wasn’t even allowed to buy it ($22,000) although they were selling them to all the others in the building …
I don’t accept that if investors would leave it would be bad. It’s a very minor part of the GDP. Leaving, would bring down home prices with a crash, which is what is so badly needed. Many Israelis who want to stay, emigrate because they can’t afford homes AND families. I’ve spoken over the past many years to at least a dozen or more. They would eventually come back, and in the meantime the much lower prices would allow the ordinary recently married and wanting to marry couples to afford a home, either in Israel proper or in YESHA. There must be a million pent up buyers around.
Yes, definitely, construction in Judea and Samaria must be freed up. This would take off pressure from the overheated property markets, especially since those hills are very close to Israel’s center.
On the other hand, Kahlon’s thinking is a disaster. He believes that if you discourage investors, then housing prices will go down. While this is true, Kahlon forgets that supply then invariably plummets.
Over time, property prices then bounce back, defeating Kahlon’s intentions. But something really bad happens as well. Rental properties become even scarcer. Landlords are less likely to upgrade their properties. Quality deteriorates. The less affluent have difficulties finding a home.
Tenants weighing a career move to another city are discouraged, unless they can afford selling and buying property at their new location. There are a lot of bad consequences for the economy.
Retirees who would be better off owning safe rental properties with predictable yields are pushed into risky investments or indeed they invest in foreign countries.
What is needed is a lot of construction, reduced red tape, repeal and replace the byzantine corrupt public transport system mafia, which makes people live in the wrong areas, and permission to build in Judea and Samaria.
More supply and opening up to investors would alleviate the problems immediately. Proven again and again over time. Wherever they rent controls and capital restrictions were applied, housing shortage, condemned properties, derelict properties, accompanied with exorbitant prices, followed. This is economics 101.
Most importantly, there must be a framework of simple standardized rental laws. NOT rental control but common sense rights and obligations of landlords and tenants, something sensible for both sides. Some countries actually have that. This would work wonders.
Kahlon is like the grade school pupil who gets good marks for trying hard, maybe he keeps his copybooks in neat order, but gets horrible marks on his tests. FAILED
If anything would ever cause me to vote for Kahlon it would be this single act of his. It is so chutzpadik that wealthy Jews and foreigners don’t seem to have enough money that they have to buy Israeli apartments as INVESTMENTS to add to their portfolios, like commodities, steel, coal, utilities etc.
For many years there has been a shortage of homes for ordinary folks, because the prices were driven up yearly by double digits often, into the stratosphere, compelling young couples who married, to live in overcrowded homes, with children adding to the disaster situations. To me this was and is CRIME.
On top of all this, thr whole world was watching to make sure that an Israeli in YESHA didn’t add a bathroom, or a porch where..if they did.. thousands would come swarming out of the woodwork crying about International Law (which they were very ignorant about) and foolishly allowed into the country by the govt to harass and ruin by court costs the poor “offenders” who, due to the Very Left judiciary, always lost.
If Kahlon brings homes down to affordable prices,and thus allows Israelis to increase their families, and take the pressure from their suffering parents, he will go down in history as a champion of the poor. None of those “investors” (more like bloodsuckers) are suffering, they are all very wealthy. They just want more,…Let them invest in Timbuktu.