The last 15 years have been good economically for Israel. For a country the size of New Jersey in the US and Wales in the UK, it is certainly punching above its weight economically. The Organisation for Economic Co-operation and Development’s acting chief economist Alvaro Pereira said:
“The Israeli economy has grown faster and more consistently than nearly any other in the OECD for the past 15 years.”
Leading the way over the last decade has been the exponential growth of the Israeli tech sector. Household names such as Waze or Wix are just a couple of the hundreds of success stories from Israel’s thriving tech and startup scene. Tel Aviv is second only to Silicon Valley in terms of startups and the boom in the tech world has made the Israeli economies one of the envies of the world.
The Changing Face of the Israel Real Estate Bubble
The ever-changing skyline of Tel Aviv is a testimony to the success of the last few decades. Sleek office and residential tower blocks spring up weekly and the surrounding cities of Ramat Gan and Givatayim cannot build apartments quick enough to cater for the new, wealthier generation benefiting from the tech boom. Some of which looking to get on the housing ladder for the first time. Ramat Gan, home to the Boursa, once the fintech hub of Israel and the world, has changed dramatically. From the Boursa, many of the forex trading companies have relocated abroad. However, that hasn’t had a detrimental effect on housing in Ramat Gan. Out go the run down, the slightly shabby block of eight 1960s built apartments. In come the new build 16 apartment blocks.
The benefits of the tech boom can be seen everywhere, from the locksmith Ramat Gan, the cleaner in Bat Yam and beyond. However, all this new found wealth prosperity has not been without its problems.
House prices in Israel have been a thorn in the peoples and the government’s side, with prices skyrocketing over the past 15 years. Attempts have been made to keep house price rises in check. The decision by Bank of Israel Governor Karnit Flug to reduce interest rates to a historic low of 0.1% was probably the most drastic of attempts so far. However, the combination of rising living standards and housing shortages has meant Israelis are finding it more difficult than ever to own a home, no matter where they live in the country.
Whilst house prices have levelled off a bit over the past couple of years, house prices fell 2.3% over the last 12 months according to the Central Bureau of Statistics, Despite this, newly built apartments are being sold without delay and demand is still far outweighing supply. Unemployment is at a record low of 3.60% and the population, at nearly 9 million, is growing faster than ever before. The economy shows no signs of slowing down with Israeli innovation leading the world in a multitude of sectors. With no recession on the horizon and resilience that saw the Israeli economy virtually unscathed by the financial crisis of 2008, indicate that the inflating Israel housing prices and the Israel real estate bubble are not going to burst soon.
Supply simply cannot keep up with demand when it comes to housing in Israel. Infrastructure is improving enough that people can now consider buying and living somewhere like Netanya or even Beersheva, where prices are considerably less than those in Tel Aviv and its surrounding cities.
No Respite For Israel Housing Prices
As long as the Israeli economy keeps moving in the direction it has been the last 15 years, and there is no reason not to, then the Israeli housing bubble doesn’t look like bursting soon. In fact, new finds of offshore natural gas should strengthen Israel’s fiscal position even further.
Government initiatives such as housing lotteries, interest rate cuts and loan assistance certainly help level the playing field. However, unless there is a dramatic shift, everything will still be centred around Tel Aviv. Already one of the most expensive cities in the world to live in, recently coming joint 10th with Los Angeles, Tel Aviv saw average prices hit NIS 2.67 million in the final quarter of 2018.
The recent decline in prices does not indicate a crash. Instead, what we can see from the quick turnaround in properties is still a shortage of properties, but also vendors in the Israeli housing market are being realistic with prices. Quick sales are made and apartments renovated or built within weeks.
Although the Israel real estate bubble may not be bursting just yet, it’s fair to say it has deflated a little. The strong economy offers the Israeli housing market some protection. Because of increasing demand, the bubble maybe is deflated but it still has plenty of air left in it.
