Why are apartment prices only rising?

Much and Beyond the Land Shortage

It is true that over the years there has been a decline in apartment prices, but in the overall view, real estate prices have been climbing for more than a decade, and as of today the increase is considered much more drastic, and this is felt not only in the Gush Dan area, but in quite a few cities. It is also worth understanding that not only are the prices of new apartments on the rise, but also the prices of second-hand apartments. Why is this so? We have a number of important answers at your disposal, so if you too are wondering whether greed, a land shortage, or simply difficulties posed by bureaucracy are behind the trend, you are invited to dive in and understand the full picture.

Why does this happen? Let’s go over the following reasons:

• Tenders – The Israel Land Authority is responsible for advertising land tenders for construction, and it usually chooses the highest bid. Therefore, when there are quite a few contractors interested in each land, the bids climb far beyond the value that the appraiser defines. At the same time, it is necessary to justify the investment, meaning that exorbitant prices are demanded for the apartments.
• Unnecessary delays – As reality often proves, minor delays manage to stop huge processes. How does this affect us in the trend of price increases? Well, sometimes it’s all about not transferring a budget for the construction of an interchange that is supposed to help with morning traffic jams, not installing a sewer pipe that is required for the functioning of the neighborhood, and so on. It must be understood that every small delay prevents increasing the scope of construction, and at the same time strengthens the scope of demand – a fact that supports raising prices.

• Significant shortage of workers – beyond the fact that countless workers were isolated this year, it must be understood that people are in no hurry to work hard, and at the same time there is a problem in the area of ​​training workers. What is the meaning? Twofold: both the ability to promote real estate projects is being harmed and the wages of workers are climbing upwards, a fact that at the end of the day is immortalized in the high value of the properties.

• Construction attention affected by Corona – Corona is responsible for a significant jump in the construction attention index. This index weighs the total of the variables that affect construction prices due to the cost of raw materials. Therefore, since the prices of services, materials, and a host of complementary products have become much higher, apartment prices (which are naturally linked to the construction input index) are rising accordingly. Also, a complementary factor should not be ignored, and it concerns the cost of transportation. Among other things, the corona will make everything related to the field of transportation more expensive, meaning that everything related to the transportation of construction materials and relevant components has also become more expensive – indirectly affecting the value of the property.
• When the mortgage is tempting – it was the 2008 crisis that helped to significantly reduce the mortgage, a fact that supports the demand side. Also, since demand is still much higher than supply, apartment owners allow themselves to raise prices, knowing that at the end of the day the property will be sold around the desired price.
• Operating in ambiguity – uncertainty is one of the significant problems in the construction sector. Timelines always lead to question marks, the implications of the Corona virus are not entirely clear, local politics sometimes contradict personal interests, the trend of rising prices does not slow down, the shortage of workers is noticeable and, above all, it is a debilitating bureaucracy, so it would not be an exaggeration to say that a great sense of ambiguity prevents a multitude of contractors and developers from shifting gears and increasing supply.
• Urban renewal – There is no doubt that urban renewal helps increase supply – over time it will reduce the value of properties. However, as of today, urban renewal helps in the opposite direction – it helps raise prices and here we will stop explaining. First, we should note that when it comes to evacuation and construction, it is necessary to immediately find a multitude of temporary apartments for occupancy, and second, we should note that we should not ignore the fact that the plan removes from the equation

a multitude of small apartments and instead builds relatively large apartments, meaning that it will become increasingly difficult to find small (and cheap) properties.

A disadvantage that you should know how to exploit economically

In conclusion, we should note that prices are indeed on the rise, and therefore anyone considering real estate investments should take into account that this is a significant advantage – at a point in time that should be exploited. Let us explain? As long as you are lucky enough to purchase an investment property today, you can be sure that it will be possible to rent or sell it easily, and of course at an impressive profit. Hence, even if the trend is not ideal for most people, for investors and home improvers it is definitely tempting, so all that remains is to find a promising deal.