People seeking to purchase an apartment, discover that if two or three years previously these prices were considered high, today the upward trend is continuing unabated. Anyone waiting for a moderation in prices will have a long wait. This trend began several years back (in around 2007) and there is no knowing when it might stop. Albeit, there are experts that assert that from the end of the current year, we will see some moderation, but there are others who claim at least in the coming four years, the current trend will continue to be felt. This is because the population is growing fast, many projects are stuck, and demand is very high, creating a problematic balance of forces.
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Beyond the short supply of land
True, over the years there were periods when apartment prices dropped, but in an overall perspective, for over a decade now, real estate prices have soared, and currently, the price rise is considered far more drastic. This is because, it is not only felt in Gush Dan (Tel Aviv Metropolitan area), but in other cities too. It is also important to point out that price hikes have not only affected new apartments, but the prices of used apartments too. Why is this so? The following are some possible answers .So if you also are wondering what is behind the trend – Avarice? The issue of short supply of land for construction? Or simply bureaucratic red tape? You are invited to read on and get a glimpse of the entire picture.
Why is this happening? Perusing through the following reasons might enlighten you:
- Tenders – the Israel Lands Authority is responsible for advertising tenders for land earmarked for construction, and it usually accepts the highest bid. As a result, when there are quite a few contractors interested in the same land, the bids are much higher than the value determined by the assessor. Moreover, it is necessary to justify the investment, meaning that exorbitant prices are asked for the apartments.
- Unnecessary delays – As reality often demonstrates, marginal delays often succeed in stopping major processes. How is this relevant to the price rise trend? Occasionally, this entails just failure to transfer a budget for building a bypass designed to alleviate morning traffic congestion, failure to install a sewage pipe required for the neighborhood and so on. It should be understood that every minor delay prevents increasing the scale of construction, and in parallel, strengthens the demand – a factor that stimulates price hikes.
- Substantial shortage of workers – Over and beyond the fact that this year numerous workers have been quarantined, it is a fact that not many people like to work hard, and in parallel, there are problems in the realm of training personnel. The significance of this is twofold: it impairs the ability to advance projects in the real estate realm; and workers’ wages start to soar, a fact which at the end of the day is embodied in the high value of the properties.
- The construction index affected by COVID-19 – COVID-19 stimulated a significant jump in the construction input index. This index weights all the variables relating to construction prices in view of the cost of raw materials. Consequently, since the prices of services, materials and various supplementary products have become much higher, apartment prices (which are naturally linked to the construction inputs index) increase accordingly. Another supplementary factor should not be ignored, and that concerns transportation costs. Inter alia, COVID-19 increased costs of everything relating to transportation, so that the cost of transporting all things falling under the category of building materials, and other relevant components also increased, indirectly affecting property value.
- Attractive mortgage loans – It was the 2008 crisis that helped to significantly cheapen mortgage loans and other factors supporting demand. Additionally, since demand is much higher than supply, apartment owners seize the opportunity to up prices, in the knowledge that at the end of the day, the property will be sold at around the desired price.
- Acting amid uncertainty – uncertainty is one of the most significant issues in the construction realm. The schedules always stimulate question marks, the consequences of COVID-19 are not clear yet, local politics sometimes contravenes personal interests, the upward trend of price is not decelerating, the short supply of workers is clearly evident, and most importantly, there is the arduous bureaucracy. So, all in all, it would be no exaggeration to say that a great sense of uncertainty is barring various contractors and entrepreneurs from going into high gear and increasing supply.
- Urban renewal – There can be no room for doubt that urban renewal helps to increase supply, and over time, it will reduce the value of properties. However, currently, urban renewal is pushing thinigs in the opposite direction; it is helping to raise prices. How is this explained? First, we should point out that when it comes to evacuation-building agreements, a variety of temporary apartments must be immediately found for occupancy; second, one cannot not ignore the fact that the plan excludes a variety of small apartments from the equation, and in their place it builds relatively large apartments. The significance of this is that it has become increasingly difficult to find small (and inexpensive) properties.
An advantage that one should put to good use
In conclusion, it should be pointed out that prices are indeed on the rise; therefore, anyone considering possibilities of real estate investment should take into account that it bears a significant advantage – if done at the appropriate point in time. What is the explanation for this? It is a fact that today anyone who purchases a property for investment today, can easily rent or sell it, and of course with an impressive return. Hence, even if the trend is not ideal for most people, for investors and those seeking to improve living conditions it plays in their favor. All that remains to be done, is to find a promising deal.
