Investors returning to Israel’s housing market

May 2024 saw the highest number of home purchases by investors since the purchase tax for owners of multiple residences (two or more homes) was raised. For the first time since 2022, investors are buying more homes than they are selling, according to a survey of residential real estate activity in May conducted by the Finance Ministry’s chief economist. The survey also reveals a wave of home purchases in southern Israel.

The number of residential property transactions in the first five months of 2024 was 28% higher than the corresponding period in 2023. This is a statistic that could not be taken for granted given that it was during the war.

Meanwhile, housing prices are soaring. In the first five months of the year, apartment prices rose 4%, suggesting the annual rate of increase could be in the double digits.

After the positive monthly data, some real estate sources have recently started talking about a boom in the industry, but the chief economist’s data shows that the situation is different. But according to the review, this has not happened yet. 7,800 apartments were sold per month, which is 15% below the multi-year monthly average. So while 2024 is better than 2023, it is still far from being a good year.

Another important finding of the chief economist’s survey concerns the Negev region. In the country as a whole, sales of new apartments in May 2024 by contractors rose by 60% compared to May 2023, with the total number of transactions including second-hand apartments up by about 28%. In May 2024, 532 new apartments were sold in the Negev on the free market, an 85% increase compared to May 2023 and one of the highest levels since 2000. The economist’s analysis shows that 57% of buyers did not live in the south, so many of them are likely to be investors.

Double record for investors

The chief economist’s key finding in the May survey was a double-digit record for investors. First, 1,297 homes were sold – the highest number since November 2021. While this is not a historically high number, and much higher numbers have been recorded in the past, in most cases the higher numbers occurred during periods when purchase taxes for investors were lower and there were greater incentives for investors.

The second record is more interesting, as investors bought more apartments than they sold in May 2024. For the first time since the end of 2021, the balance of investment in housing became positive. In numerical terms, investors sold only 997 apartments in May, while they bought 1,297 apartments for a positive balance of 300 apartments.

This positive balance has been rare in recent years, as investors have been busy selling their housing stock, due to the declining economic viability of the industry. The purchase tax on multiple home ownership (two or more homes) rose by 60% in November 2021, which has offset a large portion of the returns. In addition, high interest rates have provided investors with much better alternatives, especially since returns have fallen by 2%-2.5% in most cities from housing, due to the increase in apartment prices.

But in recent months, despite the war, there has been a significant change in this trend. If investors sold about 340 more apartments in the first three quarters of 2023 than they bought, the gap has narrowed to zero in recent months, and in May it rose to positive territory for the first time since November 2021.

This article was published in Globes, Israeli Business News – en.globes.co.il – on July 11, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.