Demand for Israeli homes from overseas buyers has gone “through the roof,” said Tzvi Shapiro, co-founder of First Israel Mortgages.
“While American Jews once looked at having a home in Israel as luxury, or a nice thing to have for the holidays, it is now seen as a necessity for those who can afford to purchase one,” Shapiro said. “Because the stock markets are at all-time highs, and due to the political unrest in the US, people are looking to Israel as a safe-haven for their families and their futures.”
Some 62,000 homes were sold in the second half of 2020, the highest in 20 years, after the bottom fell out in March-June due to pandemic pandemonium. Among other factors, Finance Minister Israel Katz’s decision to reduce the purchase tax for real estate investors in July is credited with some of the spike.
As COVID-19 is seen to be winding down, a new wave of local buyers is coming into the market, as people’s narratives have changed regarding the property values.
“There were always people on the fence, saying that homes were too expensive, and that they would wait for prices to come down,” Shapiro said. “Now, there is a general sense that prices are going to just keep going up, and the longer they wait, the more it will cost in the future.”
Shapiro, whose company mainly caters to the English-speaking market, says his clients continue to prefer the neighborhoods traditionally associated with Anglos, like the Katamon, Rehavia, Baka and German Colony neighborhoods of Jerusalem, as well as Beit Shemesh. Tel Aviv and Ra’anana are also seeing increased demand.
“Usually, when we talk about American Jews buying properties, we are mainly talking about the Tri-State area – New York, New Jersey and Connecticut – as well as some from Miami,” Shapiro said. “Lately, we’ve been seeing a 10x increase in buyers from California, who have not tended to flock here en masse in the same way. But they are now showing interest, and while some of them are coming to Jerusalem, others want to be near the beach.”
There is a tendency for buyers from overseas to purchase houses in projects under construction, Shapiro noted. “If you’re buying on paper, there is nothing to see, so if you are abroad, you don’t have any less access to information than if you are here on the ground.”
Israel is considered one of the most expensive real estate markets in the world, largely due to a lack of housing supply in relation to the population size.
A study published several months ago by Australian price-comparison website CompareTheMarket found that the average cost of a square meter of housing space in Israel is 26.6% of the Israelis’ annual disposable income, the second-highest ratio in the world.
“Not enough new properties are being built in Israel,” mainly due to the slow pace at which the Israel Land Authority makes new land available for building, Shapiro said. “What needs to happen is for the government to change its whole approach in how quickly land can be made available.”
Shapiro also believes that the Bank of Israel should consider allowing new buyers to take larger mortgages.
“We have a situation where, even though household incomes have gone up significantly, the average successful Israeli working in hi-tech still can’t afford to make a down payment on an apartment,” he said. “The way to solve that is to create a program in which first-time buyers are allowed to finance 90%-95% of the price of a home, instead of the current 70%-75% that is allowed now.” Bringing in a private insurer to cover some of the extra funds could help alleviate the financial risk that such a program could pose to the nation’s economy, he said.
Subsidized government housing programs like Israel’s recently abandoned Mechir LeMishtaken system generally don’t work well anywhere in the world, Shapiro noted.
Meanwhile, affluent foreigners continue to pour into the market, even though non-residents are limited to mortgages of 50% of the home price, Shapiro said. “If we don’t start building quickly, prices are going to keep going up.”