During the year to end-Q3 2012, the average price of owner-occupied dwellings in Israel rose by 2.56% to ILS1,132,000 (US$299,086), after a year-on-year (y-o-y) rise of just 1.11% in Q2, and a decline of 1.56% in Q1 2012, according to the Central Bureau of Statistics (CBS). When adjusted for inflation, house prices are up by 0.79% y-o-y to Q3 2012.
On a quarterly basis, nationwide house prices increased by 0.17% in Q3 2012, but were down by 0.4% when adjusted for inflation.
Israel’s economy expanded 2.9% y-o-y in the third quarter of 2012, fuelled by rising private consumption and exports. The BOI has revised its 2012 growth projections to 3.3%, from 3.1%. The CBS is even more optimistic, forecasting GDP growth for 2012 of 3.5%.
Qrayot Haifa saw the highest house price increase during the year to Q3 2012, with prices rising by 22.7%. It was followed by the Northern district (15.4%) and Haifa (6.4%).
Other Israeli districts which saw moderate year-on-year house price increases include Tel Aviv (3.7%), the Central district (2.9%) and Gush Dan (2.8%). On the other hand, house prices in Jerusalem and Sharon merely 0.7% and 0.1%, respectively.
Tel Aviv has the country’s most expensive housing, with an average price of owner-occupied dwellings of ILS1,953,200 (US$516,056) in Q3 2012. It was followed by Jerusalem at ILS1,557,600 (US$411,534) and Sharon at ILS1,443,800 (US$381,467).
Israel experienced dramatic house prices rises in 2009 and 2010, despite domestic political uncertainty, security threats, and the global financial meltdown
- The average price of owner-occupied dwellings rose modestly by 4.1% (-0.49% inflation-adjusted) in 2008
- Property prices rose by 22.35% (18.15% inflation-adjusted) in 2009
- Property prices rose by 17.04% (14.22% inflation-adjusted) in 2010
- Property prices rose by just 0.04% (-2.39% inflation-adjusted) in 2011
During the first ten months of 2012, the total number of dwellings sold rose by 9.9% year-on-year to 17,562 units, according to figures released by the Bank of Israel (BOI). There were about 20,215 units for sale at the end of October 2012.
What does this mean for the future? Despite the rise in sales, the signal from residential construction is mixed – with “dwellings completed” and “dwellings under construction” rising, but dwelling permits declining.
- Dwellings completed rose 8.7% y-o-y in Q2 2012, to 9,429 units.
- Dwellings under construction rose 8.8% y-o-y in Q2 2012, to 83,480 units.
- Dwelling permits fell 20.4% in the first eight months of 2012, to 21,285 units, as compared to the same period last year.
The decline in permits is a little surprising, as valuations are stretched, and many ordinary people find housing expensive in Israel.
Analysis of Israel Residential Property Market »
These are the sort of prices that can be seen in Swiss cities of Geneva and Zurich, or in Canada’s Toronto and Vancouver.
The Bank of Israel issued a directive in October 2012 putting a ceiling on how much a home buyer can borrow against the price of house he is buying. Yet it denies that there is a housing bubble in Israel.
In Tel Aviv, the average price of owner occupied-dwellings increased by 3.7% in the year ending to Q3 2012, according to Israel’s Central Bureau Statistics. The same observation is made by the latest Global Property Guide survey, which found that the average prices per sq. m. of apartments rose by 3.7% to USD 8,500 in November this year, from around USD 8,200 in August last year.
A 120 sq. m apartment now costs around USD 8,300 per sq. m., whereas last year, it only cost around USD 7,800 per sq. m. In Herzliyah Pituach, a 120 sq. m. apartment now costs on average, USD 10,500 per sq. m.
Renting an apartment in Tel Aviv would cost you anywhere from USD 23 per sq. m. per month to around USD 27 per sq. m. per month, which means that you can rent a 60 sq. m. apartment for about USD 1,600 per month, and a 120 sq. m. apartment for around USD 2,700 per month - not inexpensive! (We don’t have rental figures for apartments in Herzliyah Pituach as it is an exclusive enclave whose rents are highly seasonal.)
Gross rental yields for apartments in Tel Aviv, i.e., the gross return on investment in an apartment if fully rented out, are very poor. They range from 3.32% to 3.88% only. This tends to support the popular view that property is somewhat overpriced.
Capital Gains: Most properties sold in Israel are exempt from capital gains tax. If the gains are taxable, the net gain is taxed at the standard income tax rates.
Inheritance: Israel has no inheritance tax.
Residents: Resident individuals are taxed on their worldwide income and capital gains at progressive rates, from 10% to 48% in 2012.
In May 2010, Israel became a member of the Organisation for Economic Co-operation and Development (OECD), the exclusive rich-man’s club.
Israel’s economy expanded by 2.9% in the third quarter of 2012 from a year earlier, mainly fuelled by an increase in private consumption and exports revenues. Despite political dramas and security threats, Israel’s economy has managed to grow rapidly in recent years. GDP growth was stable at around 5% per annum from 2004 to 2008. The Israeli economy expanded by 0.8% in 2009 despite the global crisis, thanks to rising exports and foreign investment. In 2011, the economy grew by a healthy 4.6%, after growth of 5.7% in 2010.
The Central Bureau of Statistics (CBS) expects the economy to expand by 3.5% in 2012. Likewise, the Bank of Israel has revised its economic growth projections for 2012 from 3.1% to 3.3%.
"The revision is mainly the result of a positive surprise in GDP growth data during the first half of the year, mainly influenced by exports, which was partially offset by a more pessimistic outlook for the second half of the year," said the central bank.
Unemployment rose to 6.9% in August 2012, up from 6.6% the previous month, according to the CBS. The figures are still relatively low. From 1999 to 2005, the average unemployment rate was 12%.
In November 2012 the BOI’s key interest rate was unchanged at 2%, after being cut 25 basis points the previous month, the fifth key rate cut since May 2011. Inflation slowed to 1.8% in October 2012, down from 3.5% in 2011.
Israel’s budget deficit climbed to a new high of about 4.2% of GDP in November 2012, after the Operation Pillar of Defense in Gaza. The total budget deficit rose to ILS39 billion (US$10.26 billion) over the past twelve months, most of which went to defense-related spending, according to the Ministry of Finance. In November 2012 alone, expenditure on defense amounted to ILS800 million (US$210 million).
Parliamentary elections will be held on January 22, 2012, eight months ahead of schedule, after PM Netanyahu failed to push through a new austerity budget in the Knesset.
If reelected, PM Netanyahu is expected to continue his tough stance on Iran’s suspected nuclear program, and put the peace process with the Palestinians into deep freeze.