Isranomics

Leumi does not anticipate big price declines in Israel’s property market next year

by | Dec 18, 2022 | Real Estate | 0 comments

According to the latest data released by Israel’s Bureau of Statistics on Friday, house prices have registered an increase of 20.3%, making it the fastest annual rise in a decade. However, Leumi, the largest Israeli bank, anticipates seeing this trend change within the next twelve months.

With the increase in inflation and following the series of interest rate hikes, there are signs of a slowdown in home purchases. The weakening of demand, combined with the significant increase in construction starts recorded in the previous year, may result in property prices stalling in the near future and even leading to a moderate decrease, according to Leumi’s forecast. However, if the increase in the rate of construction starts continues and the supply-demand gap narrows, this may lead to a notable change in prices.

The CEO of Hapoalim Dov Kotler appears to concur with this view as well. Earlier in the month, he spoke at the Globes Israel Business Conference, stating, “In my opinion, the two factors of rising interest rates and supply will soon limit price increases. In fact, I have the impression that price controls are already in place.”

In addition, contractors and developers in the real estate sector have raised concerns in recent months regarding their ability to repay expensive and leveraged loans. Leumi and Hapoalim were at the core of the Bank of Israel’s audit regarding the extent of the leverage they offered to developers, which frequently exceeded 100%. This practice would be permissible in a low-interest rate environment. However, with interest rates climbing from 0.1% to 3.25% during the April-November period, a rising risk of some firms defaulting can no longer be ignored.

According to Leumi, in recent years, the growth of Leumi’s loan portfolio for real estate has been accompanied by a modest increase in financing rates. The majority of those increases were concentrated on land and residential developments in high-demand areas. However, the proportion of problematic credit risk in the construction sector remains much lower in comparison to the whole portfolio, at least at this time.

According to Leumi, the general trend of expansion in the construction sector was notable in the third quarter, which resulted in a rise in demand for business credit. Therefore, the bank stated that it is analysing the effects of the increase in interest rates and the downturn in purchasing in the housing sector on the liquidity of businesses.

However, according to the preliminary analysis, the continuing construction supply constraint will persist, generating demand for property developers over the medium to long term, and preventing a significant decrease in housing prices.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Recent posts

Bank of Israel Leaves Interest Rates Without Change

Bank of Israel Leaves Interest Rates Without Change

Recent speculation from foreign financial institutions suggested an impending interest rate cut by the Governor of the Bank of Israel, Prof. Amir Yaron. However, in a move that surprised many, the Bank of Israel opted to maintain the interest rate at 4.5%, defying...

error: Content is protected !!