Real Estate Israel

Despite concerns, buyers return to Israel housing market, fearing further price rises

High prices and interest rates coupled with the threat of regional conflict cooled demand, but with an impending shortage due to stalled construction, many can’t afford to wait

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

Construction of new buildings in Jerusalem. February 05, 2024. (Yossi Aloni/FLASH90)
Construction of new buildings in Jerusalem. February 05, 2024. (Yossi Aloni/FLASH90)

After holding out in the hopes that prices and interest rates would drop, buyers are returning to Israel’s housing market. They’re doing so as the odds of a wider regional conflict seem to have receded, at least momentarily, and amid concerns that if they continue to wait, prices will go up even further.

“We see buyers coming back to the market because they cannot wait any longer,” said Amit Gotlib, a real estate developer and contractor who builds residential properties in central Israel.

“How much can people wait to buy? Rents have gone up, people need to move out from their parents’ homes, others get married, babies are born. Many army reservists have come back from war and have returned to the market as well,” Gotlib said. “They all see that rates are not going down and are worried that prices will actually rise even further because there will be a shortage of new homes as the construction sector has no workers.”

A surge in interest rates in the second half of 2022 triggered a rise in mortgage rates and a drop in demand for homes. House prices declined for most of 2023.

Then came the October 7 Hamas onslaught, in which terrorists invading from Gaza murdered 1,200 people in southern Israel and kidnapped 252 to the Strip.

The economy seized up as families grieved their loved ones, some 350,000 reservists were called up to war and 250,000 people were displaced from their homes. Concern over whether the Israel-Hamas war would inflame the whole region kept potential buyers at bay.

Further complicating things, 85,000 Palestinian workers have virtually disappeared from Israel’s construction industry since the war’s start, as they have not been allowed into Israel to work due to security concerns. This has caused building sites to shut down completely due to a lack of workers.

Illustrative: Construction workers at a site in Jerusalem on March 5, 2024. (Yonatan Sindel/Flash90)

The conflict brought a “500-pound hammer down on the construction sector,” said Gotlib, who saw his building sites shuttered completely for a month at the start of the war as all his Palestinian workers, who accounted for half of his team, were barred from entering Israel.

Now, as some foreign workers have trickled back in, including from China and India, work at some sites has restarted, albeit at a slower pace, said Gotlib. His firm has resumed work at its seven sites in central Israel, but just at 88 percent capacity, as he is still short 30 workers.

“I employ 90 construction workers at my sites who recently came to Israel,” Gotlib said. “Most of them are Chinese, and some came from India. Because there is such a shortage, wages have doubled. It also takes some of the new workers a long time to get into our work routine: they work differently, they don’t speak the language. Things aren’t that easy.”

Gotlib considers himself lucky that his building sites are in the country’s center, where it is easier to find workers.

Real estate developer and contractor Amit Gotlib, of the firm Krinsky Gotlib. (Zohar Shitrit)

“There are building sites in the north and the south of Israel in which productivity is just 20% to 30% because foreign workers tend to stay in central Israel where wages are higher,” he said.

And because demand is back up but many projects are stuck, Gotlib said, house prices are likely to rise even further.

Home prices in February and March 2024 rose 0.9% compared to the two previous months of the year. Prices have continuously risen since November 2023 after declining for most of last year, according to the Central Bureau of Statistics.

Compared to February and March of 2023, prices have risen 1.1%, the data showed.

The average price of a home in Israel in the first quarter of the year rose to NIS 2.23 million ($606,000), up from NIS 2.1 million ($571,000) in the same quarter a year earlier. The most expensive city is Tel Aviv, where in the first quarter of the year homes cost on average NIS 4.14 million ($1.2 million). The lowest prices were in Beersheba, with an average of NIS 1.23 million ($335,000).

Netanel Shuchner, a lecturer in economics and real estate valuations at the College of Management Academic and the CEO of RMA-ET, a real estate firm. (Amit Muzir)

“We see the market waking up, both in terms of more deals and more demand, and we expect this trend to continue also in the coming quarter,” said Netanel Shuchner, a lecturer in economics and real estate valuations at the College of Management Academic Studies and the CEO of real estate firm RMA-ET.

People are also worried that home purchase taxes may rise because of the high costs of the war, and VAT is expected to rise from 17% to 18% next year, leading to higher housing costs, said Shuchner.

Some of the demand, he said, is because Israelis living abroad are returning home due to the global rise in antisemitism. Shuchner spends a lot of time in Dublin, where his wife has a job at a multinational tech company. Local Israelis and Jews don’t feel safe, he claimed.

Meanwhile, the Israeli government said earlier this month that it will ease regulations and “significantly increase” the quota for foreign workers in Israel to help offset the labor shortage resulting from the war.

Among the steps Israel will take is to allow entry of more than 300,000 foreign workers, or up to 3.3% of the population, to cover shortages across the economy, including in construction, agriculture and nursing.

But Shay Pauzner, vice president of the Israel Builders Association, says “this is all babble,” adding that he’s been working in the construction sector for 20 years.

“We trained 20,000 Indian workers in February and just 2,000 have arrived in Israel because they have not yet gotten their visas,” Pauzner told The Times of Israel in a phone interview.

Pauzner said the government must immediately add personnel, speed up the visa approval process and do away with all the obstacles that are hindering the arrival of foreign workers. The number of flights carrying these workers to Israel must also be increased, he said.

“We need the skies to open and four to five flights each day to bring in at least 1,000 workers a day,” Pauzner said.

“Homes, schools, public buildings, all depend on the construction industry — which is paralyzed,” he said. “Who will rebuild the north and the south of the country that have been destroyed by the war? Only the construction industry, which brings in billions of shekels a year to the state coffers from its revenues. The government is just not doing enough to solve this problem.”

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