Israelis borrowed record NIS 116 billion in mortgage loans in 2021

In December alone, Israeli banks lent 12.2 billion shekels ($3.89 billion) to home buyers, says Bank of Israel

Ricky Ben-David is The Times of Israel’s Tech Israel editor and reporter.

Cranes working on sunset at a construction site in Jerusalem, on September 1, 2021. (Nati Shohat/Flash90)
Cranes working on sunset at a construction site in Jerusalem, on September 1, 2021. (Nati Shohat/Flash90)

Israel’s red-hot real estate market broke new records in 2021 with home buyers taking out approximately NIS 116 billion NIS ($37 billion) in mortgage loans over the course of the year, according to preliminary data published by the Bank of Israel last week.

In 2020, Israelis took out mortgages totaling NIS 78.1 billion ($24.89 billion), with 2021’s figure representing an almost 50% increase over the previous 12-month period.

December alone saw Israelis borrow NIS 12.2 billion NIS ($3.89 billion) to finance mortgages, an 11.9% increase over November’s figures, and a 48% increase from December 2020. The second-highest figure for 2021 was August with NIS 11.9 billion NIS ($3.8 billion) in mortgage loans.

Over the course of November, 18,200 housing units were purchased in Israel, the highest monthly number since June 2015, when over 16,000 units were bought, and a 62% increase compared to November 2020, according to a separate report this week published by the Finance Ministry’s Chief Economist Office.

Close to 40% of these units (about 6,700) were bought by so-called investors — households that already own one or more dwellings — an increase of 200% compared to the same period last year, and 41% more than October 2021, which also saw record investor activity, the report said.

It was the highest share of investor purchases since June 2015 when then-finance minister Moshe Kahlon increased the purchase tax from 5% to 8% in a bid to dissuade households that already owned a home from buying more and contributing to rapidly rising housing prices. At the time, the portion of homes being bought annually as investment dwellings reached 30% of the housing market.

But the crisis — driven by restricted supply, historically low interest rates, and high demand — continued to brew.

In 2020, at the height of the pandemic, the purchase tax was again reduced to 5% in an effort to get investors back into the real estate market, boost the construction sector, and increase tax revenues amid the COVID-induced economic slowdown.

The current government restored the 8% purchase tax, a policy that went into effect on November 28, 2021.

The Finance Ministry report this week noted that the uptick in investor purchases in October (when plans to restore a purchase tax of 8% for second-home buyers were announced) and November was 5% higher than the two months preceding June 2015 when the 8% tax first went into effect.

In November, investors also sold off 3,900 housing units, the highest number in a decade and 88% more than in November 2020, the report said. “It’s safe to assume that the sharp increase in investor sales can likely be explained, at least in part, by [the desire] to take advantage of the opportunity of high demand from the side of the investors who want to enter the market before the increased purchase tax,” the report read.

First-time buyers, meanwhile, purchased over 6,100 housing units in November, the highest number in a single month over the past decade, the Finance Ministry said.

Israelis’ record home-buying also comes amid record price increases. Housing prices shot up over 10.6% in 2021, according to data released Friday by the Central Bureau of Statistics (CBS), which looked at prices in October-November 2021 compared to the same period last year.

The spike in prices in the past year marked the largest such increase since 2013, according to CBS. Prices in Jerusalem were up 12.3% in the past year; 10.5% in Haifa and the surrounding area; 10.7% in Tel Aviv; 7.1% in the north, and 9.9% in the south.

Governments have long promised to lower housing prices, which have climbed for over a decade. The sky-high costs have put homeownership out of the reach of many Israelis, weakening the middle class.

In October, the government unveiled a major housing plan for 2022-2025, aimed at rapidly increasing the supply of apartments in the hopes of reducing prices.

Finance Minister Avigdor Liberman has said that the government hoped to narrow the gap between supply and demand over the next three or four years, but acknowledged that the housing issue, and the cost of living in Israel generally, was “one of our biggest challenges.”

Economists and experts have said that these new government plans were a “drop in the bucket” and do not address the underlying issues such as rapid population growth, government-controlled supply, lack of infrastructure, and rising inequality.

David Brummer contributed to this report.

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