October war month set to be worse for property deals than 2020 COVID lockdown
Even before the outbreak of war, the number of residences changing hands was down about 30% in September year-on-year, according to a Finance Ministry report
Sharon Wrobel is a tech reporter for The Times of Israel.
Since the outbreak of the war with the Hamas terror group, the number of real estate transactions has plummeted to a level lower than the one seen in April 2020 at the height of Israel’s first pandemic lockdown, according to preliminary estimates by the Finance Ministry.
In its monthly real estate report released on Monday, the Finance Ministry’s chief economist Shmuel Abramson cautioned that preliminary data for October shows a particularly low level of transactions.
Based on the slow rate of reports of real estate transactions until the beginning of November, the number of deals in October once the full collection of data is taken into account may even be lower than that recorded in April 2020, according to Finance Ministry estimates.
During April 2020, overshadowed by the first pandemic lockdown, only about 2,000 home sales transactions were recorded. The number of sales has not been so low since 2003, when violence from the Palestinian Second Intifada decimated the economy.
A review of sales by contractors in the free market, which have already been reported to the Tax Authority, revealed a particularly sharp drop in the weight of young couples purchasing real estate. Meanwhile, an analysis of the preliminary data pointed to an increase in the proportion of buyers changing homes, in particular those who purchased a new home and have not yet sold their previous one.
The war broke out after the vicious Hamas onslaught on October 7 in which terrorists from Gaza killed about 1,200 people in Israel, a majority of them civilians, including babies, children and the elderly and abducted at least 240 people under a deluge of rocket fire aimed at population centers all over Israel.
During the ongoing inside Gaza, where Israel seeks to eradicate the ruling terror group, the Iran-backed Hezbollah has conducted and overseen daily assaults on Israel’s northern border from Lebanon, but has stopped short of launching a full-scale campaign.
“The public is currently preoccupied with war matters, the national mood is very low, there is great uncertainty, Israelis are not currently buying apartments and the market has almost completely ground to a halt,” said Revital Roth, head of the analysis department at business data firm Dun & Bradstreet Israel. “It is already clear that the ‘Swords of Iron’ war [the IDF name for the military campaign] is one of the biggest crises that the real estate industry in general, and the construction industry in particular, has confronted.”
In the first few weeks of the war most of the construction sites were shut down by local municipalities, as there was no clarity regarding safety instructions for workers on sites, according to a D&B real estate review published last week. As a result, construction activity dropped by about 80%.
“The shutdown of the sites will also inevitably lead to delays in the delivery of the apartments,” said Roth.
Following updated instructions by the Home Front Command, some municipalities, including Tel Aviv, allowed their construction sites to reopen.
According to Roth one of the most pressing issues at the moment, apart from safety and funding, for the operation of construction sites is the lack of manpower, since Palestinian workers from Gaza and the West Bank, who made up about 30% of construction workers in Israel, will not return to work in the foreseeable future.
According to D&B, less than 50% of real estate projects are currently active, while suppliers are their customers from the construction and infrastructure industry are being less reliable in their payments.
“This is reflected in the increase in the number of canceled or dishonored checks, and in the increase in the number of requests for debt rescheduling,” Roth said. “Unlike previous [military] campaigns, many companies in the industry find themselves leveraged and suffering from the increase in interest rates, the increase in the cost of loans, and the slowdown in demand.”
Even before the outbreak of the war, the Israeli housing market experienced a slowdown in real estate deals as interest rates gradually increased to 4.75% from a record low of 0.1% last year. Higher borrowing costs hit existing and potential mortgage holders hard, with the majority of home loans in Israel tied to variable rates. Figures published by the Bank of Israel on Sunday showed that the volume of mortgages taken out last month amounted to NIS 4.55 billion, the lowest since 2019.
“Data published even before the outbreak of the war show a significant slowdown in the sale of new apartments, an increase in the inventory of unsold apartments held by contractors, a decrease in the number of mortgages given to the public, a decrease in construction starts and even the beginning of a drop in prices,” said Roth. “All of these are now joined by the war – where the main problems resulting from it are the shutdown of the construction sites, a severe shortage of manpower resulting from the lack of Palestinian workers and uncertainties regarding the duration of the war and the plan for the compensations and reliefs to be determined by the government.”
According to the Finance Ministry’s monthly real estate report, just 5,880 apartments were purchased in September, a decline of 26% compared to the same month last year. Excluding purchases of government-subsidized apartments, the number of transactions on the free market recorded in September amounted to 5,210, a drop of 30% compared to the corresponding month last year and a 18% decrease compared to August.
“It is also one of the lowest levels recorded during the month of September in the last twenty years,” the Finance Ministry wrote in the report.
Roth reckons that once the war is over, demand for work for the real estate industry will come from the need to rehabilitate and restore buildings and infrastructure damaged by Hamas, which she expects will benefit the industry in the long term.
“The issue of protecting apartments in Israel will be a top public priority at the end of the war and will provide a lot of work for contractors in Israel,” Roth remarked. “At the same time, we witness flagrant incidents of antisemitism all over the world; citizens in Western European countries, including Germany and France for example, report serious concerns; in Russia we saw the siege of a plane suspected of carrying Israelis, and unfortunately there are many more examples.
“It is not out of the question that the war will ultimately cause a wave of immigration to Israel, or perhaps the return of foreign investors to the Israeli real estate market, and this may be good for the real estate industry at the end of the war,” she added.
