Israel’s Real Estate Market Improves

A trifecta of good economic growth, an improving residential construction sector and an increase in property demand is bolstering Israel’s real estate market. Property prices are jumping all …

A trifecta of good economic growth, an improving residential construction sector and an increase in property demand is bolstering Israel’s real estate market. Property prices are jumping all over the country with gains reaching as high as 25.2% in Haifa from the beginning of 2013 to the end of the third quarter. It is Tel Aviv, however, that commands the highest prices for homes in the country with an average price of owner-occupied dwellings approaching $700,000. Political conflict and regional instability could not shake the market and experts believe it will continue to strengthen. For more on this continue reading the following article from Global Property Guide.

Israel’s housing market remains robust, amidst strong economic growth. Property demand continues to rise and the residential construction sector is picking up.

The average price of owner-occupied dwellings in the country rose by 7.42% to ILS1,244,800 (US$355,522) during the year to Q3 2013, after annual increases of 7.58% in Q2 2013, 9.77% in Q1 2013, 5.82% in Q4 2012 and 4.99% in Q3 2012, according to the Central Bureau of Statistics (CBS). When adjusted for inflation, house prices rose by 5.62% y-o-y to Q3 2013. Israeli house prices increased 2.39% (1.34% inflation-adjusted) during the latest quarter.

Haifa saw the highest house price increase during the year to Q3 2013, with prices surging by 25.2%. It was followed by the Gush Dan (15.2%), Tel Aviv (12.7%), Qrayot Haifa (10.9%), the Southern district (10.7%), and the Northern district (8.4%).

The Center and Jerusalem Periphery Towns and Sharon also saw moderate year-on-year house price increases of 4.8% and 4.4%, respectively.

In contrast, Jerusalem saw an annual house price fall of 3.9% during the year to Q3 2013.

Tel Aviv has the country’s most expensive housing, with an average price of owner-occupied dwellings of ILS2,250,900 (US$642,870) in Q3 2013. It was followed by Sharon at ILS1,535,900 (US$438,662) and Jerusalem at ILS1,497,200 (US$427,609).

Israel experienced dramatic house prices rises in 2009 and 2010, despite domestic political uncertainty, security threats, and the global financial meltdown. The housing market returned to robust growth in 2012.

  • 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
  • The average price of owner-occupied dwellings rose by 5.82% (4.12% inflation-adjusted) in 2012

Demand continues to rise. In October 2013, the total number of dwellings sold rose by 1.73% year-on-year to 1,819 units. In 2012, the total number of new dwellings sold reached 22,313 units, up by 13.2% from a year earlier. Likewise, the total quantity demanded for new dwellings in Israel also increased by 5.8% y-o-y to 42,257 units in 2012.

However, the national figures conceal local property demand variations. From January to October 2013, the Judea and Samaria Area recorded the highest increase in the total quantity of dwellings demanded, rising by almost 50% from the same period last year. It was followed by Haifa (24.8%) and Jerusalem (12.2%). On the other hand, demand fell in Tel-Aviv (-9.3%), Southern region (-7.9%), Northern region (-5.5%) and in the Central (-0.2%) over the same period.

The construction sector is also picking up. In Q3 2013, the total number of dwellings started surged by 17.11% year-on-year to 10,176 units, based on figures released by the CBS. Likewise, the number of dwellings completed also rose by 11.88% to 9,925 units over the same period. In October 2013, the number of dwellings for sale in the country also increased by 1.98% from the same period last year, 21,838 units.

In October 2013, there were about 21,838 new dwellings for sale in the country, up by 2% from the same period last year, according to the CBS.

Israel’s economic growth is expected at 3.8% in 2013, after registering real GDP growth rates of 3.4% in 2012, 4.6% in 2011, and 5.7% in 2010, according to the IMF. In September 2013, the Bank of Israel, the country’s central bank, cut the benchmark interest rate by 25 basis points to 1%, its ninth rate cut in two years, in an effort to buoy the economy.

Conflict-stricken housing market

Despite the global crisis, Israel enjoyed double-digit house price rises over the past three years. The highest house price increase was recorded in Tel Aviv, at 46% between Q1 2008 to Q4 2009. Only the Northern district registered a house price drop of -2.3% over the same period. The average price in Israel rose 27.7% between Q1 2008 to Q4 2009.

In the year to end-Q1 2010, Tel Aviv saw the highest house price rise, at 32.3%, followed by the Central district with a price increase of 27.7%. In Jerusalem, house prices rose by 17.4% over the same period.



Second Intifada (Q3 00 – Q2 03)
(Q2 03 – Q1 06)
Israel – Hezbollah War (Q1 – Q4 2006)
(Q4 06 – Q4 07)
Global economic crisis (Q1 2008 – Q4 2009)
(Q1 2010 y-o-y)



Tel Aviv
Metropolitan Areas
Gush Dan
Qrayot Haifa
Source: Central Bureau of Statistics


House prices rose 28% (24.6% in real terms) between Q2-2003 and Q1-2006, due to the economic stability brought by the success of the electronics industry, investments and financial aid from the US, by inward invetment, and by the improved security situation.

The war between Israel and Hezbollah, which erupted in July 2006, however rocked an already volatile political environment. Consumer and investor confidence dropped. Both supply and demand for housing fell.

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The average price of houses fell 11.6% from the peak level of ILS 793,800 (US$211,095) in Q1 2006 to ILS 701,700 (US$186,603) in Q4 2006. Although the war formally ended in August 2006, the lingering uncertainty over the peace and order situation led to a weakness in the housing market.

During 2007, the housing market recovered slightly with 4.9% y-o-y price increase (1.5% in real terms). However, the recovery was interrupted by the rising tensions with Iran and with the Hamas-controlled Gaza Strip. Israel’s continued expansion of Jewish settlements in East Jerusalem and in the West Bank also increased tension.

Tel Aviv’s housing market suffers the most whenever the country is in conflict. With the Israel-Hezbollah war, house prices fell 12.6% from Q1 to Q4 2006. In contrast, the Southern district, relatively unscathed by the conflict, registered an 8.9% price increase over the same period.

Property prices in other districts have partially recovered since the cessation of conflict at the end of 2006. Surprisingly, Tel Aviv recorded the highest house price rise of 22.37% y-o-y in 2007. The national average price also rose by 4.9% over the same period.

Shortage of affordable housing

In 2009, the total quantity demanded of new dwellings was 36,500 units, up 14% from 32,015 units in 2008, based from the latest figures released by the BOI. In the first half of 2010, the total demand for new dwellings in the country was 18,220 units, almost the same as in the first half of 2009.

In reality, the actual quantity of new dwellings sold was just half of the total demand, or 9,996 units in the first half of 2010. This was mainly due to the shortage in available supply of apartments in the country. In 2009, the total number of new dwellings sold was 19,716 units, up 17.8% from 16,733 units in the previous year.

From January to April 2010, housing completions totalled 9,501 units, down 15% from the same period last year, according to the BOI. In 2009, housing completions rose 6% to 32,258 units from the previous year. Of which, 83% of the total completions were from the private sector.

Total housing starts were 11,690 units for the first 4 months of 2010, up 15% from the same period last year, according to the BOI. In 2009, there were a total of 34,281 housing starts, up 6% from 2008. More than 30,100 units, or 88% of the total housing starts were from the private sector.

To deal with the shortage of affordable housing, the Housing Ministry and the Israel Land Administration (ILA) have marketed tenders for about 24,600 housing units from September 2009 to June 2010.

Mortgage rates are falling

Mortgage interest rates have generally declined since 2003. In June 2010, the average mortgage rate was 2.31%, down from 6.7% in January 2003.

To moderate the effect of the global crisis on the country’s economic growth, the Bank of Israel reduced the key interest rate to a record low of 0.5% in April 2009. The central bank cut the key rate by a total of 375 basis points from October 2008 to April 2009.

From September 2009 to April 2010, the central bank raised the benchmark rate four times, finally to 1.5% in April 2010, as the Israeli economy recovered from the global crisis. Then in August 2010, the key rate was again raised to 1.75%, in a move to cool Israeli house prices and prevent a housing bubble.

Over the past two years, house prices in the country have risen by about 27% (even more than 40% in some districts). The central bank has warned that “if prices continue to rise at the current pace, they are likely to deviate from the level consistent with the basic economic conditions.”

Sluggish mortgage market

The size of the Israeli mortgage market was about 20.3% of GDP in 2009, slightly up from 19.1% of GDP in 2008. Though mortgage interest rates have generally declined since 2003, the size of the mortgage market has barely risen, mainly because of the political and economic uncertainty.

From 2002 to 2006, the size of the mortgage market has generally declined from 19.2% of GDP in 2002 to 17.2% of GDP in 2006. Then for the last 3 years, the mortgage market grew sluggishly to 20% of GDP (as of May 2010).

In 2009, the total housing credit to households was ILS155.84 billion (US$41.44 billion), up 12.5% from ILS138.49 billion (US$36.83 billion) in 2008, according to the BOI. As of May 2010, the total housing credit was ILS162.14 billion (US$43.12 billion).

By end-2009, mortgages constituted about 50% of households´ total outstanding debt. The debt to disposable income ratio was 60% in 2008, as compared to 110% in the US and the UK.

As a result of the decline in inflation rates in recent years, the share of CPI-indexed mortgages to new mortgages taken fell to 35% in 2009 from 61% in 2003. Though, its share to total outstanding mortgages remains high at 66% by end-2009.

In February 2009, unindexed floating-interest rate mortgages reached a peak of 77% of new mortgages taken, thanks to low interest rates and the expectation that it would continue to drop. However, as interest rates started to rise in H2 2009, the share of unindexed floating-interest mortgages to new mortgages gradually declined to 51% in December 2009.

Rents rising, homeownership rates falling

Apartment rents have risen sharply in the past three years. In 2009, monthly rents in Israel rose by about 15.3% from the previous year. In Q3 2009, the average rent for apartments was ILS2,700 (US$718) per month.

In Tel Aviv, the average monthly rent was ILS3,760 (US$1,000) in Q3 2009, the highest in the country and about 39% above the national average. On the other hand, Haifa has the cheapest rental properties, with an average rent of about ILS1,640 (US$436) per month. In Jerusalem, apartments were rented at ILS3,210 (US$854) per month.

According to the Ministry of Construction and Housing (MOCH), the rise in rents in recent years was mainly due to the strong demand for apartments for investment purposes, fuelled by falling interest rates.

In the first half of 2009, about a third of all apartment purchases were for investment purposes, up from about 22% in 2002. In Tel Aviv, apartment purchases for investment purposes reached a high of 55%.

In the past 15 years, the homeownership rate in the country has been gradually declining as more households are renting due to the shortage of affordable housing. In 2008, the homeownership rate was 68.8%, down from 73% in 1995.

Gross rental yields on apartments in Tel Aviv vary from around 4.64% to 5.06%. These yields are moderate. Yields are highest for 120-square metre (sq.m.) apartments.

Modest economic growth, burgeoning deficit

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).

Political instability persists

Israel continues to suffer from political instability. Recent political issues include the following:

  • The killing of nine Turkish activists in the Gaza flotilla attack in May 2010, which was branded by Turkey’s prime minister as a “bloody massacre”, has received international criticism and tarnished Israel-Turkey bilateral relations. It was feared to spark political crisis.
  • The current UN probe on the assassination of former Lebanese premier Rafiq Hariri in 2005 and the recent clash between Lebanese and Israeli forces along the Lebanon-Israel border, which resulted in the deaths of at least two Lebanese soldiers, a Lebanese journalist, and an Israeli army officer, instilled fears of renewed violence between the two countries.
  • Endless Israeli-Palestinian conflict over Jewish settlement in the occupied territories. In March 2010, the Israeli government announced to build 1,600 housing units in East Jerusalem, despite Palestinian opposition and international criticism. Then in July 2010, the government approved the construction of 32 new housing units in Pisgat Zeev. In addition, 22 new housing units were also approved in Beit Hanina and 18 units in Beit Safafa, Sur Baher and Issawi´ya. These settlements could undermine the peace process because of the strong Israeli security presence that they entail, and the intense sense of injustice that they provoke among Palestinians. In fact, 237 Israeli settlers were killed by Palestinians while 45 Palestinians were killed by Israeli settlers in the West Bank and Gaza Strip between 2000 and end-2008.

Modest economic growth, declining deficit

In the third quarter of 2013, the country’s annualized real GDP growth rate stood at 2.2%, from 4.6% in Q2 2013 and 2.6% in Q1 2013, according to the CBS. The total exports rose by an annualized 2.7% in the third quarter of 2013, following a drop of 9.8% in the previous quarter. Over the same period, imports also rose by 4.5%.

Israel’s economic growth is expected at 3.8% in 2013, after registering real GDP growth rates of 3.4% in 2012, 4.6% in 2011, and 5.7% in 2010, according to the IMF.

In October 2013, the country’s unemployment rate dropped to 5.9% from 6% in September 2013 and 6.1% in August 2013, according to the CBS. There were about 218,000 unemployed in Israel in October 2013. Of the 3,704,000 employed Israelis aged 15 and over, 1,861,000 were men while 1,625,000 were women.

In September 2013, the country’s annual inflation rate remained steady at 1.3% from the previous month, according to the CBS. The central bank’s target rate of inflation ranges from 1% to 3%.

The Bank of Israel cut the benchmark interest rate by 25 basis points to 1% in September 2013, its ninth rate cut in two years, in an effort to buoy the economy. Moreover, the central bank has also been buying dollars to cool the shekel and spur the export-driven economy. The central bank is expected to buy at least US$5.6 billion in 2013-14 and was ready to purchase more if needed.

Over the past 12 months, the country’s deficit was equivalent to about 3.3% of GDP, well under the deficit target of 4.65% set in the 2013 spending plan. In the first 10 months of 2013, the deficit stood at ILS18.6 billion (US$5.3 billion), down from the deficit of ILS23.2 billion (US$6.63 billion) seen during the same period last year.

In November 2013, Fitch Ratings upgraded the credit outlook for Israel to positive, mainly due to the country’s lower-than-expected annual deficit.

This article was republished with permission from Global Property Guide.


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