Some may say it's a new real estate bubble; others call it real estate on steroids. But an analysis by the Real Estate Magazine and the research division of the Yad2 real estate website reveals the true story: in 2020, demand for apartments rose by 43%. The rise in prices was reported almost everywhere in Israel. A special investigation by Yad2, marking one year since the outbreak of the coronavirus pandemic, clearly shows that the pandemic's impact on the real estate market was minor, defying all expectations.
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In March 2020, Israel entered its first lockdown. In all, three lockdowns shook the local economy, with restrictions on gatherings and movement, about a million new unemployed, hundreds of shuttered businesses, and, of course, severe effects on health. It seems, however, that at least one market was not particularly harmed by the pandemic – Israeli real estate. The market continued to operate almost as usual in the past year, except for a temporary disruption during the first lockdown. The Yad2 analysis examined the prices of apartments for sale on the site, rent prices, demand and supply of apartments, and the cities leading in each parameter.
The findings indicate alert activity by apartment seekers on the Yad2 website in the course of 2020, a rise in demand for apartments for sale, and, consequently, rising prices on almost all types of apartments and in many cities in Israel, as well as significant changes in the rental market.
Buyers only
Demand for apartments for sale on the Yad2 website rose in 2020 by about 43% compared to 2019. In February 2021, 837,000 users searched for apartments for sale on the website, compared to 587,000 in February 2020. Apparently, many sale transactions were completed, since the supply of apartments for sale on the site declined in 2020 by 3%, totaling 89,000.
The rental market saw a 4% decrease in both demand and supply. In February 2021, about 748,000 users searched for apartments for rent on the Yad2 website, compared to 781,000 in February 2020. The number of advertised apartments fell from 54,000 to 51,000.
An updated analysis that included the first months of 2021 shows that general demand for apartments on the site rose by 25% from July 2020 to February 2021 compared to the same period in the previous year.
In absolute figures, about 1.542 users searched for apartments on Yad2, compared to 1.23 million on a year-over-year basis.
The steepest rise was in demand for large apartments. Demand for 7-room apartments rose by 51% year over year, for 6 rooms – by 42%, 5 rooms – by 31%, 4 rooms – by 23%, and 3 rooms – by 18%. Demand for 4- to 5-room apartments was the greatest: they accounted for 66% of the total number of searches in 2021, compared to 64% of the searches in 2020.
Demand for penthouse apartments also rose steeply in recent months – about 122,000 users looked for penthouses on the Yad2 site in February 2021, compared to 96,000 in November 2020, about 80,000 in September, and only 43,000 at the low point in March 2020, at the beginning of the coronavirus crisis. Penthouse supply remained relatively stable over the year, with about 6,300 advertised apartments.
In a breakdown by city, Tel Aviv leads, of course, in both demand and supply of penthouses, with 66,000 users searching for penthouses and 2,500 apartments advertised. Next is Rishon LeZion, with 50,000 users and 835 apartments on offer, Petah Tikva with 42,000 users and 895 apartments, Haifa with 36,000 users and 979 apartments, and Holon with 36,000 penthouse hunters and 810 offers.
According to Adit Friedman, Marketing and Sales Manager at Metropolis, "The pandemic led to a change in apartment buyer behavior. Staying at home for long periods of time increased the need for more comfortable, larger, and more pleasant interior and exterior living spaces, which led to an increase in demand for mini-penthouses and penthouses, which are usually larger and more spacious and feature larger balconies. We're seeing this pattern in all the projects we're marketing in Tel Aviv, Givatayim, and Herzliya."
Increases almost everywhere
Regarding prices of apartments for sale on Yad2, the analysis indicates increases in almost all types of apartments (3-5 rooms) and in most Israeli cities. Prices of 3-room apartments in the first quarter of 2020 rose by 2.2%, to an average of NIS1.377 million. A very small decrease was reported in prices of 4-room apartments, to NIS1.779 million on average, while the average price of 5-room apartments rose by 1.8%, to NIS2.257 million.
The leading cities in price increases for 3-room apartments for sale are Herzliya (a 6.4% increase), Rehovot (5.3%), Ramat Gan (5%), and Kiryat Yam (4.8%). Kiryat Ata, Lod, and Tel Aviv all reported the same rate of increase – 4.2%. Prices of 3-room apartments fell in three cities – Ramla, Bnei Brak, and Beersheba (-1.2%).
Leading the increase in prices for 4-room apartments are Bat Yam (4.4%), Ramat Gan (4.3%), Ashdod and Jerusalem (3.8%), Ashkelon (3.7%), and Herzliya (3.5%). Prices of 4-room apartments fell in Netanya (-0.9%) and Kiryat Gat (-1.8%).
Prices of 5-room apartments rose in Ramat Gan (7.6%), Tel Aviv (7.3%), Hod HaSharon (7%), Kiryat Motzkin (4.3%), and Netanya (3.2%). Prices fell in Ra'anana (-0.8%) and Beersheba (-1.4%).
Sophie Srugo Yochelman, Partner-CEO at Srugo, which, with Zemach Hammerman, is constructing and marketing the Lake project overlooking the Ramat Gan National Park: "As shown by the Yad2 data, prices rose in Ramat Gan in all types of apartments for sale. The city is in high demand thanks to its development and its proximity to Tel Aviv, which can explain the increase. The high prices of apartments in Tel Aviv have made Ramat Gan more attractive, and following the pandemic, neighborhoods bordering the national park are in particularly high demand."
Yaffa Sadan, VP of Marketing and Sales at Yossi Avrahami, which is building a number of projects in Tel Aviv, commented on the rise in prices of 5-room apartments in the city: "Demand in Tel Aviv is always on the rise, but this year we've seen a significant increase in demand for large apartments. The demand is mostly among two groups: residents of Tel Aviv or cities in Gush Dan seeking improved accommodations, and residents of more distant cities, particularly Jerusalem, seeking to move to Tel Aviv not only to upgrade their accommodations but also to be nearer to other family members and their workplaces. Another reason for increased demand is the pandemic, following which many people sought to move to more spacious homes."
Sadan noted that the supply of large apartments in Tel Aviv is concentrated mainly in the city's southern and eastern neighborhoods, such as Neve Ofer, Yad Eliyahu, Kiryat Shalom, and more. "These neighborhoods are currently in stages of accelerated development, both in terms of urban renewal and the projects being built there, and in terms of the investment by the Tel Aviv Municipality in infrastructure and community services. The potential for real estate betterment in the southern neighborhoods is high, and I believe that apartment prices there will continue to rise in the upcoming years."
Rent prices are also up
The pandemic also led to an increase in prices of rental apartments on the Yad2 website, a trend that is evident throughout the country. Rent for a 3-room apartment rose by 1%, to an average of NIS3,693 per month. Rent on 4-room apartments rose 1.8%, to an average of NIS4,671, and for 5-room apartments – by 3%, to an average of NIS5,775.
The cities leading in rent hikes for 3-room apartments are: Herzliya – 3%, Kiryat Ata – 1.67%, Lod – 1.5%, and Netanya – 1.4%. Rent fell in Tel Aviv (-5.84%), Kiryat Yam (-4.4%), Hadera (-3%), Haifa (2.6%), and Ramat Gan (-2.4%).
Leading in rent hikes on 4-room apartments are Bat Yam – 6.89%, Jerusalem – 6%, Harish – 4.2%, and Ra'anana – 3%. Rent fell in Haifa (-4.7%), Tel Aviv (-4.67%), Kiryat Bialik (-4.4%), Givatayim (-3.9%), and Ramat Gan (-3.6%).
Rent for 5-room apartments rose in Hadera – 8.4%, Netanya – 6.4%, Bat Yam – 6.3%, and Rosh HaAyin – 5.6%. Rent fell in Ramat Gan (-7.8%), Kiryat Bialik (-7.3%), Tirat Carmel (-5.6%), and Herzliya (-5.5%).
A large proportion of the apartments offered for sale or rent on Yad2 are in urban renewal projects. These projects accounted for about 20% of housing starts in 2020, and in upcoming years this proportion is expected to grow.
Amir Lotan, Director of Urban Renewal at Levinstein Group, said: "Urban renewal is one of the major engines for increasing the apartment inventory in the Israeli real estate market. The government should therefore continue to encourage it, increase planning certainty as much as possible, allow developers to build in the center of the country, and offer incentives for building in the periphery. Local authorities should increase the pace at which building permits are issued and clear the obstacles caused by cumbersome paperwork. The TAMA38 plan will end in October 2022, and so far, no plan has been approved to replace it."
A stable market
Housing start data collected by the Central Bureau of Statistics also indicates only a minor impact of the pandemic on construction trends. In 2020, there were 51,605 housing starts – a year-over-year decrease of only 3.5%, much less than expected.
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According to real estate appraiser Haim Mesilati, Chairman of the Real Estate Appraisers Association, "Yad2 and CBS findings show how stable the Israeli real estate market is. The market has survived wars, military operations, world crises, and other catastrophes, and has proven that the coronavirus pandemic won't stop it either. The recognition of the real estate market as an essential service at the very beginning of the crisis was the right step, allowing the market to continue operating."
Mesilati emphasizes that construction in Israel did not stop during the crisis, except for a short time in April 2020. "The main obstacle in the real estate market is the pace at which building permits are issued, which actually slowed during the pandemic. When the amount of building permits declines by about 8% in one year, this means there won't be enough construction to satisfy the growing demand – which is a surefire way of increasing prices. If you want to find a solution to demographic growth and the increase in apartment demand, the state must take steps that will clear bureaucratic obstacles and accelerate the pace at which building permits are issued."
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