Has the supply of housing in Tel-Aviv and its neighboring towns become surplus? Figures released last week by the Central Bureau of Statistics show that massive construction against sharp declines in home purchases in the Tel Aviv neighborhood and particularly in Tel Aviv itself has led to a situation in which 30% of the new housing supply in the country is in this district. This may have caused the housing price index in the Tel Aviv district to drop.
According to data from the Central Bureau of Statistics, in 2022 new home purchases fell by 42% in the Tel Aviv neighborhood and by 52% in the city itself. That compares to a 30% decline nationwide. A total of 7,462 new homes were purchased in the neighborhood, 1,914 in the city of Tel Aviv.
The housing starts figures are much higher. Construction of 9,230 new homes was launched in the Tel Aviv neighborhood in 2022, with around half, 4,659, in Tel Aviv itself. These figures are lower than the figures for 2021, but the drop (20% in the neighborhood and 5% in the city) was less steep than the drop in purchases. As a result, the supply of new homes held by developers in Tel Aviv and surrounding towns has increased significantly.
Last week, for the first time, the Central Bureau of Statistics provided a neighborhood breakdown of the stock of unsold homes held by developers. It shows that, at the end of January, 28% of the total stock of unsold homes was in Tel Aviv. This represents some 15,000 homes, which, given the pace of new home sales over the past year, is enough for two years. The central district had nearly 13,000 unsold new homes.
These two districts, which bring together more than half of the supply of new housing, are also the most sought-after and most expensive areas for property buyers. The housing stock that built up was the result of the construction boom in 2020-21, but since then buyers have disappeared, discouraged by rising interest rates and uncertainty in the economy .
Developers are forced to do a lot of these projects because of pre-sales, but if when they started the planning and permitting process two or three years ago they were confident that sales would be quick, they now come up against a reality where sales are stuttering and inventories are rising.
The data released by the Central Statistics Office is the first of its kind, and there is no comparable data for previous years, but it is clear that the numbers are very high. When we looked at the gaps between starts and purchase in the city of Tel Aviv, we found that 2,700 more homes were started in the city last year than they had been purchased.
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This does not mean an addition of 2,700 unsold homes to the stock, as a significant amount of construction in Tel Aviv is for urban renewal projects, in which some of the new apartments are allocated to those who previously owned apartments on the site. . In addition, some of the apartments whose construction began last year have been sold in anticipation. But over a period of years, the gap between housing starts and sales has widened, and in 2022 sales have simply fallen in ways that could not have been predicted.
As mentioned several times in “Globes”, the decline in new home sales in Tel Aviv is largely due to the fact that workers in the technology sector, which exploded in 2020-2021, were many dismissed. Last year. Real estate agents said tech workers make up a large part of the market in Tel Aviv, especially in the TAMA 38 urban renewal projects in the Rova 3 and Rova 4 areas in the center and north of the city.
Tel Aviv depresses the index
The Finance Ministry’s Chief Economist recently released a survey of the luxury housing market in 2022 which shows that this market too, homes costing over NIS 10 million, has been hit hard in Tel Aviv. 183 transactions took place in the luxury segment last year, compared to 352 transactions in 2021.
The drop in sales is starting to translate into prices. Until recently, Tel Aviv was driving the house price index up, but in recent months it has dragged it down. In November-December, the index fell 0.8% in Tel Aviv, but rose 0.3% nationally. (Only the Haifa district showed a similar trend, but the decline was only 0.1%).
With reserve, it must be said that the drop is not yet statistically significant enough, but the very fact that the Tel Aviv neighborhood behaved differently from other neighborhoods makes it plausible that there is a link here, and that the The large inventory of homes that developers have accumulated is pressuring them to release special offers to speed up sales.
Published by Globes, Israel business news – en.globes.co.il – March 26, 2023.
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