I know that a significant number of those following my weekly blog hail from the UK and the US and will doubtless be well aware of the volatility of housing markets. ‘Safe as bricks and mortar’ is an old chestnut that seems to have worn pretty thin in recent times.  

The British and American markets, having reached a peak in 2007, have been through turbulent times since as the reality that there is no such thing as a sure-fire money-maker, literally hits home. With both markets looking generally depressed and likely to see house price declines of between 10 and 20% over the next 12 months (depending on who you listen to), many people wanting to sell will have to do so at rather less than they might have expected only two or three years ago.  

Whilst most of the world has suffered from the economic downturn triggered by the banking collapse of 2008 and the sub-prime mortgage scandals, Israel has escaped relatively unscathed, and indeed has been one of the few countries in the world to see consistent positive quarterly growth. Our economy grew by more than 4% in the first half of 2010 alone. Few would argue that Israel’s is generally a well managed economy, due in no small part to the presence of American-born Stanley Fischer as Governor of the Bank of Israel, a man regarded internationally as one of the shrewdest operators in the business.  

When British and US banks were falling over themselves to lend 100% and more of property values to anyone who appeared on their doorstep, Fischer insisted that the traditional 35-40% deposit for those wishing to take out a mortgage must remain in place.  He didn’t buy into the idea of risking exposure on the sub-prime markets, and as a result he and the leaders of Israel’s main banks, Leumi, Hapoalim, Discount, Mizrahi etc, escaped the ravages of the international banking collapse. Whilst house prices dived around the world, Israel’s property market has seen rises of up to 50% in some areas over the last 2 years, a rate of increase that has shocked the average Israeli who now finds himself unable to get a foothold on the property ladder. Tel Aviv is now ranked as one of the 10 most expensive cities in the world to buy property. 

Having closely followed the property market trends over the last five years and still been resident in Britain when the rot showed signs of setting in back in 2007, I have become increasingly convinced that what happened in Britain is coming our way here in Israel, although to a somewhat lesser degree. When you consider the figures behind day-to-day living over here, the reality is pretty frightening. The cost of living is roughly the same as the UK, but the average wage is around half of that received, so how on earth can the average couple who have a gross income of around $4,500 per month, be expected to afford an average three-bedroom apartment that is now priced at nearly $400,000? The figures don’t stack up. 

To be fair, the figures barely stacked up three years ago when the same apartment cost $250,000, and when you reckon that most people end up paying around 40-45% in income tax and national insurance on their gross wages, and that the cost of the average car is more than double that of the UK and three or four times that in the US, the reality is that buying a home is now beyond the pocket of a great number of Israelis, even though it is traditional over here for parents and grandparents to stump up and contribute towards buying a house for young couples. 

The situation could be quickly improved if only the government would cease sitting on its hands and order the Israel Land Authority to release tranches of land for the development of affordable housing projects. I’m not talking about building in occupied territories or anywhere that isn’t completely Israeli, I’m talking about the astounding 93% of designated building land that the Authority refuses to release under any circumstances! There are queues of independent builders desperate to offer new homes at a fair price to all sectors of Israeli society, but the government is steadfastly ignoring all calls for a release of land. In other words, they are keeping prices artificially high for reasons that are open to conjecture and speculation. Add to this the astonishing rise in the last few years from around 150,000 to 500,000 shekels in the completion tax per apartment that the government now levies on builders, and you can quickly see why the market is as it is. 

Stanley Fischer is determined to slow the rate of house price rises and in the last few weeks has raised the base rate of interest – he insists he will continue to raise the rate until the market cools down - and has also ruled that banks cannot give second mortgages to anyone buying a property above 1.3 million shekels (around $375,000). Most people accepted that the first measure was legitimate, but the second has come in for plenty of stick with critics suggesting that it will reduce the buyers of second properties to those who have large reserves of cash and leave the market open for them to pick and choose.   

There is still however a significant body of people who believe that prices here can only keep going up, due to the scarcity of land and the continuing influx of cash buyers as the immigration from countries such as France and the US, in particular, shows little sign of slowing.

Personally, I believe that if those people intending to move here find selling their home abroad increasingly difficult, coupled with a potential rise in the strength of the sheqel against a basket of international currencies, the financial attraction of moving to the Holy Land will soon lose its lustre. The ever-present possibility of conflict in the region is another potential factor in the market here appearing to be ever more precarious. If all hell is let loose at some point in the not too distant future I imagine many people with dual passports will be rushing to sell up and leave, forcing a flood of properties onto the market and resulting in price falls.  

Some, none, or (heaven forbid), all the above could happen, so I kind of feel that what has happened in the US and Europe in the last few years is now, (to some degree), coming our way in this volatile corner of the Middle East.

The next few months could prove a very interesting time for the Israeli economy and the local property market in particular.

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