Large stocks pressure Tel Aviv home prices

Has the supply of homes in Tel Aviv and its neighboring cities become a surplus? Figures released last week by the Central Bureau of Statistics show that the extensive construction versus the sharp falls in home purchases in the Tel Aviv district and particularly in Tel Aviv itself has led to a situation in which 30% of the supply of new homes in the country is in this district. This may have led to the decline in the home price index in the Tel Aviv district.

According to the Central Bureau of Statistics data, in 2022 purchases of new homes declined by 42% in the Tel Aviv district and by 52% in the city itself. This compares with a countrywide decline of 30%. Altogether, 7,462 new homes were bought in the district, 1,914 in the city of Tel Aviv.

The figures for building starts are much higher. Construction was started on 9,230 new homes in the Tel Aviv district in 2022, about half of them, 4,659, in Tel Aviv itself. These numbers are lower than the numbers for 2021, but the decline (20% in the district and 5% in the city) was less steep than the decline in purchases. Hence the supply of new homes held by developers in Tel Aviv and surrounding cities has grown substantially.

Last week, for the first time, the Central Bureau of Statistics provided a breakdown by district of the stock of unsold homes held by developers. It emerges that, at the end of January, 28% of the total stock of unsold homes was in Tel Aviv. This amounts to some 15,000 homes, which, given the rate of sales of new homes in the past year, is sufficient for two years. The central district had nearly 13,000 unsold new homes.

These two districts, which together have over half the supply of new homes, are also the most sought after and most expensive areas for property buyers. The stock of homes that has accumulated is a result of the burgeoning construction in 2020-2021, but since then buyers have disappeared, deterred by rising interest rates and uncertainty in the economy.

The developers are obliged to complete a large part of these projects because of presales, but if, when they began the planning and permit process two to three years ago, they were sure that sales would be rapid, they have now come up against a reality in which sales are stuttering and stocks are growing.

The data released by the Central Bureau of Statistics are the first of their kind, and there are no comparable data for previous years, but it is clear that the numbers are very high. When we examined the gaps between building starts and purchase in the city of Tel Aviv, we found that 2,700 more homes were started in the city last year than were bought.

This does not mean an addition of 2,700 unsold homes to the stock, since a substantial proportion of the construction in Tel Aviv is in urban renewal projects, in which some of the new apartments are allocated to those who previously owned apartments on the site. Moreover, some of the apartments on which construction began last year were sold beforehand. But over a period of several years the gap between starts and sales has grown, and in 2022 sales simply plummeted in a way that could not have been predicted.

As has been mentioned in “Globes” many times, the dwindling of new home sales in Tel Aviv is to a large extent attributable to the fact that workers in the technology sector, which boomed in 2020-2021, have been laid off in large numbers in the past year. Realtors reported that technology workers accounted for a large part of the market in Tel Aviv, especially in TAMA 38 urban renewal projects in the Rova 3 and Rova 4 areas in the center and inner north of the city.

Tel Aviv depresses the index

The chief economist at the Ministry of Finance recently released a survey of the luxury housing market in 2022 that shows that this market too, of homes costing over NIS 10 million, has been hard hit in Tel Aviv. 183 transaction took place in the luxury end of the market last year, which compares with 352 transactions in 2021.

The decline in sales is starting to find expression in prices. Until recently, Tel Aviv pulled the home price index upwards, but in the past few months it has dragged it down. In November-December, the index fell 0.8% in Tel Aviv, but rose 0.3% nationwide. (Only the Haifa district showed a similar trend, but the decline there was just 0.1%).

By way of reservation, it must be said that the decline is not yet sufficiently statistically significant, but the very fact that the Tel Aviv district behaved differently from the other districts makes it plausible that there is a connection here, and that the large stock of homes that the developers have accumulated is putting pressure on them to come out with special offers in order to speed up sales.

Published by Globes, Israel business news – en.globes.co.il – on March 26, 2023.

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