Shia Getter

Prices are going down? What a Joke

Prices are going down? The Israeli government wants it??? What a joke!

A little background…

Housing prices in the United States rose steadily and everyone thought they were making out like bandits until 2007 when the housing bubble burst. Many US investors are gun-shy to invest elsewhere because of that. However, in Israel the situation is not the same. Prices of housing have risen, yes, but any thought of a housing bubble here are purely thoughts.


To start with, we see that the Bank of Israel gradually raised interest rates in an effort to make it harder for buyers to get mortgages and housing would be more difficult to obtain, messing up the real estate market. Unfortunately, the higher interest rates created other problems in the economy over time, and so they had to bring the interest rates down again, making housing more affordable.

From the beginning of 2011, when the interest was 2%, the Bank of Israel raised the interest rate up to 3.25% in June 2011. However, from October 2011 it started going down again to 3.00% and now, in October 2012, it’s again 2.25%. This makes investing in real estate attractive again. Oops, while writing this article it went down to 2%!

Over in the stock market, the last few years have been very volatile and may people have lost large sums. At the same time, real estate prices have been rising. So real estate is now relatively a much better investment; the market is hot and prices are going up. Real estate also seems like a much more secure investment that does not require constant monitoring.

But why is the real estate market going up? This is the $64,000 question.

Supply versus Demand

The math is simple …

The government has promised to add 100,000 apartments each year, which, if you look at it carefully, is not inflating the market but just keeping up with the demand. Why? Because from 2000 to 2010, the number of new households in Israel was 1,027,000. The Ministry of the Interior planning committee approved 36,211 housing units in the first half of 2012, with a target of building 615,000 new units by 2020. If growth in demand keeps up with the 2000–2010 time period, which seems quite reasonable if not conservative, then this is 61% of the projected need!!!

So we see that if the demand is higher than the supply, prices keep going up. With that said, I must say that prices in some places like Tiveria or Tzfas or even Kiryat Gat, where it was never too attractive to buy anyway, might go down just as prices plunged in the Connecticut areas in the United States. However, certain areas just always remain in high demand. Just as prices didn’t fall in London’s West End or even in Stamford Hill, the same holds for Jerusalem, Tel Aviv, and Beit Shemesh too. Beit Shemesh is still very much a growing city. When people come to me for a consultation on where to buy an apartment, I often recommend Beit Shemesh. I believe that within the next five years, prices will rise at least 30%. If you check the road plans, the terribly dangerous road leading there is being upgraded soon.

Politically Incorrect

In October 2011, Minister Eli Yishai announced a program that projected building 1 million new housing units in the next decade. But in an exclusive interview given this past August to Globes, “Yishai reduced the number to 300 thousand units by 2020.” This is an example of the unbearable ease with which air-blowing ministers throw out numbers and statements about the real estate market.

Speaking of politicians, it looks to me that Netanyahu will not be prime minister again (well, you must think I am crazy with this little prediction — going against the polls — but just give it some more time…) and that means that priorities and the way things get done will change yet again. This government is supposedly doing its utmost to get real estate prices down,but once the government changes, polices will change along with it. If you look back how this can change …in August 2008, the Ministry of Finance revealed an intention to freeze construction in the center of Israel to encourage the building of the periphery, the towns further out …

Another part of the yo-yo in the economy that affects real estate prices is Value Added Tax (VAT). Do you remember when VAT went down in 2005 from 17% to 16.5%? And then in 2007 it went down again to 15.5%. And now? It’s going back up again to 17%, and do you know they planned to make this change from one day to the next — actually from one week to the next? VAT going up means that apartment prices will go up as well by the same 1.5%.

Welcome to Israeli Bureaucracy

Is there more? Yes. Breaking news: after more than 10 years of planning (yes, more than 10 years!!), plan 3700 has been approved. What this means is that 12,000 apartments will be built in north Tel Aviv. Oy vey – prices will go down now? Where will my investment be? Don’t worry. Bureaucracy has its ways of working….

You see, the land being developed for Plan 3700 belongs to hundreds of people whose grandfathers wanted to buy a piece of the Holy Land that they could pass it on to their heirs. What this means is that the land has to be divided accordingly and each owner given a portion according to his rights. Making this division so that everyone agrees they’ve gotten what is due them could take another 10 years or more!!! The owners will take lawyers and surveyors and will argue forever that they didn’t get exactly what they feel they are due. If you don’t believe this, there is a big project in Herzliya’s marina —10,000 apartments have been in limbo since 2002 because of this “strategy.”

And more…

Revenue in 2011 from real estate taxes in Israel was 5.89 billion shekels. Do you really think that the government has any intention of making this number lower?? Think again!

Land in Jerusalem

There isn’t much land left to build in the Holy City. Going back to our supply and demand model, this means that the price of new housing will only go up in the long run. The green movement managed to get the government to cancel the Safdie Plan, which would have added 20,000 apartments on the western hills of Jerusalem. Also, because of the Holyland scandal, the bureaucracy in getting Planning Commission permission to build has made getting any project rolling even harder. Even a small extension to my house took a year to get the Planning Commission to approve. Also, because some land in Jerusalem is considered “over the Green Line,” areas like Ramat Shlomo have experienced difficulties and setbacks in expanding and building.

A last point: originally you were allowed to sell an apartment once in every four years without paying capital gains tax. In order to get people to sell now and not keep waiting for more capital gain, the government extended the amount of time to only once in eight years. They also changed the law so that in 2012, you can sell as much real estate as you want without paying capital gains tax.This really should have made investors go out and sell property so they could take their capital gain now, when they don’t have to pay taxes on it. Investors know that after 2012 they will most likely pay taxes, but here we go again … the same government changed the time of “free” capital gains (i.e., no taxes on them) back to four years! In stock market terms, you would have to pay 25% on what you make in real estate and if you play the game good, you can double your money without paying taxes!

So, as long as the investors are in the game, prices are not going down!

NOTE: This article is an analysis of the market by Shia Getter and should in no way be construed as advice to buy or sell property.

Shia Getter is the CEO of the Shia Getter Group, a full-range real estate services firm in Jerusalem catering to the Anglo-Charedi Community. He is a noted expert, columnist, and author of Everything You Need to Know about Buying Real Estate in Israel (Feldheim 2014). He and his professional team are Israel’s one and only true seller’s and buyer’s brokerage. They provide a unique service by managing and maintaining your apartment and being completely responsible for the entire buying or selling process.

For more information and to schedule an appointment, call Sarah at 0208.150.6082 or email

This article is intended to provide general information about the subject matter covered. It is not meant to provide legal opinions, offer advice, or serve as a substitute for advice by licensed, legal professionals. This article is published with the understanding that the author or publisher is not engaged in rendering legal or other professional services.

 The author does not warrant that the information is complete or accurate, and does not assume and hereby disclaims any liability to any person for any loss or damage caused by errors, inaccuracies or omissions, or usage of this article.

 Laws and interpretations of those laws change frequently and the subject matter of this article has important legal consequences. If not understood, legal, tax, or other counsel should be consulted.

About the Author
Shia Getter is known in Israeli real estate circles for “the man with common sense.” Having moved to Israel 12 years ago, Shia understands what rough experiences many people not used to the local ways of doing business can get entangled with. His company, the Getter Group, is Jerusalem’s #1 sales and brokerage services company, and trusted source of information, ensuring clients get the right investment, covering their bases and checking that they are getting full value and security for their hard earned money.
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