Bullish Housing Market in Tel Aviv faces New Reality

With cheap money coming to an end, UBS has issued a warning that the housing market in Tel Aviv is now a ‘bubble risk’.

This means there is a possibility that prices could further depress in light of increased housing startups. Things have become uncertain with inflation and interest rates on the rise.

‘Bubble’ development

It was only six months ago that leasing an apartment in Tel Aviv could help an investor get annual returns of about 2%.

For instance, an apartment valued at NIS 4 million could help them get a monthly rent of NIS 6,700, which appeared to be a paying proposition.

But, it did not give a lot of returns for a solid investment option, but 1% rates were being charged by banks for mortgages, or those connected to inflation.

In the last 5 to 10 years, these rates had remained in negative territory and it worked because there was no supply in Tel Aviv and permanent demand.

But, this cheap money era came to an end, as inflation and interest rate rose quickly, which meant that the oxygen giving support to the housing market thinned out.

UBS, the Swiss Bank, recently published its Global Real Estate Bubble Index 2022, in which it said that the housing market in Tel Aviv is looking risky, like many other countries around the world.

It said that the market is facing the ultimate threat i.e. the development of a ‘bubble’.

The changes

Bank deposits can now generate 3% returns for investors without any risks. Those who don’t own an apartment are now aware that mortgage is now extremely high.

The repayments now cost hundreds of thousands of shekels because they are linked to the Consumer Price Index or prime rate.

Even tech employees have become worried about a slowdown and the problems of paying off a large debt.

Furthermore, the argument of no supply in Tel Aviv also appears to be falling apart of late. Tel Aviv’s north has land reserves that can be used for construction of tens of thousands of new apartments.

High-rise, denser construction has now become the new norm in Tel Aviv, as it transforms into a massive urban renewal building site.

The government

The Central Bureau of Statistics (CBS) had recently published data relating to the building starts for the year through June 2022.

The total building starts in Tel Aviv were 5,432, which allowed the city to top the list. The question is how many Israelis, whether investors or those looking for an apartment, would be willing to pay the current prices in the city.

But, regardless of the factors, there is no guarantee that there will be a correction in the housing market any time soon.

This means that people would have to put their trust in the government, which for years has not been able to provide a housing supply.

UBS warned that the possibility of that happening has now climbed to a peak.