COVID-19 has afflicted the entire world, leaving death, pain, financial suffering, fear and dread in its wake. One silver lining is that the pandemic has provided us an opportunity for introspection, to re-examine our lives and re-evaluate our priorities. A number of friends have shared these sentiments with us and, contemplating change, asked how the coronavirus crisis will affect the Israel real estate market.
Any person claiming to know with certainty what will transpire in the future is foolish at best and irresponsible at worst. Rather, we will share our collective thoughts and “best guesses,” based on many recent conversations with buyers, sellers, colleagues and developers. There is a happy ending to this story, but you – as a member of a tribe that has survived millennia of exile, pogroms, epidemics, and worse – probably intuitively knew that.
Presently, the sales market for existing homes has been relatively quiet - buyers and agents lack the mobility to view properties so there are few new deals closing. However, deals that have been in the works are getting signed. What, though, will happen after the government loosens the social distancing restrictions? We anticipate an initial burst of activity as people who planned to buy this spring are anxiously waiting to purchase new homes and move into them.
After the expected initial short-term deal flow wanes, how will the long-term housing market fare? We can look to Israel’s past to guide us in predicting its future. Historically, Israel real estate has fared better than most countries during financial downturns. One important reason is that Israelis generally have a larger percentage of equity in their homes than overseas owners. This is due, in part, to the Bank of Israel’s relatively large equity requirement – which explains why foreclosures in Israel are such a rarity.
Another reason is resilience. Ever since its establishment, Israel has endured wars, terror attacks, national and international financial crises, and more. Despite these challenges, the residential real estate market has proven to be extremely resilient. Trusting real estate’s rock solid track record, property owners have exhibited patience to weather the economic downturns, waiting to sell until the market strengthened. Accordingly, over the past 35 years we have seen on three occasions prices soften, but never plummet. Consequently, if prices do end up dropping in the near-term, we would envision a slowdown in the second-hand sales market – but not drastic price reductions – until buyer confidence strengthens and prices rebound.
Interestingly, in contrast to the recent sluggish sales market for existing homes, properties under construction in new projects are continuing to sell. In fact, a developer in the Gush Dan region confided that sales activity in some of his projects are brisker now than pre-coronavirus. Buyers explained to him that, though concerned about COVID-19’s short-term ramifications, the market realities – strong housing demand and limited supply – give them confidence to purchase now, especially with murmurings that the expected impending economic challenges may reduce the number of new development projects entering the market over the next couple of years.
We are witnessing a somewhat similar trend in the beautiful new community of Eden Hills. Surrounded by nature preserves – one astute client called the location Israel’s Napa Valley – Eden Hills was extremely well-received when we recently did pre-sales in the United States. Due to the project’s unique mix of intimacy, beauty and excellent location – very close to Ramat Bet Shemesh, which addresses families’ medical, educational, shopping and transportation needs – almost all of the buyers who signed up are moving forward with their purchases. And the fact that purchase payments will be spread out over the next four years has given purchasers comfort that Wall Street will stabilize before most payments are due.
Ending where we started, there is no question that the effects of COVID-19 will reach the real estate industry, as it is a cornerstone of the country’s economy. Although we anticipate initial bumps on this journey, our expectation is that Israel’s housing market will stabilize relatively quickly.
Postscript: A week after penning this article, Eden Hills launched its sales campaign in Israel. Expecting 50 participants in the initial Zoom meeting, 250 families joined, of which 60 scheduled private follow-up meetings. On the first two days of these meetings, 22 families signed letters of intent. Between the positive response in Israel and our successful pre-sales campaign in the US (in which almost two dozen homes were reserved), the developer expects to quickly sell out the first section of 87 homes. We knew that Eden Hills would be a tremendous success but we thought that the coronavirus might slow down initial sales. I guess we were wrong.
Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at gborvick@gmail.com.