Nearly Half of New Homes Sold Subsidized, Free Market Prices Drop Faster
Translated & summarized from Bizportal by baba
Nearly half of new Israeli apartments sold in July-August were part of government-subsidized programs, a new report shows. While overall new apartment prices fell 0.4%, free market prices dropped twice as much, by 0.8%. This trend occurs as developers hold a large inventory of unsold homes, leading to discounts and incentives for buyers. Despite recent declines, prices remain significantly higher than five years ago, while construction costs continue to rise.
The story in 6 lines · by baba
- 45.8% of new Israeli apartment sales in July-August were subsidized, up from 40% previously.
- Free market new apartment prices fell 0.8%, twice the rate of the overall new apartment index.
- Overall housing prices dropped 0.6%, with the Central District and Tel Aviv seeing the largest annual declines.
- Developers have an inventory of 86,000 new apartments and are offering discounts to buyers.
- Despite recent drops, new apartment prices are up 24.3% since mid-2021.
- Construction costs have risen 3.6% in the past year, impacting developer profitability.
New home prices in Israel continue to decline, with a significant portion of recent sales occurring under government-subsidized programs. In July-August, 45.8% of new apartment sales were part of these subsidized initiatives, an increase from 40% in the previous period. While the overall index for new apartments saw a 0.4% decrease, sales excluding subsidized units reveal a steeper drop of 0.8%. This indicates that prices in the free market are falling at twice the rate of the overall new apartment index.
Overall, the housing price index fell by 0.6%, with a 1.8% year-over-year decrease. The Central District led annual declines with 2.7%, followed by Tel Aviv at 1.9%. In the most recent measurement period, the North saw a sharp 1.5% drop, and Tel Aviv experienced a 0.9% decrease.
The substantial number of subsidized sales complicates the overall market data. When nearly half of new homes are sold through programs like "Apartment at a Discount," the general index mixes transactions under vastly different conditions. Therefore, the index that excludes subsidized units offers a more focused view of price trends in the competitive free market.
These price reductions are occurring while developers hold an inventory of approximately 86,000 new apartments. Buyers are benefiting from significant bargaining power, leading developers to offer discounts, exemptions from construction input index linkage, and improved financing terms. Additional financial benefits, such as deferred payments and index linkage waivers, can provide further savings to buyers that are not fully reflected in reported price data.
Despite recent drops, apartment prices remain considerably higher than five years ago, with the new apartment index up 24.3% since mid-2021. Meanwhile, construction costs are rising, with the residential construction input index increasing by 3.6% in the past year, primarily due to higher labor costs. This squeeze on developer profitability, coupled with weak demand and high inventory, may lead to further discounts on slow-selling projects and the postponement of new, less economically viable projects.
