More Than 10,000 New Apartments Remain Unsold: The Tel Aviv Area City Losing Momentum

Tel Aviv real estate / Reuven Castro Deputy chief economist at the Finance Ministry Galit Ben Naim referred in her April housing market review to the unusual weakness in Tel Aviv’s apartment market, especially in the second-hand segment, and raised the possibility of a link between the state of the high-tech sector and the decline in activity in the city. She opened by writing, "The moon is gathering around. The AI revolution, the dollar falling, '47% of high-tech companies are channeling activity abroad' screams a headline. Tech away?? Suddenly real estate looks like an island of calm and peace. Really?"

She said that as she worked on the April housing review, a certain drowsiness came over her until she reached the Tel Aviv data. "I mean, not physically. Heaven forbid. And it seems I am not the only one. Nor are the buyers. At least as far as apartments you can see with your own eyes on the ground. Not just 'on paper.' We will come back to those," she wrote. She noted that the March review had already highlighted the sharp decline in second-hand apartment sales in the Tel Aviv area, which for real estate tax purposes also includes Bat Yam, a decline far steeper than the national drop. But according to her, even then the bottom had not yet been reached. "And no, it is not because of Passover. Because suddenly Tel Aviv and Tiberias are so close. A gap of only 30 transactions between the two areas. An understatement if there ever was one."

In Tel Aviv itself, she wrote, second-hand sales in April totaled only 86 apartments. "Think about that number. In a city with about 220,000 apartments. Okay, not everyone wants to sell, but judging by second-hand listings, there are about seven thousand apartments sitting on the shelf there. Only 86 managed to sell. If you thought getting into medical school was hard."

So far, she wrote, most attention in Tel Aviv’s real estate market has focused on developers’ supply data, including the number of unsold new apartments, which stands at more than 10,000, as well as media headlines about developers "fleeing" Tel Aviv. But the second-hand market data, she wrote, complete the picture and may even intensify it. She then raised the possibility that Tel Aviv’s real estate market is affected not only by high interest rates and the prices that have soared since the late 2000s, but also by the state of the high-tech sector. "Are high-tech workers, whom some claim also fueled the surge in apartment prices in Tel Aviv, and elsewhere, over the past decade, now on the other side of the equation?"

She added that it is still too early to say for sure, but among the many current developer advertisements, there are almost no offers aimed at high-tech employees. In this context, she mentioned the "high-tech tower," which made headlines nearly 19 years ago, and wrote: "Those were the days."

She wrote that preliminary findings indicate a sharp drop in the share of high-tech workers among apartment buyers in Tel Aviv in April, particularly among second-hand apartment buyers. Their share stood at just 11%, "in a city so closely identified with high-tech workers." In the city’s new-apartment segment, the share of high-tech employees reaches 18%, but she said that too likely represents a significant decline compared with earlier analyses.

Another figure she pointed to concerns where the buyers live. According to her, while among buyers of new apartments in Tel Aviv, most of which are bought "on paper," city residents account for a little more than a third of buyers, 35%, among second-hand apartment buyers they account for two-thirds, 66%. "This gap is no longer negligible," she wrote. She said the buyers who do not live in Tel Aviv are the ones serving as the "X factor" in the city’s new-apartment segment. "So if you were unable to sell a second-hand apartment, maybe it is because you did not get the 'factor.'"

As for where those non-Tel Aviv buyers come from, she wrote that the answer is surprising. Some of them, 12%, still live in Tel Aviv District, particularly in the expensive Sharon cities, but there is also representation from cities not usually seen in Tel Aviv purchases, including Ofakim, Netivot, Beersheba, Dimona and other peripheral cities. "Are they banking on moving to the big city, on the way to a melting pot of exiles, or on capital gains, while taking advantage of easier payment terms? Time will tell," she concluded.