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Izzy Leizerowitz |
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11 November, 2024 |
How Israel's Latest Economic Trends Could Impact Real Estate Prices in 2025
By Izzy Leizerowitz, CEO Keter Advisors Ltd.
November 20 2024
Israel’s latest economic figures reflect unexpected resilience amid ongoing challenges, including war and global economic pressures. With GDP growth reaching an annualized 3.8% in the third quarter of 2024, combined with strong private consumption and a tight labor market, the real estate market is poised for notable developments over the next 12 months. Here’s how the current economic dynamics may influence real estate prices in Israel.
Economic Growth and Housing Demand
The robust 5.4% growth in business output and an 8.6% surge in private consumption indicate rising consumer confidence. This optimism often translates into increased housing demand as individuals and families feel secure enough to invest in property. Additionally, the sharp 21.8% rise in fixed asset investments, particularly the 30% jump in residential construction, signals a reinvigorated housing sector. However, despite this growth, construction activity remains below 2023 levels, potentially sustaining upward pressure on prices due to supply-demand imbalances.
Foreign Buyer Demand Increases
Along with additional internal demand increases, Jews across the globe are realizing an increasing need to buy property in Israel as a haven due to increasing turmoil in their homelands. This only adds to the already demand-supply discrepancies in the Israeli housing market
Tight Labor Market Fuels Real Estate Activity
The unemployment rate dropped to 2.5% in October, signaling near-full employment. With stable job availability and falling job-seeker numbers, households are more likely to engage in long-term financial commitments, such as purchasing homes. However, sectors like construction have seen reduced demand for workers, suggesting potential challenges in scaling housing supply, which could contribute to price increases.
Rising Imports and Construction Costs
Imports to Israel surged by 26.7%, which may include materials vital for construction. If global supply chains stabilize, increased imports could help alleviate material shortages, potentially moderating construction costs. However, if global inflation persists, elevated costs could translate into higher property prices.
Impact of Government Spending Cuts
The significant 10% reduction in government spending might indirectly influence real estate. If public investment in infrastructure slows, housing projects dependent on such spending could face delays, further tightening the supply. On the flip side, reduced government intervention might shift focus to private sector initiatives, potentially fostering innovation and efficiency in residential construction.
Geopolitical Stability and Investor Confidence
The ongoing war has not yet deterred economic momentum, as evidenced by the stable export growth (5.2%) and thriving tech sector. However, geopolitical uncertainties may weigh on investor confidence. Foreign investors, often pivotal in urban real estate markets, may adopt a cautious approach, impacting high-end property prices. Conversely, local demand might dominate the market, emphasizing affordable and mid-tier housing.
12-Month Real Estate Outlook
Israel’s economic resilience, coupled with a tight labor market and strong consumer confidence, sets the stage for continued real estate price growth over the next year. However, challenges such as construction sector constraints and geopolitical uncertainties could temper this trajectory. For potential buyers and investors, staying attuned to shifts in supply dynamics and regional trends will be critical in navigating the evolving market.
November 20 2024
Israel’s latest economic figures reflect unexpected resilience amid ongoing challenges, including war and global economic pressures. With GDP growth reaching an annualized 3.8% in the third quarter of 2024, combined with strong private consumption and a tight labor market, the real estate market is poised for notable developments over the next 12 months. Here’s how the current economic dynamics may influence real estate prices in Israel.
Economic Growth and Housing Demand
The robust 5.4% growth in business output and an 8.6% surge in private consumption indicate rising consumer confidence. This optimism often translates into increased housing demand as individuals and families feel secure enough to invest in property. Additionally, the sharp 21.8% rise in fixed asset investments, particularly the 30% jump in residential construction, signals a reinvigorated housing sector. However, despite this growth, construction activity remains below 2023 levels, potentially sustaining upward pressure on prices due to supply-demand imbalances.
Foreign Buyer Demand Increases
Along with additional internal demand increases, Jews across the globe are realizing an increasing need to buy property in Israel as a haven due to increasing turmoil in their homelands. This only adds to the already demand-supply discrepancies in the Israeli housing market
Tight Labor Market Fuels Real Estate Activity
The unemployment rate dropped to 2.5% in October, signaling near-full employment. With stable job availability and falling job-seeker numbers, households are more likely to engage in long-term financial commitments, such as purchasing homes. However, sectors like construction have seen reduced demand for workers, suggesting potential challenges in scaling housing supply, which could contribute to price increases.
Rising Imports and Construction Costs
Imports to Israel surged by 26.7%, which may include materials vital for construction. If global supply chains stabilize, increased imports could help alleviate material shortages, potentially moderating construction costs. However, if global inflation persists, elevated costs could translate into higher property prices.
Impact of Government Spending Cuts
The significant 10% reduction in government spending might indirectly influence real estate. If public investment in infrastructure slows, housing projects dependent on such spending could face delays, further tightening the supply. On the flip side, reduced government intervention might shift focus to private sector initiatives, potentially fostering innovation and efficiency in residential construction.
Geopolitical Stability and Investor Confidence
The ongoing war has not yet deterred economic momentum, as evidenced by the stable export growth (5.2%) and thriving tech sector. However, geopolitical uncertainties may weigh on investor confidence. Foreign investors, often pivotal in urban real estate markets, may adopt a cautious approach, impacting high-end property prices. Conversely, local demand might dominate the market, emphasizing affordable and mid-tier housing.
12-Month Real Estate Outlook
- Price Increases Likely: With demand outstripping supply, especially in urban areas, housing prices are expected to rise, albeit at a moderated pace compared to the past few years.
- Regional Variations: Cities with strong tech ecosystems and robust job markets, like Tel Aviv, could see steeper price hikes. Peripheral areas may experience steadier growth, supported by domestic migration and affordability.
- Potential Cooling Effects: If residential construction continues to expand and geopolitical tensions stabilize, supply could catch up to demand, easing price growth in late 2024.
Israel’s economic resilience, coupled with a tight labor market and strong consumer confidence, sets the stage for continued real estate price growth over the next year. However, challenges such as construction sector constraints and geopolitical uncertainties could temper this trajectory. For potential buyers and investors, staying attuned to shifts in supply dynamics and regional trends will be critical in navigating the evolving market.
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