The numbers prove that real estate prices are slowing down, because the contractors are no longer able to sell like they used to. This is true, we also see it through the decrease in the amount of mortgages, through the amount of repayment, through their promotions, and especially through the CBS data. You can read about the drop in prices in the apartment market here, and it is expected to continue:
When interest rates are at their peak, not only the buyers lose because of a slowdown in demand, but also the contractors, who “suffer” from high financing costs and are unable to catch up. They are already lowering prices, according to the CBS data, and are handing out discounts at the back door – exemption from the index, free parking or storage, and even a mini central air conditioner. The main thing is that you are satisfied.
A tour we recently conducted among a number of sales offices in the Sharon area makes it very clear that there is a trick to these promotions. You need to carefully check the prices in the area-neighborhood-buildings before you are convinced to buy the apartment because of a sale. The reason is that in some cases these promotions are not really promotions.
“This sale was here a year ago as well. We have been giving an exemption from the index for years,” a salesman in one of the offices told us, and from that you understand – some of the sales are discounts of sorts. “In the end – this is embodied in the apartment prices. If you ask me, there is a slowdown in sales, because fewer people come in here. But to tell you that I sold apartments for less money? Not necessarily. In the end, I give a 10-15 thousand shekel discount on an average apartment, but no Lowers more. If there’s a hard time, I also give an air conditioner.”
We calculated. Such a discount, of a mini central air conditioner, reflects, for a 4-room apartment in the same area at a price of NIS 2.2 million, a discount of 1.8% in the price. This is a discount that is not embodied in the price. You don’t see it in the CBS data which expressed a decrease of 3% in the last two months. This is how we actually arrive at a decrease of about 55% in the last months in apartment prices (including the sale), but these are heterogeneous discounts – there are places with significant discounts and some without discounts, that’s a matter of demand and supply.
To find out where the demand and supply curve stands in the Sharon region, we spoke with the broker and owner of DBA Real Estate, Dodo Makhlof, who is involved in project marketing. “There is a slowdown in demand,” he admits. One of the main concerns is the increase in interest rates. Housing developers need to sell apartments and in order to have security and be able to take interim loans, so they give them 20/80 (pay 20% now and 80% with the key, AI) some with an index and some without. It depends on the project, the strength of the contractor or in demand. This is how they lower the barriers to ‘buy now’. We don’t really see a decrease, but we see a stoppage in relation to the prices of 2021 or 2022. The prices remain stable and in fact the benefits are mainly the promotions.”
We do not see the promotions in the CBS data.
“True, the drop in real estate prices for new apartments is due to certain projects, inventory balance or projects that have room to lower the price because they are on historic land. The projects of the remaining lands – they do not have much margin. That’s why they don’t drop a significant price, so they can make a decision now. If a developer now bought land, he cannot lower the price because he paid a certain price.”
Will there be a price drop?
“Dramatically, certainly not. There is no possibility of lowering the price in Israel. Any of the contractors who are not in a hurry will wait a little longer. Those who went into marketing will help the buyer with financing. The interest rate will return at the end of the year, or the beginning of next year to a normal level and it will be easier for the contractors. There is demand in the market because people People marry and divorce, families move places. There is a slowdown, yes, but towards the end of the year the market will return again because demand is tight, construction starts fell in the last quarter, so in terms of demand versus supply – the market will return.
Makhlouf talks about the fact that the market is still moving – There are demands, there are meetings. There is strengthening in the leads. It’s time for people to make a decision. You don’t see entire neighborhoods under construction. There is no competition. In the projects that exist today, it is not possible to lower prices significantly. The financing promotions will make customers come in and make a decision at points in time that are a little more convenient than the interest rate that will be in effect today.”
From what we see in the field, the sale that the contractors advertise is in many cases after a price increase. That is, the contractor gives a slight push up to the price and then tells you about a big trip – air conditioner, warranty on the index and more. So from a financial point of view there is no big gap compared to the previous situation, but customers leave with the feeling that they got a bargain. It’s just a trick.