Bank Hapoalim estimates that the increase in housing prices will be curbed soon. The bank’s CEO, Dov Kotler, said this morning (Wednesday) at the Globes Israel Business Conference that the combination of increasing the supply of apartments together with the increased interest rate will change the trend in housing prices, which jumped 19% within a year.
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“Regarding the housing market, let’s start with the positive side – good news was recorded this year, with construction starts reaching 75,000 housing units and possibly more. If we manage to maintain this level of construction starts, the pressure on the housing market will decrease over time. However, in the years Recently, the housing market has been characterized by a situation of supply shortage, against the background of continued high demand, derived from our demographic growth.
“And still, it is impossible to separate the prices we reached from the low interest rate, this increased the purchasing power of the public and increased the attractiveness of real estate for investment. We have seen this in almost every country in the world in the last decade. We are not here at a conference of forecasts, but in my estimation, the two factors I mentioned will soon curb the price increases. In fact, I have the feeling that the price containment is already happening ahead of us,” Kotler explained.
However, according to him, this is not enough. “This is a short-term view. The housing problem in Israel cannot be compared to the rest of the world. Here in Israel we have a problem that is difficult to get out of: demographic growth, high density, especially in the center, the lack of mass transit systems, the lengthening of construction times. I believe that it is necessary to increase the available apartments for construction by removing bureaucratic restrictions and barriers and providing incentives to the local authorities to promote construction in their area,” he explained and sent a message to a new government that could be formed following the elections that will be held next week: “It is very important that the new government acknowledge the fact that the problem of the lack and cost of housing is a fundamental and critical socio-economic problem for the next years”.
Kotler continued to refer to the political future in Israel, through economic eyes. “It is clear to all of us that in the eyes of foreign investors, and all the citizens of the country, there is a price for political instability. Especially in the ability to promote long-term projects, such as improving infrastructure, the fruits of which seem very distant. I can say with a great degree of confidence: the political instability prevents the economy from exhausting the its full growth potential. Households and the business sector in Israel need a stable government. We all want a stable government,” said the CEO of Bank Hapoalim.
“Winter comes”
Kotler noted in his speech that he returned last week from the annual conference of the International Monetary Fund, and said that the atmosphere was one of winter is coming.
According to him, Bank Hapoalim believes that the economic and financial world is undergoing a process of adjustment to a new reality in which fundamental economic changes are taking place. “The price of money is returning to the historical levels we have known. At the global level, this process is led by the Federal Bank, which is moving from an interest rate of 0.25% per year in March to an interest rate forecast of approximately 5% at the beginning of 2023. This, against the background of the increase in the inflation environment in the US and around the world. Therefore, we are in the midst of an adjustment process of property prices to the higher interest rates. It started with the declines in stock and bond prices, and is now spreading to the decline in real estate prices around the world,” Kotler said.
Kotler added that exhausting the adjustment process he is talking about will take some more time, and one should not expect a particularly quick convergence. “The financial markets have not yet found their stabilization point. The year 2023, and especially its first half, is expected to be challenging and not easy. And as Warren Buffett said, only when the tide goes out do you see who enters the water with a swimsuit or without a swimsuit. Obviously, the picture is even more complex Against the background of the escalation in geopolitical tensions, including the war between Russia and Ukraine and the tensions between the US and China. This also hurts international trade and growth,” noted Kotler.
“It is important for me to emphasize: unlike the previous crisis, in my estimation the credit risk is not at the center. The lessons from the previous crisis have been applied – the underwriting is better, and the banks have capital cushions and high liquidity. This is evident in the data of Bank Hapoalim specifically. This does not mean that there will not be credit losses down the road, But these are currently not at the epicenter of the crisis. Unfortunately, I can less say that about some of the non-bank credit institutions, which operate at different risk levels and under different supervision,” he explained.
Convergence to steady state in 2023
In his speech, the CEO of Bank Hapoalim referred to the situation in Israel compared to the rest of the world, and said that Israel is proving relatively immune in terms of economic parameters, and detailed a number of basic characteristics that led to this relatively favorable result, including the management of monetary policy.
“During a time of a global energy crisis, the natural gas reserves, which are responsible for the production of approximately 70% of the electricity output, stood to our credit. This stabilized electricity prices here and contributed to the low inflation environment of 4%-4.5% compared to the world. At the end of the day, the move reduced the damage in the households, and the industry even got a relative advantage against the competitors.
“In the area of policy, there was budgetary discipline, and a relatively low public debt balance was derived from it – something that helped us deal well with the corona virus, and to my delight, the government also knew how to get out of the policy of severance payments and other payments at the right time, which contributed to the return of the Israeli economy to full employment. Dealing with a government debt of about 65% of the GDP is much easier compared to over 100% of the GDP as in other Western countries, especially in a world of ever-increasing interest rates that make debt service more expensive,” Kotler pointed out.
“We are living in a fascinating time where parameters that are the core foundations of the economy and the capital market are changing rapidly and dramatically. At the same time, the world is moving towards a new global geopolitical order, when its characteristics are still unclear. Above and beyond all of this, life goes on. I believe in the Israeli economy And in its ability to deal with the uncertainties that lie ahead of us. It is true that 2023 will not be easy and challenging, but I am hopeful that already during it we will begin to see a convergence to a much more stable situation than today,” he added.
As for the banking system in Israel, the CEO of Bank Hapoalim said that a large part of the economic stability is also attributed to the banking sector here and its close supervision.
“Experience proves – a stable banking system is a strategic asset. We hear in the news about populist bills, which may have long-term consequences for the stability of the banks. It is very easy to spoil the state of stability we have reached over the years, and we hope that the decision makers will also take a responsible approach Such in the future. The banking system in Israel is competitive and makes the necessary adjustments for the benefit of customers even in a period of rising interest rates,” Kotler sent a hint to current and future Knesset members.
*** Full disclosure: The conference is in cooperation with Bank Hapoalim, sponsored by Phoenix, Amdocs, BDO, Hot, Geely, Shufersal, El Al, Tnuva, Profimax, the Medical Organization, May Desk, Contigo, Cisco and with the participation of Mekorot, the Innovation Authority, Mobileye, Start Up nation central, Ashdod port and the electric company