Conversations with economists and real estate professionals raise questions about the opposite process that has recently been taking place in the real estate world – landlords are raising rent prices, while housing prices are slowing down. This phenomenon can be explained through two main reasons – either housing prices are not really falling (and they are falling, you can see it in the data), or the apartment owners are raising prices due to high financing costs.
The second option is what happens many times in the field. The problem is that not all tenants agree to the rent increase, certainly not during the contract. Therefore, in some places it is possible to identify abandonment or the phenomenon of subletting. The question is which phenomenon is stronger – those who agree to an increase of tens of percent and remain silent – or those who move to live with their parents, in the suburbs or in a smaller apartment and remain silent? And there is also a gray area – there are also apartment owners who understand the situation. They prefer a good tenant over a rent increase, so they renew a contract under the same conditions, or raise the price in a minor way.
We spoke with two senior appraisers – the real estate appraiser, the former vice chairman of the Chamber of Appraisers Saar Peled and the appraiser Dalia Essis, both of whom ran in the last elections for the position of chairman of the Chamber of Real Estate Appraisers. The views of the two, as can be immediately understood, are not the same.
Housing prices are slowing down. The rental market is rising – do you agree?
Peled: “Already two months ago I warned that this is what is going to happen – a reverse and natural process that happens because of a specific matter – an apartment is a basic product and in the end someone has to live in it. As soon as the interest rates went up, two processes happened – investors don’t buy apartments for investment on the one hand. And on the other hand – couples Potentials who would have bought apartments at relatively low prices, do not buy apartments because they cannot afford high leverage percentages – even if it is 75%. They have left the buyers’ market for the renters’ market. A situation has arisen where there is less supply of apartments and also an increasing demand for rent. And there is another effect, who purchased an apartment for investment – their financing costs have increased. They pass it on – to the tenants. The rental market is receiving pressure from many factors, upwards.”
Essis identifies a different phenomenon: “Rental prices have stalled. The indications are that you open the ad sites and entry is immediate. There are more such ads.”
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Also in the center?
Asis: “Take Tel Aviv, for example – Tel Baruch North. Many apartments are offered for rent there. In August you couldn’t find apartments there. You see apartments for 9,400 shekels, four rooms. These are apartments that were asking for around 11-12 thousand shekels in the summer. Rents have stalled. You recognize something here – notices of immediate entry, or imminent eviction. Let’s talk about the second line to Tel Aviv. In Hod Hasharon, for example, it was not possible to find apartments last August. Today, the supply is large. In September, apartment owners in the center raised prices , people closed rentals at exorbitant prices. I recognize a limitation.”
Peled disagrees: “There is upward pressure for the same reasons I said before. In the center, the demand is very strong, higher than the supply in some areas. There are not enough projects here that have been initiated for the long term. If you want to take care of this market – this is the way. For the government company ‘a flat for rent’ There are not enough projects. There are such projects, but not enough. We need a mass here. I want to add something about housing prices in the center – what you do see and in a distinct way – is that the sales process is very slow. If an apartment was sold in a short term, the term is longer. You don’t I feel a decrease in prices, but a slowdown and longer transactions. You see transactions that embody a price decrease, but not in a clear way. People who bought a new apartment before selling the existing one, and there are quite a few of them – there is more pressure on them to make a sale.”
The owner is difficult.
Asis: “It’s a matter of supply and demand, they can demand but if the tenant doesn’t have money? He won’t pay. You don’t pay according to the financing costs. The owner took out a loan? That’s his problem. Apartment prices are falling because people can’t afford a high mortgage cost. Who who paid 6,000 shekels, today pays up to 8,500. If you take a 66 percent prime interest rate, the repayment has increased significantly. We are talking about the fact that the owners of the houses increased their repayment amount by 30% and this affects the rental market, because the apartments cannot stand empty. People do not They will pay when their monthly expenses have increased. The difference between a mortgage and rent is – if you bought an apartment and paid 30% more – you will continue to pay or sell the apartment. Usually you will continue to pay. What will you do differently? You will not go abroad, but you will pay a mortgage. But the one with the rent? He can go live somewhere else. He does not need to sell or liquidate a mortgage. Gets up and leaves. What’s going on? You feel the impact after a year, because people renewed their contract in August and will not leave until next summer. There is containment, but we will see the real containment in a few months.”
Rental prices are rising – and will not stop here. Feld
Peled: “Not every parent has a housing unit for their children. The children are in an education system, you look for an alternative apartment in the same area. Therefore, it is difficult for those renters and they agree to a price increase. We need to talk about both sides – the owner of the apartment whose financing costs have increased and he wants more money, and on the other hand the renter – who in the end rents because he can’t purchase it and get out of that market. He needs a residential solution. The only solution is long-term projects.”
What about the subletting phenomenon? How does it affect the market?
Peled: “There has always been a phenomenon like this, but it’s a problematic issue. Today, apartment owners oppose subletting. It’s not a matter that the same tenant can do on his own. It’s not a widespread phenomenon.”
Asis: “Tenants leave in the middle because they can’t afford the prices, or they go on a sublease. They have to leave and because they can’t afford the rent and publish an ad in favor of subtenants. There are people who advertised 3-4 months ago and haven’t found a tenant until today, because they They thought that rent prices had gone up, but most people couldn’t afford it. In August, apartment prices jumped and it happened all at once – people had nowhere to go. Today there are alternatives. Second thing – the cost of living went up. The shekel went down. The dollar was worth 3.4, today it’s worth More. This means that you will also pay more for flights abroad. Everything became more expensive. When the cost of living goes up, you can’t pay high rent. People move in with their parents, others move into smaller apartments. There are negotiations with the tenants, but you open the boards and see the change because apartments remain empty.”
And what will happen tomorrow, or in a year or two, when interest rates go down.
Asis: “The interest rate will not go down. The interest rate is affected by what happens in the world, we don’t live in a vacuum. Why would the bank lower the interest rate? It took years to rise, now it will take years to fall. What will happen when the interest rate goes down? What happened here 5 years ago will happen. But when Will it happen? There’s no telling. Interest rates are affected by macroeconomic processes. 5 months ago they thought the interest rate would drop. It will take time.”
Peled: “I don’t think the interest rate will drop tomorrow, but when it does – demand will increase because people who are in the rental market and cannot purchase an apartment – will return to the buyer’s market. The pressure from the rental market will decrease. An increase in interest rates does not solve the housing crisis, it does not create new apartments. To lower rental prices, we need to promote urban renewal, create apartments in areas of demand. In old cities there is no land.”
The office market is at a standstill. Everyone agrees on that.
Asis: “There is a decline. The residential market is not in a vacuum, there is no reason why rents in offices should not decline, when housing prices slow down. The high-tech story had an impact. The entire labor market has changed. People work from home. This also led to a decline. Today there is no need for storage space, an office Today, we don’t need the binders and briefcases of old. In many professions, people work on laptops, they don’t need papers anymore. The demand has decreased and so have the rental prices of the offices. All the technology has changed. Today, a company needs less storage than before. Everything is in the cloud. This also affects the price.” .
Peled agrees: “There is a very strong hold. The office market is a different story, because most of them are not for personal use but for investment. An investor looks at yield. When financing costs rise, he looks for other alternatives. He prefers not to purchase this product. The yield there is higher, But the interest rate is high. It will take some time before we see a correction of the interest rate increase against the yield.”