After almost two years of ambitious rhetoric and various reforms, the Netanyahu government has not succeeded in bringing down the price of housing. Not only that, but prices will very likely go up in the coming year, according to a leading analyst quoted in Globes on Sunday.
The turning point – upward – will be the result of multiple factors damping down demand, including a rise in the mortgage interest rate and the third house tax, said Excellence Investments chief economist Yaniv Hevron.
“The mortgage interest rate is projected to rise by a further 0.5 percent in 2017, following a 0.8 percent rise in 2016, which will retard demand somewhat. One reason for the mortgage rate rise is upward pressure on global bond yields, which affects Israeli government bonds. The mortgage interest rate is critical for those purchasing their first home, but even more so for investors in the housing market. Higher interest rates mean that there is no certainty that the return from rents will cover the monthly mortgage payment to the bank. It is more likely that investors will have to add several hundred shekels a month to the rent they receive in order to make the monthly payment to the bank. In our opinion, this is likely to prove the breaking point for the Israeli investor, who for years has become accustomed to having several hundred shekels left over from the rent he receives after making his monthly payment to the bank,” Hevron explained in his forecast for Israel and abroad.
The effect of the tax on a third housing unit will militate against demand. “Taxing a third housing unit will reduce the number of housing units offered for rent. The main damage will be to owners of housing units in outlying areas, on which the return has been higher and more attractive to investors in recent years. NIS 1,500 from the monthly rent is liable to be too hard a blow for them, and demand from those investors may ground to a halt in the short term,” he predicts.
Another factor that could contribute to deflated demand, which he said has generally been overlooked, is the proposed personal service corporation reform. “The law requires owners of personal service corporations to also pay tax on the profits accumulated in the company. In other words, if a personal service corporation owner buys a housing unit with the company’s money, the current version of the new reform requires him to pay the marginal rate of tax derived from the value of the property. If he does not have the necessary cash for this, he will sell the property. This action is also likely to contribute to a larger supply, and reduce demand pressure.”