The Rise in Demand for Apartments Will Not Stop

"The forecast after the interest rate decision remained unchanged: "It will not stop the rise in demand for apartments"

Maor Ohana, economist and CEO of Drachno, a mortgage consulting network of the Ari Magorim group, notes: "The decision will not stop the rise in demand for new apartments. The new apartment market has experienced a dramatic recovery in recent months, especially in projects offering apartments for sale off-plan. The reason for this is that the high interest rate has less effect on buyers because of the financing offers provided by developers, which means that in most cases buyers use equity and are not required to take out a mortgage at the time of purchase. This is also the reason we are seeing the phenomenon that, despite the significant rise in the execution of deals for buying new apartments, the volumes of mortgages taken out in recent months have not risen accordingly.

According to him, because of the financing deals, there is currently a preference in the market for buying new apartments, especially off-plan apartments whose delivery date is a few years away. However, the resale apartment market is still affected by the high interest rates, and this is reflected in the decrease in resale transactions relative to new apartment transactions. According to CBS data from February, almost half of the transactions in the market were transactions for buying new apartments (48%), while in 2023 the average rate of new-apartment transactions was 42% of all transactions. The trend of preferring to buy new apartments also allows developers to postpone selling the apartments they hold close to occupancy dates.

Given the current situation, maintaining the existing rate is currently the best solution for all parties. This decision is probably also due to the rise in the dollar exchange rate and a reasonable inflation rate of 2.5% in February, which is within the Bank of Israel's target range. By the end of this year we expect further interest rate cuts, which will affect the mortgage market mainly from the standpoint of perception. This will give patience both to the apartment-buying public and to sales staff on the ground. In practice, owners of a mortgage of one million shekels, of which one third is the prime component, will benefit from every quarter of a percent reduction, which is about NIS 100 per month. Maintaining the interest rate level gives the real estate market oxygen despite fears about the political and security situation and charts a path for market recovery at the end of this year. Recently we have seen an increase in property sales and in new mortgage applications. The data on the increase in loans to contractors recently presented by the banks indicate the attractiveness of sales deals in the market.

The recovery is expected to continue next year, when projects sold a year ago under 20/80 financing terms come to fruition. Then the market will be tested alongside the continued decline in interest rates, when developers realize existing assets and buyers begin to pay for a new mortgage. Proper preparation by households will allow the event to unfold smoothly, without glitches in financing transactions."