Can Israel Shape up to be Next Dubai?

Can Israel Shape up to be Next Dubai?

Israel is currently one of the hottest property markets in the world. With prices up 46% since 2008 in Tel Aviv, and Global Property Guide ranking the country’s property prices the 6th fastest growing in the world, with 4 of the other 5 recovering from a sharp drop, the Israeli property market is currently attracting more attention than ever.

Homes in Tel Aviv israel

Not only press attention, but attention from investors, as New Yorkers and investors from around the world flock to invest in the hot property market.

But, caution is being advised as, according to analysts the bubble is about to pop, and to understand why caution is necessary, we need only look at the fundamentals driving the growth, and the factors that could easily drive prices back down again.

1: Growth is Fuelled by Outside Speculators

In Tel Aviv, wages are much lower than in New York, but apartments are currently almost as expensive. The locals have long been priced out of the market, leaving foreigners — the only people who can afford to buy — to drive prices up. And similar situations are appearing in other places, including Jerusalem.

As we have seen in Dubai, and countless times over the centuries such growth is very volatile, all it takes is the course of sentiment to change, fear and doubt to creep in and the market will collapse as the foreign disband.

2: Supply is Tight, Very Tight

In Israel construction is tightly monitored, and the country is accepting millions of refugees as Jews from around the world come home to the promised land. Thus, supply is tight. For example, in the neighbourhoods like the one near Tel Aviv’s Central Bus Station, immigrants still cram several families into one apartment, unable to find or afford an apartment. Wherever locals can still afford to buy prices are rising rapidly due to the supply constraints. This is not a sustainable situation.

3: Peace is Fragile

The situation between Israel and the Palestinians is pretty quite right now, with the latter still recovering from the last war between the two, in which Israeli bombardment heavier than has been seen for some time cost thousands of Palestinian lives. But we have all seen countless times just how quickly peace can turn to war, and while the main growth city of Tel Aviv may not be affected directly (as it is outside the range of the Palestinians’ primitive rockets), other markets and the economy certainly would be.

Conclusion

The main problem is supply, there are more familes than accommodation, and this is putting tremendous pressure on the market. Things look fine while that pressure is causing price growth, but when the foreigners are priced out of the market, foreigners will be the only buyers, and they will not support the market for ever. In fact, without a viable exit strategy they may not support it for much longer at all.