The Facts Behind Israel’s Property Price Bubble

For many years, Israel’s economy has experienced progressive change, stability and high technological advancements. However, such developments do not happen overnight.

The emerging market began in 2009 when China embarked on a deliberate infrastructural growth journey and credit promotion to boost the economy of Israel during the global economic crisis. Many international investors and business organizations, including international technology companies, were keen to partner with the emerging market of Israel.

Shortly after this, though Israel was not yet famous for commodity exports, the country began to benefit from the Chinese as well as international investors who were willing to diversify away from the heavily-indebted Western economy.

This development saw many international investors taking out cheap loans from the U.S and Japan in order to invest in funds in the high yielding Israeli market. This demand for emerging market exposure led to a bond bubble and low-cost borrowing, which resulted in government-driven infrastructure booms, rapid credit growth and property bubbles in many developing countries.

The Property Price Bubble

Israel’s property market includes both residential and commercial housing, real estate and industries. The property price bubble can be attributed to the rapid increase in valuation and cost of acquiring property such as housing and industrial estates.

One of the major driving factors behind Israel’s property price bubble is the rapid increase in the valuation of assets at an unsustainable level, resulting in buyers acquiring homes as investments. In most cases where people purchased homes for residential purposes, the turnover for the property was lower and this kept prices low. The price change is a result of the current rise in consumer demand for real estate and it exceeding the current supply.

Another primary reason for Israel’s property price bubble is the relatively low tax rates imposed on property incomes compared to rates in European countries. The low tax rate for low-skilled workers and a progressive increase in the high-tech ecosystem offered about a 66% contribution to Israel’s economy, and is another major factor behind Israel’s property price bubble.

In most neighborhoods, the municipality has failed to invest in transportation, parks and other forms of infrastructure, and this too has contributed to the rapid increase in real estate prices.

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