"Encouraging signs have been recently noted in the housing market, but it is still early to determine that the trend has changed," Bank of Israel Governor Dr. Karnit Flug told a press conference following the interest rate decision and forecasts made by the bank's research division.
Flug said, "Two of the most recent observations have shown a stabilization in the housing price index, the last update on construction starts shows that they resumed growing, and their number in the past year is high, but in parallel to the rise in construction starts there is a drop in the number of completed projects." Flug referred to the ongoing rise in mortgage interest rates and said that it is "primarily a result of a growing risk in housing credit and regulation in this field, and also due to mortgages becoming more expensive from the banks' perspective; it should act to lower demand."
As for economic activity, Flug said that data from the past few months is indicative of a significant improvement in the real economy, "private consumption continues rising rapidly but, for the first time in a while, we also noted a fair increase in exports after an ongoing standstill."
Commenting on the raising of the retirement age, Flug said, "I see no reason for the gap between the retirement age of men and women, given that women have a higher life expectancy." She added, "Past experience shows that employment levels increase when the retirement age is raised, and there is no indication that unemployment rates among elderly women rise due to a higher retirement age. At the same time, we should acknowledge that some women will be negatively affected by a higher retirement age and should respond accordingly, among other things by extending the unemployment benefit period and by a negative income tax." As for reports regarding the emerging recommendation to raise the retirement age to 64 instead of 67, Flug says, "I would like to see a decision that goes all the way."
The Bank of Israel governor also commented on the initiative promoted by Minister of Finance Moshe Kahlon to impose a tax on owners of three or more homes and estimated that while the proposed tax might lead to a decline in prices of apartments for sale, it could also lead to rise in rent prices. "The proposed tax on the third apartment and up is expected to contribute to a certain decline in home prices for first apartment buyers but, on the other hand, it will cause a certain rise in rent prices," Flug said and added, "there is a tradeoff here and it should be stated. Eventually the cabinet chooses what it wishes to focus on. It is evident that deciding on such a tax reflects a choice to lower home prices even if it comes at the expense of a rise in rent prices. The proposed tax will affect cheap apartments more because an investor who chooses to invest in an expensive apartment will not be taxed."
Published by Globes [online], Israel business news - www.globes-online.com - on September 26, 2016
© Copyright of Globes Publisher Itonut (1983) Ltd. 2016