Israel's luxury housing market shrank 13% in 2022 compared with 2021, the Ministry of Finance chief economist reports. In Tel Aviv where 40% of the luxury deals are completed, the market fell by 48%, probably as a result of fewer purchases by employees in the tech sector.
In 2022 the chief economist raised the definition of a luxury home, in accordance with the Central Bureau of Statistics Housing Price Index, as one costing NIS 11.5 million, up from NIS 10 million in 2021.
There is a lot of overlap between luxury homebuyers and people with multiple homes. 86% of the deals carried out at these price levels in 2022 were defined as an additional home for the buyer, something that has to explain the record of luxury deals recorded in the third quarter of 2021 with 242 such deals, at the end of which the purchase tax on investors and owners of an additional apartment also rose, and the fall recorded in the first quarter of 2022, when only 119 homes were purchased.
The main fall - Tel Aviv
Most of the fall in luxury housing deals in 2022 was in Tel Aviv. 183 luxury deals were completed in Tel Aviv last year, while in 2021, 352 such deals were completed in the city. "We do not have enough data to explain the sharp fall in the number of deal in the luxury market in Tel Aviv, while in Herzliya and Jerusalem there was an increase, even if relatively moderate, in these deals," the chief economist wrote.
However, in Herzliya where 56 luxury deals were registered last year and in Jerusalem, where 49 such deals were completed, the weight of foreign residents is much greater than in Tel Aviv.
The average price of a luxury home sold in Herzliya in 2022 was NIS 26.1 million, while in Tel Aviv it reached NIS 19.5 million, and this is because most of the luxury properties sold in Herzliya are houses, while in Tel Aviv they are luxury apartments in towers.
"It is possible that after such steep price increases over the last decade, the potential local population that can afford to be part of the luxury market cannot 'sustain' a market of hundreds of homes a year, especially in an environment of rising interest rates, and when with apartments bought as an 'additional apartment' (the bulk of the luxury market) buyers are required to put up equity of at least 50% of the apartment price. The job characteristics of buyers in Tel Aviv may also provide an explanation for this sharp fall in purchases," writes the chief economist, referring to tech employees, who make up about a third of the buyers of luxury Tel Aviv homes, and the number of deals in which they were involved dropped sharply.
How much do luxury homebuyers earn?
When you look at who the apartment buyers are in Tel Aviv, you see that apart from tech people, who make up a third of the luxury apartment buyers in the city last year, 26% of the buyers are defined as real estate and construction developers, 9% work in finance, 9% in the public sector (not including doctors in the civil service), 8% work in imports, and 7% are lawyers. This is an unusual cross-section compared with investors buying additional apartments in other cities, in which the people in the public sector stand out and especially former Ministry of Defense employees.
Regarding the salary of buyers of luxury homes in Tel Aviv? The chief economist found that these buyers had an average gross monthly salary of about NIS 300,000, but the differences between them are huge: the importers who bought luxury apartments earned an average of about NIS 950,000 gross per month, the finance people earned an average of about NIS 650,000 per month, And the Tech people "settled" for an average salary of about NIS 450 per month. Lawyers, real estate developers and public sector workers earned an average of NIS 200,000 per month.
The chief economist's review found that the weight of foreign residents in the luxury market is getting smaller and smaller. Last year foreign residents completed 40 deals in Israel (a little less than 10% of all luxury deals). Foreign residents biggest impact was in Jerusalem, where nearly half (46%) of the buyers in the luxury market in 2022 were foreign residents, while in Tel Aviv foreign residents bought only nine apartments last year, representing only 5% of the market in the city.
Published by Globes, Israel business news - en.globes.co.il - on March 9, 2023.
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