"In my view, home prices won't fall; they'll be stable. Consistently, for years, there has been a gap between the number of households forming and building starts. We have a cumulative shortfall of 90,000 housing units," said Israel Engel, vice president and head of retail banking at Mizrahi Tefahot Bank (TASE:MZTF) at he "Globes" Israel Real estate Conference.
"Besides that, we are seeing that construction times have lengthened, whether because of the lockdown or because foreign workers are not being brought in," Engel continued. "Construction time has reached 31 months, which clearly affects the supply of housing. We are seeing growth in investment in real estate. This is clearly a factor causing housing prices not to fall."
Engel began by saying that he would try to answer some questions that concern people involved in real estate, such as how it is that mortgage taking has risen despite the unemployment rate - we should have expected mortgage figures to fall; and also, what is required in order that households will be able to repay their mortgages?
"Mortgages are a mirror of what is happening in the real estate industry," Engel said. "Our assessment is that mortgage taking will reach NIS 80 billion this year. That compares with just NIS 70 billion last year. How does this miracle happen? The regulator has taken several steps that support the ability of the economy to continue growing. The first is in the approach to the ratio of mortgage repayment to income, which is not supposed to be more than 40%. The Bank of Israel said, rightly, that this should relate to the situation before the crisis. It relaxed the banks' capital requirements, and this made it possible to obtain mortgage loans at reasonable rates.
"How are households surviving the crisis? Here too there has been cooperation through a program of repayment freezes. Households have to cope with their everyday problems - overdrafts, expensive credit. The Bank of Israel understood the constraint and allowed finance of up to 70%. Some households took advantage of the opportunity and this enables them to meet the terms of the mortgage.
"The question is, what next? What do we expect of the regulator and the banks? This period is not over, and it will clearly have consequences. We believe that the Bank of Israel will have to continue with repayment freezes. We think that there should be relaxations for households, but not in the format we have seen to date.
"We expect the regulator to allow the customer to leverage the home he has and to survive this period. Another restriction that I think should be removed is that, if the loan period was 30 years, it should be expended to 35 years, and that way the customer will be able to maintain the monthly payments."
Engel concluded by saying, "The system needs to deal with the customer sensitively. A digital system is important, but there should be a personal touch. The repayment schedule should be lower for the coming period, and higher afterwards."
The "Globes" Israel Real Estate Conference was held in partnership with Mizrahi Tefahot Bank and was sponsored by the Israel Builders Association, Rani Zim, Bombardier, Siemens, and Israel Railways.
Published by Globes, Israel business news - en.globes.co.il - on October 26, 2020
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