The real estate sector is following developments in the coronavirus crisis with great concern. Having been through many crises, last week the heads of the Israel Builders Association met MK Nir Barkat (Likud) in an attempt to deliver a clear message - a closure on Judea and Samaria means an immediate halt at a large proportion of the thousands of building sites all over Israel. It is clear to them, however, that the decision will be made according to the spread of the virus, which has already caused a closure of Bethlehem. This is only one of the issues raised by the health crisis for a sector that affects every Israeli. "Globes" set out to find some answers.
Israel Builders Association president Raul Srugo, owner of Srugo Construction Company, says, "What I am trying to do now is prevent a closure on the territories. Such a closure will mean that 70,000 Palestinian workers will be unable to work in Israel, and that will shut down two thirds of all projects in Israel almost completely. This will have a far-reaching effect, even more than what is happening in the civil aviation and tourism industries. The damage to the construction sector will be enormous.
"Delivery of 100,000 homes will be delayed by months or longer, with no possibility of home buyers receiving any compensation whatsoever, because it is a case of force majeure. At present there are 15,000 workers with permission to stay in Israel overnight, and this can be increased by tens of thousands more. We already have 500 workers from China who went on vacation in January and did not return, and we are starting to feel the effect. There is a closure on Bethlehem now, from where 8,000 Palestinian workers come.
"As for raw materials, we are still using inventory located in Israel, but we are already starting to feel a shortage of materials and equipment that were to have arrived from countries deep in crisis, such as China and Italy. There are projects that began with cladding from China, and marble from Turkey cannot replace it. A large proportion of the equipment for assembling elevators and the raw materials for kitchens also comes from China."
Assessing the status of a project
Israel Association of Construction and Infrastructure Engineers chairman and Waxman Govrin Geva Engineering co-owner Yigal Govrin says, "The big question is how long the event will continue. If the crisis persists, the problems will increase. You have to look at what stage each project is in. Projects in the early stages are less vulnerable at this point, but if you are in the advanced stages, the picture changes.
"If a project is very advanced and is on the verge of a Form 4 occupancy certificate, and you should have already installed elevators, a large proportion of which come from China, and the elevators are held up, the handover of the project will almost certainly be delayed. We are already experiencing problems caused by delay in the supply chain for building materials, while there are problems with the alternatives to China. Italy is not an alternative, and the problem also exists in Turkey. There is already the beginning of unfair exploitation of the situation through price hikes of building materials. There are suppliers who are grabbing this opportunity."
Stamina of the various companies
Ehud Danoch, CEO of Shikun & Binui subsidiary Solel Boneh, says, "There is no doubt that this is an event. If you analyze what is happening now, you realize that companies with foreign partners or foreign workers are more exposed to damage. We see that there are various places around the world from which no one leaves and which no one enters. In the long term, this will clearly have an effect.
"Furthermore, the Chinese will not be in their factories until March 10, and that means that there is no production. It is therefore clear that there will be delays in delivering raw materials and equipment, both in Israel and overseas. At Shikun & Binui, we work in both construction and infrastructure, and we have our logistics center and a corporation handling our foreign workers, so I think that we feel fairly comfortable and confident that we will meet our targets and complete our projects. Companies that are not prepared with inventories of raw materials, and do not have arrangements with factories, or even independent production of raw materials, will face damage."
Israel prepared for crises
Paz Economy and Engineering CEO and controlling shareholder Daniela Paz Erez says, "We are a country with experience of crises, and a crisis of this type also happens when there is an emergency security situation. The thought that this is something that will be with us for several months finds Israel in a better position than other countries, because we know how to get through such pitfalls. As I see it, the coronavirus cannot cause a difficult situation in the real estate sector. The 2008 crisis caused isolated shocks that included bank closures, inability to raise money, and a need for a cash flow solution, which forced companies to sell land. After that, however, the market recovered, adapted itself, and returned to a different routine. I believe that we will be able to adjust in this situation, too.
"At the macro level, the coronavirus is creating a global need to lower interest rates, which is what happened in 2008. Demand may be diverted in the direction of real estate, which has always been regarded as safer in the long term. We could find ourselves in a big demand boom. Furthermore, Israel is a consumer of housing. We will have to find a solution for this demand. It therefore appears that we will experience difficulty in the short term, because I cannot envision a family buying a home in the current state of uncertainty."
All signs indicate the recession is already here
Dr. Yair Duchin, a lecturer at the Hebrew University of Jerusalem Faculty of Economics, says, "We have no knowledge about the progress of the virus, and I recall no similar global event in recent decades, in which the damage to the economy was so severe and so quick. We must therefore manage events according to the middle way between two extreme scenarios.
"In one of these scenarios, a solution for the coronavirus will be found soon, and the market will recover within a quarter or two. In the other, the virus gets worse, and no solution is found. This will put us in a situation in which people sit on the fence and postpone home purchases until the situation clears up. In such a situation, real estate sales and agents' offices will empty.
"Such a situation will eventually depress prices, because the developers want to sell housing units. I do not anticipate any such price cuts in the immediate future, however. It is certainly nothing like the capital market, which responds very quickly. We will see the effects in quarter or two, because as usual, the housing market is very slow in its responses. This situation, regardless of its special circumstances, is more familiar to us as a recession, and when the sector goes into recession, a major slowdown in the rate of construction is expected."
A light blow
Prof. Daniel Czamanski, a partner in the Czamanski Ben Shahar consultancy firm and head of the real estate economics and land assessment program at the Ruppin Academic Center, says, "The effect of the coronavirus on the real estate and housing sector will be no more than a light blow. In six months, at most, we will forget it, and life will return to normal. I say this on the basis of the models that examined the spread of viruses such as SARS.
"In the distant past, such viruses spread over a period of months, because in the age of Columbus, people traveled in ships. Today, they travel in airplanes, and infection occurs quickly. Isolation and a halt in flights from one place to another are therefore essential measures for stopping the virus. The measures for estimating the rate at which the disease is spreading are the number of people infected daily and the number of people dying daily.
"We see that these rates are already falling in China and in most of the countries that are enforcing isolation and halting aviation routes, like Israel. The countries that have not yet done so will do so soon. The virus has not yet peaked, but the measures being taken against its spread will result in its effect being short-lived. Housing, on the other hand, is something linked to very long-term variables of supply and demand. In the short term, there will be a closure on the territories and raw materials will not arrive from China, which will delay work and increase construction costs, but as far as housing is concerned, it will not be by much."
Slight housing price fall expected
Lilia Nachman, CEO of the Anglo Saxon realtors chain, says, "At the moment there is almost no effect on the movement of buyers and sellers, but I predict that if the current situation persists into the future, meaning that more and more people enter isolation and concern about the disease continues, we will start to see a situation in which some buyers and sellers will be limited in their contacts.
"On the other hand, a survey I conducted among Anglo Saxon's franchise holders shows that the power of buyers is currently increasing. Housing sellers are under pressure to sell their homes at the prices that they want. Out of concern that there will be a recession in Israel, they are more willing to compromise on price. At the same time, housing buyers are exerting more pressure, and the result is that the chain's franchise holders are observing an increase in the buyers' power. This dynamic, which we have been observing in our chain, runs counter to recent assertions of an increase in prices. I do not expect prices rises in the near future; if anything, prices will fall slightly."
Published by Globes, Israel business news - en.globes.co.il - on March 10, 2020
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