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Israel Real Estate Report Q1 2011
Business Monitor International, Dec 2010, Pages: 60
The Israel Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Israel's Real Estate industry.
The prospects for Israel's commercial real estate sector over the next five years are generally positive. There is a shortage of high quality commercial properties in each of the three sub-sectors and in all three cities for which we gather data. In the short term, commencement of construction of new projects in Jerusalem and Haifa should be a catalyst for higher rental rates in those cities. After a period of rents mostly tracking sideways, we expect a gradual improvement through 2011.
In the residential sector, Israel’s real estate market has one of the fastest growing house prices in the world. In November 2010, the IMF warned that house prices in Israel are rising unsustainably, with broader risks to the economy, especially for the banking sector. It recommends prompt measures be taken by the government. However, demand persists despite six interest rate increases by the Bank of Israel in just over a year.
On the economy, Israel's rate of GDP growth for Q310 was 3.8%. We expect growth to moderate even more through 2011 and 2012. Compared to Q210, every component of GDP by expenditure posted a lower rate of growth, except for government spending. We believe that the anaemic recovery in Western economies bodes poorly for both consumption and exports, which were two key growth drivers throughout 2010. While we our end-2010 real GDP growth forecast is 3.4%, we maintain our 2011 and 2012 real growth forecasts of 3.1% and 2.9% respectively, due to Israel's muted growth prospects over the medium term.
Politically, Israel is currently in a tense state. The chances of renewed conflict with Hamas and Hizbullah remain high, while public debate over the merits of a pre-emptive strike on Iran's nuclear facilities is growing. While the Israeli government supposedly supports the resumption of peace talks with the Palestinians, the construction of new settlements in occupied Palestinian territory is pushing events in the opposite direction and polarising debate. The current government, dominated by the Likud party and led by Benjamin Netanyahu, comprises a large and often unwieldy coalition of interests, and may not last a full term in its present formation.
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