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Israel Real Estate Report Q4 2011
Business Monitor International, Oct 2011, Pages: 55
BMI is optimistic about the prospects for Israel's commercial real estate sector over the next five years. In general, demand is growing, leading to high occupancy rates and increasing rents, while new construction is still relatively quiet. The retail sector in Israel has undergone significant consolidation in terms of ownership of malls in 2011 with the merger of two leading property companies. The ownership of malls is now dominated by two players: British-Israel and the Azreili Group. It is likely this will result in improved returns for the major players and higher rental rates. A strong consumer spending environment will also support this. The outlook for the industrial sector is also positive, due to low vacancy levels and higher demand, as the manufacturing sector continues to grow.
The economic outlook remains very positive, with 2011 and 2012 real GDP growth forecast at 4.8% and 4.3%. Unemployment declined to 6% in Q111 and is forecast to remain at under 6.5% to 2015. However, elevated risks of instability in Israel's neighbours, including Jordan, Lebanon, Syria and the West Bank and Gaza, have raised political risks in Israel. Disputes with the Palestinian territories regarding both their right to sovereignty and the reconciliation deal between Hamas and Fatah could also worsen tensions in the region.
Israel has the third highest residential property price growth rate in the world, according to Global Property Guide. Residential property prices in the country increased in Q111 by 7.8% year-on-year (y-oy) in real terms. The government has enacted a number of measures to cool activity in the residential market, including tax initiatives to make it more expensive for investors to buy residential property, as well as other measures to accelerate the sale of apartments and to encourage new construction. Consumer price index (CPI)-linked mortgage interest rates have been rising for seven consecutive months. The Bank of Israel increased the benchmark interest rate by 25 basis points to 3.25% on May 23 2011. However, on August 29 the Bank of Israel decided to leave its benchmark interest rate unchanged at 3.25%. The central bank also recently changed its tone in regard to its monetary policy stance, suggesting that further rate hikes may not be on the way soon.
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