Saying that housing in Israel is too expensive is like saying the sun rises in the morning. This axiom is a regrettable fact from which the Israeli consumer has been suffering in recent years.
What is interesting is to check whether, and to what extent, the burden of housing in Israel is unusual, compared with major countries and cities in Europe. Although Israel lies deep within the Middle East, Deloitte Touche Tohmatsu decided that we are interesting enough of a market to be part of their study examining various criteria and characteristics in the real estate market in the 17 leading countries in Europe for 2014.
The real estate market is a capital intensive market, and its development therefore depends above all on financing concerns. The rates of leverage and local interest rate can indicate the risk in the market, since in a more challenging and problematic market, the bank will charge a higher premium (in the case of Europe, the interest rate beyond the Euro LIBOR rate – the equivalent of the Israeli prime rate).
Unsurprisingly, the faltering Russian market is at the top of this list, with the bank demanding a 10% premium from the developer in order to finance a project. The loan to value ratio (the amount of financing divided by the value of the project) in this market is 80%, one of the highest, compared with the European average of 68%.
The Israeli market is in the middle of the table, with an average premium of 2.5%, lower than the European average of 3.3% above the Euro LIBOR. Belgium is at the bottom of the list, with a banking interest spread of less than 2%, hinting that the risk in this market is moderate, which is confirmed by the fact that the working time required for a Belgian to pay for an average new apartment (70 sq.m.) is the shortest – only three gross yearly salaries.
For the second straight year, Italy is at the bottom of the table measuring the number of housing units whose construction has been completed per 1,000 residents. Italy and Hungary are the only two countries in which this ratio is less than 1.
According to this index, Israel enjoys a respectable ratio of 6.1, double the European average, but the index of building starts per 1,000 residents is a more disappointing 4.3. This is still above the European average, but is lower than the Israeli ratio for 2013.
Read more at GLOBES ISRAEL.