Wednesday, October 20, 2010
Morgan Stanley sees no Real Estate bubble in Israel
Morgan Stanley analyst Tevfik Aksoy does not believe that the housing issue will come to resemble the problems in other countries in the past couple of years for several reasons. There exists new macro-prudential measures imposed on banks that were introduced early last summer intending to slow down loan growth. The loan-to-value ratio (around 60-70%) remains quite low and rules out speculative investments in the real estate market to a large degree. The Bank of Israel is in the process of tightening rates, which will make loans more costly and discourage borrowing.
House prices are too high as it is and, given the fact that average wages have not been keeping up pace at all, this suggests that further upside might be limited. Aksoy says that supply should begin to improve and ease pressure on home prices. "Looking forward, we expect the ongoing rise in building permits (to double in 2010) and the pick-up in housing starts to gradually improve the picture in the real estate market. "However, until then the BoI might be facing policy challenges and, given the inherent nature of the construction business, which goes through serious delays, the matter is likely to remain on the agenda for some time. On the positive side, the low investment in the residential housing sector presents a gap to be filled, which might provide further upside to growth in the years ahead."
Aksoy points out that interest rate hikes by the Bank of Israel will strengthen the shekel, which the central bank is trying to avoid. Morgan Stanley predicts that Israel will achieve 4% GDP growth in 2010, 3.8% growth in 2011, and 3.5% growth in 2012. It also believes that the government will have no problem in meeting its budget deficit targets of 3% of GDP in 2011 and 2% in 2012.