People buy apartments without realizing: Have we become Las Vegas or a madhouse?

In recent weeks, it seems that the terms "apartments" and "buns" have become synonymous. Contractors offer tempting financing terms to anyone willing to listen, along the lines of "pay a little today and forget." Financing plans like 20-80, where you pay only 20% now and the rest upon occupancy in three or four years, suddenly seem like very profitable deals. 

Lo and behold, it works. They haven't seen such a flood in sales offices in twenty years: people are grabbing apartments like there's no tomorrow, especially during wartime. It's not just in the center of the country—Ofakim, Ashkelon, and even Kiryat Shmona are also seeing a surge in demand. Something abnormal is happening in the real estate industry.

Take, for example, January, when the war in Gaza was at its peak. The number of transactions for the sale of apartments (new and second-hand) reached 8,053 units—a 14% increase compared to January last year, long before the the events of October 7. Apartment sales in April, considered the worst month of the year, increased dramatically by 18% compared to April 2023.

Consider Aura, the leader in urban renewal. Despite the war, the company sold 305 apartments in the first half of the year—an average of almost two a day. This is more than a third beyond its annual forecasts. Amazing, isn't it? 

Another example from the North is the Marom complex in the Afeka neighborhood of Kiryat Bialik, where companies Sela Binui, Tsur Israel, and the Barel Group are building the "Afeka Park" project, which includes approximately 1,600 housing units in a diverse mix—from accessible 3-room apartments to duplexes and luxury penthouses.

During the project's presale fair, 97 apartments were sold in just three weeks despite the war, and a waiting list was opened for the next complex, "Gefen." There are many more examples of dozens of companies experiencing turbo sales.

There are many more examples from dozens of companies that are in a state of turbo sales. And here, the Bank of Israel published the extent of mortgage performance for the month of May 2024. The Israeli public took credit from various banks amounting to NIS 7.787 billion, a very high figure and a record of almost two years. For comparison, in May 2023, mortgages totaling NIS 6.5 billion were taken out, an increase of almost NIS 1.3 billion within a year.

The conclusions are clear: the Israeli public does not believe the government has plans to curb housing prices. The housing price index is rising for the fourth month in a row. The effect of the prime interest rate hardly plays a role because the public believes it will decrease in the coming year, although not sharply. The money taken today as balloon loans or contractor loans will return in a year or two as a mortgage loan for long-term housing.

Given these amazing figures, I decided to dive into the Bank of Israel's publication, with the help of senior mortgage consultant Moti Shoika (Mortgage Front), and discovered an interesting detail: NIS 1.8 billion of the amount distributed in May 2024 are contractor loans or balloon loans. The so-called “Welcome to Las Vegas.”

Contractor loans, even though they are nice and cheap at first glance, are not always as useful as they seem, and they also have some disadvantages: if the same family needs more money from their mortgage, they will have to take it from the same bank where the contractor took the same "contractor loan," which prevents them from negotiating between banks.

A balloon loan works on the same principle – and as its name implies, it is - a bubble that may burst. When that balloon bursts, the family will have to take care of the money to cover the loan or take out a new mortgage or refinance it.

As we said in the title - a blue-and-white combination of a madhouse and Las Vegas. Bet today and pay tomorrow. The question is whether there will be a way to pay.

The real estate market is in a state of construction starts falling due to a lack of foreign workers. Foreign workers? You laughed. Thousands of workers from India who were brought to the building do not know how to lift a brick. Now, because of the war and the lack of workers, they have been moved to menial jobs in industrial plants where there is also a lack of workers. But be quiet and don't tell anyone, because everything is professional with us.

Hey guys, we're going to a casino. If there is an increase in prices and demand, buyers will become millionaires like a roulette jackpot. But if not, they will lose their underwear. See, we warned you.

On the other hand, prices are expected to rise, and the market offers opportunities that will not return in the form of financing deals. In short, whoever has it will invest. Those who build on Flip without an extra shekel - brother, sister, take care of yourselves.