Israel’s Increased Interest Rate Raises Economic Concerns

Israel‘s recent increase in the mortgage interest rates has the market concerned that the higher rates will discourage borrowers and lead to a drop in property purchases. Israel has been the world’s top performer in residential real estate. Two key factors have helped Israel defy the worldwide real estate slump: lack of available land for development and tax breaks for investors. Prices rose 12.5% in the second quarter from a year earlier, double the increase for Switzerland, the second best performer among countries tracked by London-based property consultants Knight Frank.

Israel is one of the first countries to raise interest rates since the start of the global recession. In August, the Bank of Israel raised the interest rate to 0.75 percent to combat rising inflation. Some economists are predicting that interest rates will go up to 2.5%, according to propertywire.com.

While some predict increased interest rates will cause property prices to plunge, others forecast it will stabilize the market.

Prices will probably ‘stabilize’  rather than plunge, said Ayelet Nir, chief economist at IBI Ltd.  However, in some locations in Jerusalem, Tel Aviv and the coastal city of Netanya, prices are likely to remain high due to a constant demand from Jews from the US, France and the UK, according to Bernard Raskin, regional director of Re/Max Israel, the country’s largest property broker.

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