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Construction continues to resist revival

Residential construction starts

('000 apartments, annualized, seasonally adjusted data)

Source: Central Bureau of Statistics

This is the fourth time we have written about construction and real estate developments during 2006. The reason: construction and real estate continue to behave differently from the rest of the economy while the economy continues to expand (for more than three years now), construction and real estate continue to resist revival.

Data on residential construction starts for the 3rd quarter of 2006 (published on 5 December) show this clearly (see graphs): these starts sank to their lowest quarterly level since the long recession in construction began way back in 1996. Starts had jumped in the opening quarter of 2006, raising hopes that a belated revival had begun in construction, but 2nd quarter data dashed these hopes, and the latest data just "hammer the nail further into the coffin".

Does the decline in starts in the 3rd quarter have something to do with the war? Quite possibly starts declined in the northern part of the country (a breakdown of starts by region is only available on an annual basis), but what is significant in general about the war period is that it had a relatively limited effect on activity in most economic sectors (except, of course, for tourism). So why should construction be different?

It is not true that there have been absolutely no signs of revival particularly in real estate. Housing prices especially of luxury housing have gone up considerably in Jerusalem, mostly because of greatly increased foreign investment in the Jerusalem luxury market. Office rents have increased significantly in Tel Aviv, as a result of the overall economic recovery. But we cannot yet talk of a clear-cut revival in construction and real estate.

Interestingly enough, one of the star sectors in the continuing stock market boom in Israel during 2006 has been construction and real estate. At the end of 2005, some investment houses recommended buying stocks of construction and real estate companies, on the assumption that 2006 would see a revival in these areas. The stocks indeed boomed but the sectors did not.

Maybe this will happen in 2007. But then again, they have been saying that for a few years now.

Provided as a service to SCICC by I-Biz Israel Business Information Services Ltd. For more information on I-Biz information services, visit or contact

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