Since 2008, when the U.S. real estate bubble burst, we have been asking ourselves whether it will come to Israel and if so when? It didn’t happen in 2008 nor since then. The price of real estate has continued to rise despite what has been happening in the rest of the world and despite the recent social unrest in Israel this past year.
However this may change by the end of 2012. The prophet of doom is Eyal Yanai, the CEO of BDI, the business information firm. The limitation of credit issued by banks for construction projects will have an adverse affect on small construction companies. According to Yanai, these small construction companies are now enjoying a demand for apartments and infrastructure projects. However, in his opinion, this can change in a few months should the banks continue to place a limit on the credit issued to these companies. If this happens, he feels that we will be seeing liquidation procedures and bankruptcy in the future for some of these companies.
BDI currently rates the construction industry as one of the weakest industries in the economy together with the tourism and hotels , restaurants and land transport. Yanai states that the risk levels of the entire economy have risen in the past year and the construction industry is still in a better position than other industries. Although the risk level of the construction industry has risen, the companies have been holding their own due to a very prosperous two years which enabled many of them to lower their debt to the banks and enter this difficult time with reserve cash under their belts..
What can change the picture is the cancellation of public tenders for infrastructure due to a cut in government spending and a lowering in the demand for housing . If the banks also refuse to ease up on the credit crunch, many construction companies will be hit hard.