Bank Hapoalim (TASE: POLI) VP corporate division Shimon Gal hopes that the Bank of Israel will succeed in cooling the real estate market, and not severely damage it, but he admits that the risk is growing because of soaring home prices.
"The 14% rise in home prices over the past year supports the fact that we're at a rising risk level in the real estate market," Gal told the "Globes"-BDO Ziv Haft Finance and Capital Market Conference today. "On the other hand, the fact that there's an imbalance between supply and demand supports rising prices. We're at a historic low point with housing inventory of just 10,000 apartments. Is there a bubble? That's irrelevant. What is relevant is the risk level in the market, which is steadily rising."
Commenting on the Bank of Israel's efforts to rein in the mortgage market, Gal said, "I hope that these measures will help and that there won't be an overreaction. We always compare the market with the US market, even though the two markets' fundamentals are not at all alike. Israelis' ability to repay is much higher than Americans' ability to repay on the eve of the crisis. Nonetheless, as cautious bankers, we see the risk level in the market rising, which is why we routinely review the risk of real estate projects and take scenarios of falling prices into account."
Gal added, "Bank Hapoalim sees the changes in the real estate market the same way as the Bank of Israel. The monetary measures to cool the real estate market are insufficient. I think that, in the end, the Israeli government will have to take measures to boost supply and to balance it with demand, for example, be releasing more land for construction."
As for competition between banks, Gal said, "Competition in the credit market exists at both the banking level and at the non-banking credit level. We constantly compete on all dimensions, both on the price of transactions, on their structure, and on the collateral; in other words, at every level. Competition comes from analysis of the risk structure, which results in proper pricing. This allows us to properly build credit transactions for customers. In cases where the pricing of a deal does not conform to its risk, we reject the deal."
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