The Israeli Residential Market

Daniela Paz Erez Paz Group Founder & CEO

This presentation may not be used for any purpose without direct, written permission from Paz Group, Ltd.

G721001 May 9, 2016 consulting 2 Paz Group

■ Paz Group is ’s leading real estate consultancy (According to Dun’s 100).

■ With nearly 20 years in the industry, Paz’s expertise spans all real estate sectors, including property

appraisals, construction loan monitoring, urban planning, economic research & business consulting.

■ The company has supported thousands of projects in the private and public sectors, including the

monitoring of tens of thousands of housing units and advised on the most complex and critical national

development projects in Israel.

■ Among Paz’s customers: government ministries, local municipalities, banks, real estate entrepreneurs,

developers and contractors.

consulting 3 Agenda

1. Residential Market Overview

2. Government Policies and Programs within the Housing Sector

3. Construction Potential in Israel

consulting RESIDENTIAL MARKET OVERVIEW

consulting 5 Characteristics of the Residential Units

Existing 2.457 m Anticipated types of residential units residential units over the next decade

Single Single Family units 10 Stories Family units 39% and Multi-family 29% 28% units 61%

3-6 Stories 4-7 Stories 15% 28%

2.582m Households Potential of 1m Units

consulting Source: Central Bureau of Statistics and data analyses conducted by Paz Group Ltd. 6 Israel’s Housing Shortage: Causes and Triggers

Source: Israel’s Central Bureau of Statistics, 1995 & 2008: Population Census, 2014: consulting Labour Force & Construction Completion Surveys 7 Housing Construction and Population Growth

Housing Units Housing Starts Project Completions

consulting Source: Central Bureau of Statistics, Housing Starts and Completions 8 Housing Prices

NIS (thousands)

Source: Central Bureau of Statistics, Housing Sales Records and data analyses conducted consulting by Paz Group Ltd. 9 Production Process

Land ownership Private 7%

State 93%

Government goal: 60,000 unit housing starts each year

The Apartment Production Process

Zoning Evacuation Infrastructure Permit Construction

consulting GOVERNMENT POLICIES AND PROGRAMS WITHIN THE HOUSING SECTOR

consulting 11 Residential Units Approved by the Planning Authorities 2015 Nationwide Residential Units 100,000 Units 100,000 99,514 North 10,459

Haifa 11,209 75,368

62,553 63,467 Center 20,251

Tel Aviv 25,420

Jerusalem 11,651 32,462

23,749 24,630 23,409 24,506 South 20,524

North Center * Jerusalem South

Source: Interior Ministry, Annual Report 2014 consulting *2016 Development Targets 12 Free Up Land of IDF Bases Development of 100,000 Units 30,000 Israel Military Industries

17,000 Sde Dov

IDF Bases 12,000 Sirkin 60,000 Units

1,000 “HaKirya” 1,200 "Shalishut”

Defense Industries 20,000 Tel HaShomer 40,000 Units

North 17,000 Tzrifin Center Jerusalem IDF bases and defense industries in South central Israel

consulting Source: Government Resolution 2392. 13 Transportation Infrastructure for Residential Projects Transportation Projects Roads and Public Transport Budget (According to the State Budget) (Million NIS) which support Residential Development

The (BRT) Extension

Highway 6 Extension

531 + HaSharon Railway

Tel Aviv Light Rail

Jerusalem Light Rail Extension

Ashkelon Beer Sheba Railway

North Center Jerusalem South consulting Source: Ministry of Finance, State Budget 2015 14 Framework Agreements Nationwide 210,000 Units

Municipality Developers Development Infrastructure Costs & Timeline License & Permits 34,000

Planning Certainty Center 108,000 Cooperation Transparency Jerusalem 8,000 Residents Government Educational and Increased Housing Stock Public Facilities Accelerated Development South 57,000 High Demand Areas

North Center Jerusalem South

consulting Source: Israel Land Authority and Paz Group Ltd. 15 Urban Regeneration Nationwide PINUY BINUY TAMA 38 Potential 810,000 Units RAZE AND REBUILD Expansion and for Urban Potential of 10,000 New Housing Units Demolition of old buildings reinforcement of old Renewal Per Year and new construction of buildings

increased density North 55,000

Haifa 155,000

Center 410,000

Jerusalem 105,000

South 85,000

North Center Jerusalem South consulting Source: Data analyses conducted by Paz Group Ltd. 16 The “Resident“Buyer’s Price Price”” Plan Plan Tenders Nationwide In 2015-2017 all land tenders will be published 30,000 Units subject to the “Buyer’s Price” thus far of 100,000 Government goal

● Can be sold only to non-home owners – by North 4,000 lottery Haifa 7,000 ● Price reduction of at least $50,000 as Center 7,500 compared to market prices.

● Construction according to uniform Jerusalem 5,000 standards. South 5,500

North Center Jerusalem South

consulting Source: Israel Land Authority analyses conducted by Paz Group Ltd. 17 Rental Market International Comparison - Percentage of Rentals

60.0 28.8% 40.0 20.0

0.0

.

צ

'

יוון

EU

Italy

ארה

פולין

ליטא

שוויץ

כיה

"

Malta

ספרד

Israel

הולנד

צרפת

Spain

מלטה

Latvia

U.S.A

לטביה

פינלנד

ישראל

דנמרק

רומניה

ב

France

Poland

איסלנד

איטליה גרמניה

Greece

Cyprus

Iceland

נורווגיה

Finland

Estonia Norway

קפריסין

הונגריה

פורטוגל

בולגריה

סלובניה

האיחוד

אסטוניה

סלובקיה

Bulgaria

Hungary

Slovakia

Portugal

Slovenia

Republic Rumania

Denmark

Germany

Lithuania

…

לוקסמבורג

Switzerland

Netherlands

Luxembourg

Czech Czech

Policy Measures to Encourage the Long Term Rental Market

■ Publishing state tenders ■ Purchase of entire buildings ■ New zoning is directed to rental housing ■ Tax benefits and building rights for rental projects ■ Additional 20,000 Student dormitory beds

Note: The above statistics do not include Kibbutz housing or units rented from family members and close friends. consulting Source: Central Bureau of Statistics, National Social Survey, 2013; Survey data processed by Paz Group CONSTRUCTION POTENTIAL IN ISRAEL

consulting 19 Residential Units Under Construction

Residential Units

consulting Source: Central Bureau of Statistics, Construction in Israel 20 Residential Market Needs

40,000 Units

27 Months

consulting 21 Summary & Call For Action

Demand for residential units

Shortened Need for construction housing period prices reduction Opportunity for foreign construction Increased companies Government construction support capability and actions

Diverse residential market

consulting Thank you

Paz Group - Real Estate Consulting 2 Ha-Menofim St. P.O Box 12305 Hertzliya Pituach 46728 Israel Tel +972 9 9700800 Fax +972 9 9700801 [email protected] www.pazgroup.co.il

consulting