A tale of two Jerusalems

With a vast gap between the high and low ends of the market, the capital’s real-estate scene is nonetheless vibrant

By JOHN BENZAQUEN
Jerusalem's suburbs (photo credit: courtesy)
Jerusalem's suburbs
(photo credit: courtesy)
The Jerusalem housing market is one of contrasts and contradictions. A virtual “tale of two cities,” it caters on the one hand to those in need of inexpensive housing, and on the other to well-heeled individuals mostly from overseas, who are on the lookout for high-end luxury homes worth millions.
From three-room investment apartments selling for NIS 15,000 per square meter in the Armon Hanatziv neighborhood, to $20,000 per sq.m. for a luxurious, state-of-the-art second home on trendy Emek Refaim Street in the German Colony, the Jerusalem real-estate market is as confusing and diverse as the populations that inhabit it. The Baka branch of the RE/MAX Vision brokerage reported record sales last month, ranging from small investment opportunities selling for as low as NIS 12,000 per sq.m. in French Hill and Kiryat Hayovel, to a 140-sq.m., fully furnished “smart home” that sold for $2.1 million to a British buyer who will use it as a vacation home. Other properties sell for much more – penthouses with views of the Old City, for example, sell for $6m. and up.
Jerusalem is different from other Israeli cities such as Tel Aviv not only because of the price differential, but because of the composition of potential buyers.
Jerusalem has a special meaning to many.
Consequently the number of foreign buyers is much higher than in other cities. Observant Jewish buyers with deep pockets are willing to pay almost any price for a stylish second home in Jerusalem for use during the holidays, especially if it is within walking distance of religious landmarks such as the Western Wall and the Great Synagogue.
Since such buyers pay prices that locals cannot afford, in many ways the two sectors are separate.
Nevertheless, when prices in the very expensive sector of the real-estate market rise, the increase tends to seep down.
Today, Jerusalem real-estate prices are rising because demand outstrips supply. For the last several years, the capital has been cited as having one of the world’s hottest markets. There was a halt in price increases in 2011, in the wake of that summer’s social justice protests. But since May 2007, average prices have risen by a hefty 67 percent, and by 12% since mid-2010.
Such figures would normally point to a real-estate bubble, but not in Jerusalem – because the market is not fueled by investors who want to make a quick buck, but by families or individuals who need a roof over their heads.
According to Alyssa Friedland, manager of RE/MAX Vision in Jerusalem, “the end of 2012 and the start of 2013 saw a slowdown in the number of buyers in the Jerusalem market. But by February, the market started to wake up, and proved that buyers had no hesitations – as they had over the summer months back in 2011.
Though the social housing protests in 2011 did have some effect on many of the cities throughout the country, in Jerusalem the effect was minimal.”
In the wake of those protests, she continues, “the housing authorities started releasing more land to builders, easing restrictions and reducing the red tape.
But this did little to affect the Jerusalem market, since available land is extremely scarce in the city limits, and therefore, large new building projects are few and far between. High demand for housing and a low supply of available properties will keep prices in Jerusalem from falling, as they have in other areas of the country.”
As such, she points out, “although many foreigners as well as local Jerusalem buyers hesitated and sat on the fence for a few months following the demonstrations, they eventually realized that the expected price reductions were not affecting Jerusalem, and by November 2011 they began purchasing anew.”
The busiest season for real estate in the capital traditionally starts around Passover, Friedland explains, as foreign buyers seek vacation homes. However, she notes, “we are seeing a strong trend from the local buyers, who are upgrading and moving into larger homes. Attractive mortgage rates could be a strong factor for this increased movement in the market. The economic slowdown in Israel prompted the Bank of Israel to lower interest rates three times in the last six months in an attempt to stimulate the economy. This has had a positive effect on the purchasing power of the Israeli home-buyer.”
The Jerusalem market is also affected by the country’s political and security situation, and foreign buyers, who are responsible for over 30% of the transactions in the city, tend to hold off from purchasing second homes in the capital when the security situation is tense. With a relatively stable political and security situation today, there are more buyers from abroad looking for homes.
The average profile of foreign buyers in Jerusalem is middle-aged, religious, usually getting close to retirement, with budgets of $700,000 to $2m. Their nationalities include American, Canadian, British, Australian and French. Since they tend to use the property only a few months a year, many use shortterm management companies to rent out their properties and offset mortgages and maintenance costs when they are not using it. These short-term rentals can generate returns of anywhere from 6% to 10% annually, depending on the location and desirability of the property.
Although market prices in Jerusalem have not seen the drop that much of the country has been experiencing, many savvy investors are still finding bargains in outlying neighborhoods, which are underpriced and still have appreciation potential.
In summary, the Jerusalem market today might be said to be vibrant and active, with properties catering to a wide and diverse variety of buyers and budgets. Predictions for Jerusalem real estate in 2014 include a slight fluctuation in prices, depending on neighborhood, but a strong and active market for both buyers and sellers. •