Prices in the Jerusalem property market have been skyrocketing over the past couple of years, raising questions over whether a real estate bubble exists in certain areas of the capital city.
"There is a housing bubble waiting to burst and those who bought property in certain neighborhoods of the capital [Nahlaot, Shaarei Hesed, Baka] as a short-term investment could lose out as there are signs of a slowdown in property sales in certain parts of Jerusalem and a decrease in flat sales by foreign residents," said real estate advisor and specialist Reuven Bielski. "Buyers including foreign residents don't buy anymore that quickly in areas where prices have risen at an extreme speed, which is an indicator of change."
On the other hand, Bielski said there was prosperity and that prices were continuing to rise in other neighborhoods such as Kiryat Hayovel, for example.
He attributed the sharp increase of property prices in certain areas of Jerusalem to the massive buying boom by foreign residents.
"Specific areas of the capital, have seen a sharp rise in property prices over the past five years," he said. "In the Nahlaot area, for example, property prices have risen 5 to 8 times from $1,000 per square meter to $8,000 today."
Real estate values are ultimately limited by the willingness and ability of potential of buyers to pay, and the Jerusalem market is subject to special a distortion because of the desire of some well-heeled Jews from America and other Western countries to own a place in the Holy City.
Shelly Levine CEO of Tivuch Shelly Ltd. in Jerusalem has also seen property prices bubbling in the capital, but she believes it's not yet ready to burst.
"Foreign investors, and in particular Americans, are the big devil bubbling the prices. I believe prices will continue to rise as foreign residents will continue to buy for the desire of having something little in Jerusalem. Only a drastic change in the geopolitical situation could make the bubble burst.
"Neighborhoods such as Shaarei Hesed, Baka, Talbieh and Rehavia have become so expensive that young Israeli couples can not afford to buy there and need to look for alternative places, where prices are not out of control," she said.
Similarly, Levi Itzhak, property market researcher and editor of the Property Prices magazine, said that although property deals were taking place at very high prices, it was not a bubble.
"Even if property prices paid in Jerusalem are much higher relative to property prices in the country, between $8,000 and $15,000 per square meter, they are still not considered high relative to the place of origin of the buyers and thus they don't think that they pay much for their investment and the fact that they will have a place in Jerusalem," Itzhak said. "It does not look as if on one bright day all foreign residents will get up and decide to sell their investments in Israel and in particular not in Jerusalem."
Meanwhile, Sharon Hasid, deputy director of marketing for the Hasid Brothers construction firm, sees no bubble ahead. Rather, he believes the city is still growing and that there still are areas that have not used up their potential.
"Property prices in the old Jerusalem neighborhoods such as Rehavia, Talbieh and Baka will continue to rise, encouraging new construction in other areas such as the Katamonim area, which is up and coming, and is also attracting interest from foreign residents," he said.