Neighborhood Watch: More demand, less supply

Real-estate professionals weigh in on the state of Jerusalem’s market.

By JOHN BENZAQUEN
Jerusalem light rail 521 (photo credit: Marc Israel Sellem)
Jerusalem light rail 521
(photo credit: Marc Israel Sellem)
Last month, several government and private research institutes published figures suggesting that the real-estate scene in Jerusalem was showing signs of recovery.
During January, housing starts in Jerusalem and Tel Aviv rose by a few percentage points compared to the preceding year, while falling by 19 percent in Israel as a whole. In 2011, prices in Jerusalem rose by 5% compared to a rise of only 3% in the country as a whole. By the end of 2011, the average price of a dwelling in Jerusalem was NIS 1.69 million.
But what do these figures really mean?
Ohad Dannus, the chairman of the Real Estate Appraisers Association in Israel, tells In Jerusalem that “at this point, it is difficult to say if the January figures are the beginning of a new trend or just a temporary deviation. Nevertheless, the situation with regard to real estate in Jerusalem has always been different from in other parts of Israel.”
However, according to Itzik Levy, the general manager of the Ambassador Real Estate brokerage in Jerusalem, the capital is no different from the rest of the country.
“It’s part of the local economy, and in general terms, the rise and ebb of the economic tide affects everyone,” he explains. “The fall in real-estate demand in Jerusalem has been similar to that in other parts of the country. It is true that overseas demand for real estate in the capital is stronger... but this demand is minuscule compared to overall demand. It has a very strong impact on the luxury market, but a very weak effect on the market as a whole. If the figures suggest the real estate situation is improving, it is because the compressed demand is unwinding.”
Alyssa Friedland, manager and proprietor of the Re/Max Vision brokerage in Jerusalem, has another viewpoint. Jerusalem, she says, “is a city of contrasts. A three-room apartment in the middle-class neighborhood of Armon Hanatziv sells for NIS 12,000 to NIS 15,000 per square meter, while a luxurious ‘state-of-the-art’ vacation home on trendy Emek Refaim Street in the German Colony sells for NIS 60,000 per sq.m. The Jerusalem real-estate market is as confusing and diverse as the populations that inhabit this unique city. The contracts are astounding and definitely distinguish themselves from any other city in Israel.”
The capital’s real-estate market has seen ups and downs, she continues, “but for the past five years Jerusalem has been cited as one of the world’s hottest markets, with prices rising over 67% since May 2007, and by 12% since August 2010. The end of 2011 and the start of 2012 saw a slowdown in the number of buyers, but by February the market had begun to wake up.”
Friedland cites a number of possible reasons for the increase in activity.
“We are seeing a strong trend as early as February of local buyers upgrading, and moving into larger homes,” she says. “Attractive mortgage rates could be a strong factor for this increased movement in the market.”
Then, she says, there’s the issue of supply.
“Demand may be unwinding, but supply is still limited. The [Construction and] Housing Ministry is marketing building land in the outlying areas, and this will probably ease the supply problem, but in 2011 housing starts in Jerusalem rose by only 7.7% compared to over 9% in Israel as a whole, and this will have an effect on the market.”
Ariel Rahamim, vice president of marketing and business development of the Yehuda Rahamim construction and development company, is optimistic but cautious.
“In Jerusalem we have had, and will probably have in the the future, a problem of supply,” he says. “The amount of available land is limited and consequently expensive. When the outlook for the real-estate industry is uncertain, there is a limit to what we are prepared to pay for building land. With regard to demand, it does appear to be unwinding. We have a very prestigious highend project called the Supreme in the old Foreign Ministry compound, and over the past two months, demand has been brisk. We also have a project in Kiryat Hayovel, 290 apartments, much less high-end than the Supreme project. We have not started construction yet, and we have already sold a few apartments. From my experience, demand in Jerusalem is certainly picking up.”
Rahamim isn’t alone – most developers are reporting improved sales, not only in Jerusalem but also in Tel Aviv and Haifa, as well as most other areas in the country.
HOWEVER, ASSAF Aviv, general manager of the A. Aviv construction and development company, is less optimistic than his colleagues. His company is involved primarily in building in Jerusalem and its environs, and as such he has a deep knowledge of the Jerusalem real-estate scene.
“I can also report improving sales,” he says, “but that does not mean that we are a special case. It is true that housing starts may have increased in the past two months compared to the national average, but during 2011 they amounted to less, so the situation is leveling itself out.
“Where there has been a marked change is in the level of demand from overseas residents,” he continues. “The improved economic situation in the US and to a lesser extent in the UK has increased demand. The demand as such is minuscule compared to Jerusalem as a whole, and is mainly concentrated in the luxury segment. But it does have a psychological effect on the willingness of developers to undertake new projects and investments.”
So it seems that even though both demand and housing starts in Jerusalem are increasing, the consensus industry opinion is that the Jerusalem real-estate market is not behaving differently than in other parts of Israel, at least when it comes to the residential market.
It does stand out in that wealthy Jews in the Diaspora buy expensive real estate there, with demand on the rise due to the improving economic situation in the US and UK, but the numbers are small, as is the overall influence on the realestate scene.
What does seem to be happening in the capital is an increase in demand for commercial real estate in the downtown area, but this is a temporary situation arising from developments in Jerusalem that have very little to do with real-estate essentials (see box).
Light rail in, shopping malls out
Until the early ’80s, downtown Jerusalem, namely Jaffa Road and the surrounding areas, was the commercial center of the city. Jerusalemites from all walks of life and from all parts of the city did their shopping there.
With the advent of shopping malls, however, this began to change. The Malha mall soon became a landmark, and for store owners it became the place to be.
Suddenly Malha was “in,” and the stores along Jaffa Road lost much of their appeal. Shoppers started to abandon the latter area; not only was it not fashionable any more, unless you lived within walking distance, getting there and navigating the traffic jams became a problem. And once you got there, finding parking was mission impossible.
Today, however, a mini urban revolution is under way, vastly increasing demand for commercial space in the downtown area. Its decline from being the commercial center of Jerusalem to a backwater has been halted.
The reason for the comeback is twofold: The shopping malls are losing their shine, and the light rail has solved the problem of how to get there.
Furthermore, the whole area from the gates of the Old City up to King George Avenue is now a pedestrian mall.
However, Zvi Barak, head of the commercial department of the Anglo-Saxon real estate agency in Jerusalem, tells In Jerusalem that there is more to the story.
“The upgrading of the area by the municipality, as well as repairing and modernizing the infrastructure, including the light rail, is increasing demand for commercial real estate. But it is not the only reason,” he says. “There is a trend in the business sector to get back to basics, and a trend among shoppers toward smaller businesses.”
In addition, he says, the plunging prices in the downtown area have made it more attractive to shop owners tired of the high rents in shopping malls. And with good reason: The monthly rent in a shopping mall can be NIS 300 per sq.m. or more, not including maintenance. According to Barak, the average monthly rent on Jaffa Road and the surrounding area is NIS 200 per sq.m.