A victim of its own success

A population explosion in Beersheba has sent rental prices soaring

By YOCHEVED MIRIAM RUSSO
July 16, 2010 18:13
Apartment buildings in Beersheba

beersheba real estate 311. (photo credit: Courtesy)

 
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Karen and Bernie Kriegel stand looking up at the ceiling in the top-floor rental apartment they’re being shown. For new immigrants who made aliya from San Francisco last December, this apartment is exactly where they’d like to live. It’s in ‘Hey’, one of Beersheba’s older neighborhoods, an area favored by many English speakers, who enjoy a convenient neighborhood shopping center as well as an easy walk to several shuls.

But in this apartment, the Kriegels ponder a problem with the ceiling.

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“There’s major water damage,” Karen Kriegel says.

“And not just the ceiling, either. In three rooms, the walls show damage too. I guess we’ll rule this one out.”

The next two places the couple visited weren’t much better.

“One was so filthy I could hardly stand to walk in,” Kriegel lamented. “It was in bad condition all over. The doors were broken and there was a hole in the wall where the air conditioner had been. It needed lots of minor repairs, but the owner wasn’t interested. He insisted it was just fine the way it was.

“We went on to the third place, and this one was much better. It was quite nice, actually, except for the bathroom.



The original shower had broken, so they’d just strung a hand-held shower spray from another part of the room over to the shower basin.

Really, now, is asking for a working shower too much? And all of these places were over NIS 2,000 a month! Much more than we expected.”

The Kriegels, now retired, had picked Beersheba as their aliya retirement community for a number of reasons, including the city’s much-talked-about low rental rates.

“We’d done our homework. We’d talked to lots of people before we came. We asked about rents, and everyone assured us rental rates were low. Maybe they were back when we asked; but now they’ve just skyrocketed. Of course we’re Americans – not very good at bargaining.

Even so, we haven’t found anyone yet who’d even discuss a small reduction.”

IN ONE sense, the Kriegels are lucky. They’re still living in the local absorption center, and as yet don’t have any mandatory move-out date.

“But it’s time,” Bernie Kriegel says. “We want our own home. We want our lift to come. We want to get settled.

But after looking at apartments and considering the prices, there were days when I came home and wanted to fall on my knees and kiss the tile floor of the absorption center. It’s tough out there.”

The Kriegels’ needs are simple: “We want one or two bedrooms with a decent bathroom and a kitchen that’s at least semi-decent,” Karen laughs, adding that she’s already made some adjustments.

“Bernie wants an air conditioner, even a window unit.

We’d love to be in Hey, but we’ll go to any adjacent neighborhood so long as we can walk to shul. Still, I don’t know. It’s starting to look as though we’ll have to compromise on something.”

Searching for a three-room (two-bedroom) apartment in Beersheba’s ‘Hey’ neighborhood lands the Kriegels smack-dab in the center of a legion of housing nomads, most of them searching for pretty much the same thing.

“A two- or three-bedroom apartment in one of Beersheba’s nicer neighborhoods? That’s really hard to find,” Gabriel Mahlus of Miki Investments, real estate professionals in Beersheba, notes. “Lots of people are looking for those, and when they find one, it’s usually more expensive than they’d expected.

“Around the University (Ben-Gurion University of the Negev), it might be easier to find something like that, but in the Hey or Tet neighborhoods, in the center-southwest part of the city, those rentals are in high demand. Both Hey and Tet are great places to live – nice communities, lots of parks, local shopping areas, good transportation and just great places for families with children.

“Actually, all across Beersheba rents have jumped considerably – probably 40 percent in the last two years.

Even at that rate, there aren’t many two-bedroom places available.”

What happened? How did Beersheba real estate escalate so quickly? When did the long-neglected Capital of the Negev become such a desirable place to live? In many ways, it appears, Beersheba has become a victim of its own success – it’s become a very popular place to live, not to mention to invest.

Today, Beersheba, long dubbed “Israel’s Wild West,” enjoys the same kind of population boom its namesake did in times past. Back in 2002, Beersheba claimed just 175,000 residents. Today that number edges over 235,000, including about 30,000 students. The popularity of several local higher education institutions accounts for a significant part of the population explosion.

According to its own data, in the last decade BGU’s student population has tripled, making it Israel’s fastestgrowing institution of higher education. Similarly, enrollment at SCE (Sami Shamoon College of Engineering) also ballooned. It ranks as Israel’s fastestgrowing engineering college. The success of Soroka Medical Center accounts for another big population increase, as does the government’s decision to move IDF operations to the south, which means 25,000 career army families are either looking or about to start.

Yet another factor is the ease and comfort of commuting on the newly-expanded Israel Railways train system.

“Students come from the center of the country to Beersheba to study, then quickly learn that they can buy a villa here in Beersheba for the same price they’d pay for a two-bedroom apartment in Tel Aviv,” Mahlus comments.

“Many opt for the higher standard of living here. They buy or build.

“Some find work here, others commute by train. It’s just a short ride to Tel Aviv or beyond and as soon as the double-tracking is completed this summer, it will be even easier.”

IMMIGRATION FIGURES into the equation, too. “The Jewish Agency continues to bring new immigrants – Ethiopians and Russians mostly – housing them in Yud Aleph neighborhood in the northwest part of the city,” Mahlus notes. “Few rentals are available there now, even though the rents tend to be lower.”

The laws of supply and demand mean that this summer, finding a place to live in Beersheba is a challenge.

It’s not as though the situation is static: Several new neighborhoods are in the planning stage, and a couple are under construction. Within existing neighborhoods, new high-rise apartment buildings sprout up like mushrooms.

But keeping up with the explosive growth isn’t easy – a factor that hasn’t been lost on investors, both Israeli and foreign.

One such investor is “David” in Jerusalem, who now owns two Beersheba apartments even though he’s visited Beersheba only once. Because of the highly competitive nature of the real-estate hunt in Beersheba, investors are reluctant to divulge their names or their strategies.

”David” identifies himself only as a haredi Jew who lives in Jerusalem and says he has no intention of moving to Beersheba.

How did he pick Beersheba for his investment shekels? “I started doing some research, spoke to several people, surveyed many different areas. I was looking at two factors: return on investment – what I could earn in rental income – and appreciation, how much the apartment would increase in value. Beersheba scored very high on both.

“I spoke with one agent, who told me that investing in apartments in the religious neighborhoods – Hey and Tet – was a very good idea because those places are always in demand. Apartments near the hospital and university would also be good – there will always be people who want to rent there. I began working with the agent, and I’m very satisfied.

“He sends me photos of the places he recommends as solid investments and I look at them, then send someone else I trust out to check. It’s all been very smooth.

The agent is very dependable and I feel secure.

“Personally, I don’t care where the apartments are – I’m only looking for the return. So far, I’ve bought one apartment in Hey and another near Soroka. I’m making about a 7% return on my investment, which in this economy is pretty good.”

Better than stocks and bonds? “Much better. When you’re in the stock market, you’re always worried about what will happen. You’re watching the markets all the time, giving yourself an ulcer.

“With an apartment, the worst thing that can happen is that you end up with a guy who won’t pay the rent – then you kick him out.

“I don’t feel good about the American economy anyway,” David says, adding that he’s a former American himself, having made aliya several decades ago.

“Like many others, I’m concerned that the dollar is going to crash. But if you own an apartment, you’ve got something. If nothing else, you have a place to live, and if absolutely everything fails, you can always trade rent for eggs and milk.”

The transactions were easy, David reports. “As a part of his commission [arrangement] on the purchase, my agent agrees to manage the apartment for a year, finding tenants and caring for it. Both apartments are rented – the one near Soroka already had tenants who were paying NIS 2,700 a month, so they just stayed.

“Am I looking for more apartments in Beersheba? Absolutely.”

“Sarah,” who also lives in Jerusalem and also recently purchased two apartments in Beersheba, began looking in Beersheba for a different reason.

“My husband and I were thinking that we’d like to be able to buy a bigger home than what we can afford in Jerusalem,” she says. “We wanted a place where all our kids could come home to stay whenever they wanted.

“Back in 2006, we spent a very lovely Shabbat in Beersheba. We’d found friends and liked the city. ‘This is a real place,’ I thought. ‘It’s got a hospital, a university.

This is a very nice place to live.’ “So when we were thinking we wanted a larger house, we started looking in Beersheba as a possible new home for ourselves.”

ULTIMATELY, THAT didn’t happen. “We decided it just wouldn’t work. We realized that, fundamentally, we’re [big] city people. We weren’t going to leave Jerusalem.

But then we thought that maybe we should look in Beersheba for investment purposes. At the time, prices were cheap and looked like they’d only go up.

“Unfortunately even that idea had to take a back seat.

Some things happened in our own family and I didn’t have time to make the 90-minute drive to Beersheba to start searching. We kept putting it off – which turned out to be too bad.

“Then came September of 2008 – the market started to crash in the US. We pulled out our savings before we lost everything and decided that real estate looked like a much better investment. By then, my life had changed, too, and now I had more time, so I started looking in Beersheba again.

“That was just exactly when bombs and rockets started raining down on the Negev and everyone was running for cover.

“‘This might be a good time to look,’ I thought. ‘Maybe no one else is.’ Within a couple of weeks, we found the apartment we wanted to buy. The seller had some legal issues to settle, so we didn’t actually take title until March of 2009.

“That first apartment is in Hey, a place where young religious couples will always want to rent. As it turned out, we didn’t even have to advertise – some friends from our Shabbat in Beersheba knew someone who wanted to move in.

“I painted, they moved in, and that was that. It’s been rented ever since.” The second purchase took a little more work.

“A few months later, we started looking again, but by now the prices were going crazy – they just shot up. We’d look at a place that was selling for NIS 240,000, and by the time we came back for a second look, it was up to NIS 300,000.

“We began working with an agent and found our second apartment in November – it’s also in Hey – but it needed renovation.

“We had to do the kitchen, but once you do that, you have to do the plumbing, and then it makes sense to do the bathroom, too. We found a good handyman who did lovely work within our budget. When we were ready to rent it, I had to come down to show it. On three consecutive Tuesdays, I’d come down with my mattress and blanket, a hot-water pot and cooler. I’d spend the evening showing the apartment and then drive back to Jerusalem in the morning.

“I had to start over once, when a person who said they’d take it changed their minds, but ultimately two students at Sapir College were happy to move in – their present landlord was going to jack their rent up to NIS 2,400, so they needed to move.”

Would she do it again? “Yes, definitely, when we have some spare cash again. That first apartment we bought is now worth NIS 80-90,000 more than we paid for it. With the second, we had renovation expenses, so it will take longer to recoup our investment. But yes, it’s a good deal.

Next time, though, I’ll be much more knowledgeable.

“During that gap between purchases, I saw several apartments that were in bad shape. I was afraid to invest in them – at the time, I didn’t have anyone to do the repairs, nor did I have any idea what it would cost, so I passed them up. Now that I know more, I can see what opportunities I missed – but then everything’s easier with hindsight.”

According to agent Gabriel Mahlus, comparable apartments to the ones “Sarah” bought are still appreciating.

“An apartment you buy now for NIS 400,000 you should be able to sell in a year or two for NIS 460,000 or even 480,000. That’s in addition to the monthly income.

With banks offering 0.05% interest on your savings, investing in real estate makes sense. You can make a total of 6-7% a year on that kind of investment.”

Of course, purchases of rental apartments by investors don’t do anything at all to help people who are looking to rent a home. Investor-owned homes don’t represent any net increase in rentals – most of these apartments already have tenants, so nothing at all changes. In fact, as far as tenants are concerned, the popularity of investment purchases in Beersheba might represent an overall negative impact for people dependent on renting.

ALTHOUGH NO STATISTICS seem to have been compiled, what happened as a result of the skyrocketing real estate prices meant that many owners who had rental units they leased out decided to cash in. When they found they could sell their property for far more than they’d ever dreamed, they sold – and many times the new owners have different plans for the property. The existing tenant is forced out.

Other tenants find themselves displaced when owners decide to allow family members to move in instead.

Beth and David Arnstein found themselves in that situation, having to leave their rented home in ‘Hey.’ But the Arnsteins decided to use this opportunity to do something they’ve wanted to do for decades – find a place in Beersheba’s Old City, the old Turkish-era neighborhood downtown.

“I love the Old City,” Beth Arnstein says. “Twenty years ago I kept saying we should buy something there. Now we know how smart that would have been, but at the time, no one knew what would happen with that area. Still, the Old City feels so romantic to me – it’s just special.

“I see myself taking my dog and walking over to Gecko in the mornings for a cup of coffee. The whole lifestyle the Old City offers is so appealing. It’s really lovely.”

So the Arnsteins began looking for their Old City dream home, mostly frequenting two Web sites, www.yad2.co.il and www.dirot7.co.il – both of which feature ads for rentals.

“We need three bedrooms. One for us, one for our kids when they come home, and one I can use for an office, because I work out of my home. With our two salaries, we figure we can pay NIS 3,000 – David said NIS 3,500, but I don’t want to go that high.

“But the funny thing is, we haven’t actually called very many of the owners – there just isn’t much of anything available. Many were ads for apartments, which I’ve been avoiding – I want a yard.

“People say, ‘Oh, you want a yard because you have a dog,’ but that’s not really it. I want a yard for me.

Being able to sit outside in my own backyard is important to me.”

One call they made proves how strong a sellers-market Beersheba really is at the moment. “We found a place listed in the Old City for NIS 3,200, and called the lady right away. No answer, so we left a message just asking if it was still available.

“She finally called back and yelled at David, ‘I don’t have time for this now!’ and hung up. We thought about calling her back again, but decided not to. I kept thinking, ‘Do I really want a landlord like that?’ I don’t think so.”

“Then the best – or the worst – happened. The Arnsteins found a renovated Turkish house in the Old City and fell in love with it. “Oh, that house!” Arnstein says, recalling the elegant ceilings, the arched windows, the sense of history.

“It’s a little odd how we fell for that place because it didn’t really fit our criteria, except that it was a lovely renovated home in a great Old City location. First of all, we wanted only one floor. This had two floors and stairs.

We wanted three bedrooms, it had only two. We wanted a yard, and there was only a very small tiled courtyard.

Then too, the bathroom was directly off the kitchen and I didn’t like that at all. Plus the kitchen was small and had very little storage. We like to entertain on Shabbat, sometimes with 10 or 12 guests. I don’t think we could seat that many.”

THEY WENT home to think about it. The owner wanted NIS 3,000, well within their range. As Beth thought, she came up with a plan. She decided she could deal with the off-kitchen bathroom by filling it with storage shelves and cabinets instead, and solve her storage problem at the same time.

“A few days later, we finally decided we’d take it. It wasn’t perfect, but it really was lovely.” What happened? “We called, and it was gone. He’d rented it to someone else. So now we’re starting over.

“The problem is, now I’m having a hard time being satisfied with anything else. But I guess if we can’t find a place in the Old City, then maybe we’ll go back to looking in Tet.

“Really, though, we don’t have a lot of choice. We go to Beersheba’s Conservative shul in Tet, the only one in the city. We could walk from the Old City, but wherever we go, we need to live close enough to walk to Tet.

“What other options do we have? Omer? A moshav? Not really. We don’t have a car. Ramot, on the northern edge of the city? Same problem. We’d need a car there, too, plus Ramot is very expensive, as is Naot Leon.

“All through this, I keep wondering, ‘What happened? Why does Beersheba suddenly have so few rentals available and such outrageous prices?’” THERE’S AT least one property agent who disputes the conventional wisdom that rents have increased – or, for that matter, that there’s a scarcity of apartments.

“Yoav,” who’s been completing his own degree at BGU for the last four years, has been working to help his fellow students find housing. No one knows the rental market around the university like he does. He knows every street and every unit. So when he says, “I don’t agree that rents are higher,” referring at least to his own territory, it’s worth listening to.

“This is just what happens every year,” he explains.

“Rental season begins in June and ends in October. In June or July, people think there aren’t enough places to rent. But what they don’t realize is that many apartments just aren’t listed yet – you can’t really tell what’s out there because many rental contracts end in September. Only in August will those places be advertised.

“So what happens is that in June and July, people panic – and pay more. They’re so afraid they’re going to be homeless. Then as the season continues, more apartments become available, and the prices go down.

By October – yes, the best apartments are probably gone, but by then you can find some real bargains, because by that time, the owners are panicking.”

“Yoav,” who came from Tel Aviv but wouldn’t think of leaving Beersheba, takes a philosophical approach to rental values.

“It’s interesting. People think it’s the end of the world, prices are crazy, rents have gone up so much. But really, compared to the rest of the country, Beersheba is still very affordable.

“I’ve been watching it closely: Four years ago, a student could get an apartment with a roommate for maybe NIS 700 or 800. Now he might have to pay NIS 1,000. So, yes, in four years, it’s gone up some – but not that much.

“And besides, look at what else has changed – the quality of life. That’s really improved. Especially for students, now there’s so much more available – more restaurants, more pubs, other kinds of entertainment and things to do.

“Everything is nicer. The city is working hard to improve the neighborhoods with new sidewalks, parking and recreational areas. So, okay, the prices have gone up a little, but you’re getting so much more for your money.

“And even today, if a student really needs a place for NIS 700, it can be found. It exists.”

The disparity in views may reflect the difference between what students want in an apartment and what older, more permanently situated people expect from their living arrangements.

But another displaced renter is about to test that ‘October’ theory. Miriam Brest, who made aliya from London in 2000, will be looking. Her present rental home has been sold and she has until the end of October to find new accommodation.

Brest’s needs are more formidable than most, although she may be in a better position because recently, an Israeli friend from London returned to Beersheba and the two have decided to throw in their lot together.

“We need a big place,” Brest says. “We both have families who come to stay, and we need more space for work and another project we have in mind. We need a minimum of four rooms, with six the ideal. We also have both dogs and cats, so we need a yard.”

Like many Anglos, Brest wants to be within walking distance of her shul, which is in Hey.

“Besides,” she says, “Tet is more expensive. Parts of Hey might be out of our reach, too, but we’ll have to wait and see.”

As far as searching goes, Brest plans to rely on word of mouth in addition to watching local ads.

“People know we’re looking,” she says, adding that she doesn’t want to pay an agent, who would charge a fee equal to one month’s rent. “August and September is when things will change hands. That’s when we’ll really start hunting. We haven’t actually looked at anything yet – a few places have been recommended, but they were beyond our budget.

“Will we compromise? We’ll see. The good thing is we know the man who bought our house, so dealing with him over our moving date won’t be a problem.”

As Karen and Bernie Kriegel, the new olim retirees, continue their search, worries crop up.

“Sometimes I get discouraged,” Bernie Kriegel says, “although maybe ‘frustrated’ would be a better word.

People tell me things have changed here, and I guess they have. But we’re on a fixed income – we don’t have a lot of wiggle room. And everything is costing more – water and electricity, too. It’s not just rent.

“So we know we’ll find something this year. But what about next year? Will the prices double again? How high will they go?”

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