From the ground up: The Holy City – A good investment?

Jerusalem housing; David’s Village complex (photo credit: Marc Israel Sellem)
Jerusalem housing; David’s Village complex
(photo credit: Marc Israel Sellem)
One of the main reasons people buy an apartment in Jerusalem is the emotional factor of owning property in the “Holy City.” But this emotional reasoning doesn’t always balance with the needs and wants of someone looking for an investment property. So, is Jerusalem real estate a good investment? The answer depends mainly on the type of investment one wants. If an investor is looking for a short-term, speculative, high-return investment, Jerusalem is probably not where you want to put your money. Properties in Jerusalem increase in value over the medium to long term.
But especially in the more historical areas, these increases are constant and gradual, as opposed to the sharp price increases experienced in other parts of the country, such as Beersheba. That said, many properties have doubled their values over the last 10 years, making them good investments from a capital-growth perspective for those looking to invest in the medium to long term.
What about rental return on investment? Because property prices in Jerusalem are already relatively high, rental return on investment is comparatively low, despite rentals being high in nominal terms. A 3 percent to 4% return is considered normal, with a return of 5% or more regarded as good. Compare this to 8%-10% in other parts of Israel, and a speculative investor can definitely get a better return by looking outside the capital.
Another type of investor common in Jerusalem is the builder/handyman who looks to buy an unrenovated apartment, fix it up and resell it. This is a good investment – provided the right property can be found at the right price. Many end-user buyers have realized that it is often cheaper to buy an unrenovated apartment and then employ a professional to renovate to their specifications, as opposed to buying a renovated apartment that still may need to be adapted to the buyer’s tastes.
In short, property in Jerusalem was, is and always will be a good investment simply because of the basic economic fact that demand exceeds supply.
Obviously, as in any market, there are highs and lows, but over a five-year time period one can expect solid capital growth while enjoying a reasonably high nominal rental return. In addition, many investors like that they own a property in Jerusalem, which they or family members may use in the future as a permanent or holiday home. In many cases, try as we might, we cannot take the emotional factor out of the equation – after all, this is Jerusalem.
[email protected]
Raphi Bloch is the manager of the Re/Max Vision real-estate agency in Jerusalem.