At the time of this writing, the IDF’s Operation Protective Edge has been going on in Gaza for nearly a month. The scale of the operation made it a mini-war that will cost the economy over NIS 20 billion – some 2 percent of the annual GDP.This affects all aspects of the economy – some more than others, some at different times.Some aspects of the economy are feeling the negative results immediately – such as tourism, since most people don’t want to vacation in what they view as a war zone, and public gathering places such as restaurants, coffee shops and theaters, where it is unwise to congregate when there are chances of rocket attacks.Protective Edge will also have an impact on the real estate market – especially in Jerusalem. These effects will not be felt immediately, but in the future.The housing market in Jerusalem has always been more sensitive to periods of instability, whether political or economic – periods when terror incidents increase and military operations abound, and periods of turbulence due to financial crises.This is because the capital’s real estate market is heavily oriented toward foreign buyers, primarily affluent Jews in the Diaspora. These people, while eager to have a home in Jerusalem, are often deterred by periods of instability, which make them reluctant to buy property that may be destroyed or damaged or that may fall in value.These days, the real-estate market in Jerusalem is especially sensitive. As in other parts of the country, demand for apartments valued at up to NIS 1.6 million has practically frozen – and this has nothing to do with the IDF operation in Gaza. Rather, it is linked to the planned government policy of canceling VAT payments for first-time buyers who have done military or national service, provided the property is less than NIS 1.6 million. The market for such properties is frozen because although Finance Minister Yair Lapid announced this policy in March, the necessary legislation has yet to be enacted. This has affected demand for areas popular with first-time buyers, mainly young couples: Sales in areas such as Arnona, Har Homa, Gilo and East Talpiot have practically dried up. Buyers are playing a waiting game, because the “Zero VAT” plan means a price reduction of NIS 270,000 for a NIS 1.5m. apartment. For the moment, prices are holding steady because the developers are waiting for the Zero VAT law to pass, and they expect that the bottled-up demand will burst out.The effects of Protective Edge, in contrast, will be felt mainly in the higher-end luxury market. Buyers with budgets of $1m. and up are frequently foreigners interested in vacation homes or making aliya. These buyers are wary about purchasing when the political and/or security situation is unstable. Those who want to make aliya will opt to rent apartments and wait to see how the real-estate market responds to the turmoil. This “wait and see” attitude reduces demand, creating pressure for prices to come down.Many sellers of luxury properties, if they are not in any rush to sell, also choose to wait and see how the situation will affect the prices of their properties, even if it means renting out the property or keeping it on the market indefinitely. Many of these landlords do not have a pressing financial need to realize their property and consequently will stay put. The effects of the operation on the high-end market will intensify in the future, but even now there are noticeable ripples.The market for these properties is generally concentrated in boutique-type developments in areas like Rehavia, Baka, the German Colony and Katamon, as well as high-rise residential towers in the center of the city.For those who want to sell but are awaiting developments, it is advisable to sell now and take a small hit rather than risk a large drop in prices in the future. This is what happened in 2001 because of the turbulence caused by the dot-com crisis and the second intifada, and again in 2009 with the subprime mortgage crisis. With the market extremely high at present, there are well-founded fears that the high-end real estate market price cycle could turn downward at any time.Alyssa Friedland, broker-owner of RE/MAX Vision in Jerusalem, has experienced these cycles firsthand during her 18 years of working in the Jerusalem real-estate market. Her advice to high-end sellers is to “recognize the downward trend in prices and sell slightly lower than the top of the market, avoiding a larger drop in prices later on.”She advises buyers and investors, meanwhile, to take advantage of dips in prices and buy. Historically, downward trends in prices haven’t lasted long, so it is important to get information and guidance from experienced realtors who know how to identify what is available for sale and what has recently sold.“Another factor to take into account is the influx of French and European Jewry,” she adds. “This new wave of olim, many escaping rising anti-Semitism in their countries of origin, acts as a bolster to local market prices, especially in the NIS 1.7m. to NIS 3m. range. Even those European buyers who are not yet ready to move to Israel permanently are buying apartments to have a haven in the event that they are forced to flee their homes in Europe. Many of them rent out their properties in the meantime and are still able to reap the financial benefits of a 3%-4% ROI.” Recently the Construction and Housing Ministry reported an overall decline of 21% in home sales from January to March of this year, compared to the first quarter of 2013. The Jerusalem real-estate market did not feel the drop that much, bolstered as it is by overseas buyers. With the new realities, however, there may well be cause for concern, and realtors are already seeing a downturn in the demand for high-end properties in the Jerusalem market.