Neighborhood Watch: A wealth of real estate

Jerusalem is losing the battle to provide affordable living space in the face of the ever-expanding luxury-housing market.

By JOHN BENZAQUEN
David's Village_521 (photo credit: Ariel Jerozolimski)
David's Village_521
(photo credit: Ariel Jerozolimski)
One of the most striking aspects of Jerusalem is that it is culturally varied. There is the Jerusalem for the affluent overseas buyers and the Jerusalem of more moderate prices suitable for locals and for overseas buyers with more “shallow” pockets. There is the picturesque Oriental Jerusalem, the haredi Jerusalem and the modern city.
The nation’s capital is a mosaic of cultures and architectural styles.
There is the millionaires’ row, with its epicenter at the King David Hotel, very much in demand by overseas buyers with very deep pockets mainly because of its proximity to the Old City. Prices range from $10,000 to $20,000 per square meter.
In this area, there is only a sprinkling of local buyers, because they have been priced out. Demand for these apartments has declined in the wake of the global economic downturn; but with the improving economic situation, demand is rising once more. Nevertheless, prices have held steady because the affluent landowners are in no hurry to sell if the price is not to their liking.
The capital is divided into three main sectors. Some 200,000 Jerusalemites are haredi, and another 200,000 are Arabs. The third sector is composed mainly of secular and religious Zionist Israelis, including newcomers who cannot afford the prices in the King David Hotel area.
This mainstream element of the population numbers 350,000 to 400,000, and they inhabit some 60 percent of the capital’s area.
The real-estate market for this segment has behaved very much like the one in the Tel Aviv metropolitan area but with certain differences. Just as in the Tel Aviv area, there is an acute shortage of land for building purposes. In consequence demand has outpaced supply, and prices have risen.
In Tel Aviv, those who cannot afford the hefty prices in the middle-class neighborhoods can migrate to any of the satellite towns to the north, south or east of the city. For Jerusalem, the current suburban alternatives for the middle class are Motza and Mevaseret, although prices there have risen as well over the last few years.
Because of the high prices, the younger element is obliged to build its nests elsewhere.
Mayor Nir Barkat is aware of this situation and is trying to reverse the trend. “This is indeed a very worrying problem. We are tackling it in two ways. We have a project called 20:20:20. All new building projects in Jerusalem with more than 20 dwellings must devote 20% of their space to small apartments planned [according] to the needs of young couples at prices 20% below market prices. We are also making apartments available at reduced rentals.”
Alyssa Friedland, the owner-manager of a Re/Max Vision real-estate agency in Jerusalem, believes the municipal program is an excellent step in the right direction and will hopefully encourage young people to buy homes and remain in Jerusalem.
Asaf Aviv, the general manager of M. Aviv Construction and Development company, is not so sure. “The plan in itself is a step in the right direction, but I am doubtful if it can be implemented, because the municipality does not have the force of law behind it. There is no law that says a developer has to participate in the program.”
JERUSALEM IS also unique in its geography. Topography as well as political and cultural differences have created a city of self-contained quarters such as Gilo, Ramot and Pisgat Ze’ev. Although they are part of the municipal area of Jerusalem, they have their own educational, cultural and commercial infrastructure. In these areas prices are lower than in pre- 1967 west Jerusalem.
Friedland believes that there are good investment opportunities in the city. “There is substantial demand for real estate in Baka, the German Colony, Rehavia, Old Katamon and Arnona. It is fueled by mortgage interest rates at historic lows and mortgage banks awash with cash avid to finance real-estate purchases. It is very easy for overseas and local investors as well as those looking for a roof over their heads to obtain a mortgage, and consequently demand is brisk.”
According to Friedland, the best investment opportunities at present are in French Hill and East Talpiot because prices in these area are still reasonable and rental potential there is high, providing great returns, and properties have future appreciation potential.
The recent price rises in the modern secular neighborhoods have made real estate in many parts of Jerusalem unaffordable. Nevertheless, it is doubtful whether prices will fall. What can be expected is a gradual slowdown in price rises.
Apartments in this middle Jerusalem currently sell from NIS 1.3 million for two bedrooms and 70 sq.m., to NIS 1.7m. for three bedrooms and 90 sq.m. and NIS 2.4m. for four bedrooms and 130 sq.m.
The changed circumstances of the super rich have influenced the real-estate scene in Jerusalem in other ways. Overseas buyers who used to buy multimillion-dollar properties now make do with properties in the $500,000 to $700,000 range.
Not many are aware of the fact, but overseas buyers can take advantage of attractive tax incentives in their respective countries. These can include deductions on mortgage interest payments; repairs; property management costs; and trips to inspect the property, provided the proprietor does not live in it for more than two weeks a year because only then can it be classified as an investment and not a residence.
Here are some examples of real-estate prices in Jerusalem. An apartment in an old Arab building in the German Colony, consisting of two bedrooms, a large living room and a succa terrace (approx. 70 sq.m.) was sold for $540,000. In contrast, a three-bedroom apartment plus living room (approx. 140 sq.m.) with a large panoramic terrace in French Hill was sold for the same $540,000 (nearly twice the space for the same money).
MOST OF the apartments or houses purchased by affluent overseas buyers are used as second homes, inhabited for a few weeks a year. Most of the year they remain empty, and the areas popular with these buyers are sparsely inhabited at most times of the year.
But now this is changing because most of these dwellings are being offered for rent. Their owners believe that in these difficult times their properties should produce income.
And they do. Luxury three-bedroom apartments are being rented for $4,000 to $6,000 a month.
Jerusalem has many fine structures built in the second half of the 19th century and the early 20th. Some of these are being renovated and transformed into luxury apartments.
One example is a 150-year-old building that will be restored by the FAIRE Fund as part of a high-end residential project. The building, which formerly served as a library, was built in 1882 and has a fin de siècle architectural flavor. It features stone external walls more than 50 centimeters thick, giant windows with wooden shutters, and balconies with wrought-iron railings. The three-story building is about 780 square meters in size, has 157 sq.m. of terraces and balconies, as well as a small garden. The renovated building, located next to a new eight-story building, is part of FAIRE Fund’s luxury compound called Mishkenot Hadar in the city center.
The capital abounds with such projects – luxury apartment buildings built to blend in with the city’s older architectural look.