In ancient times, Jerusalem was a magnet for the inhabitants of the holy land during the religious holidays. Jews flocked to Jerusalem from all over the land of Israel, and during the time of the Second Temple they also came from overseas. This was especially true during Pessah, the most “nationally” oriented festival on the Jewish calendar.In these modern times, the custom has been renewed. During Pessah, Jews from all over Israel and the Diaspora go to Jerusalem. Many of those from the Diaspora who come for a short visit may want to make Jerusalem their home or at least buy property in the holy city.And in Jerusalem, one can find property to suit all tastes and pockets.Jerusalem is Israel’s most populated city, with 770,000 residents. It is Israel’s most famous city and, in fact, one of the most famous cities in the world. A city holy to the world’s three major monotheistic religions – Judaism, Christianity and Islam – it is a focal point of great intensity.But how does this affect the real estate scene in Jerusalem? As a city holy to the three major religions, the different religions tend to keep to themselves. This is especially marked in the geography of the walled Old City. It has four separate quarters: the Christian Quarter in the northwest around the Church of the Holy Sepulcher, the most holy site in the Christian world; the Muslim Quarter in the northeastern part of Jerusalem; the Jewish Quarter in the southeastern part; and the Armenian Quarter in the southwestern part.The modern city of Jerusalem is also divided into areas which are mostly inhabited by different communities. There is Arab community, which is located in the eastern part of the city. There is the ultra-religious element in the Jewish population, who live in various areas of the city. The largest part of the city is inhabited by the secular element. But even this is further divided and, as in all major modern cities, the division is economic.Benny Loval, CEO of the Jerusalem office of Anglo-Saxon Real Estate, says, “For real estate buyers, there is not one Jerusalem but many. There is the golden square mile with its epicenter at the King David Hotel, which is very much in demand by overseas buyers mainly because of its proximity to the Old City and all that it signifies. This area is the domain of the wealthy overseas buyer. Prices range from $7,500 to $20,000 per square meter. There are practically no local buyers, they have been outpriced.Demand for these apartments has declined in the wake of the economic global downturn, but prices have not. There have been very few transactions, but prices have held steady because those who are selling are either existing owners or developers who do not need to sell at any price – for the moment. The developers are mostly large, cash-rich corporations, while private proprietors are wealthy and are in no hurry to sell. At these times, there is renewed demand from affluent overseas buyers. The global economy is recovering, and demand from that sector is increasing.”Foreign buyers can take advantage of attractive tax incentives in their respective countries. These can include deductions on mortgage interest; repairs; property management costs and trips to inspect the property, provided the owner does not live in the property for more than two weeks a year because only then can it be classified as an investment and not a residence.While the golden mile is very expensive and is the domain of wealthy mostly overseas buyers, the Jerusalem that is inhabited by locals is also expensive. Prices vary from area to area, but an average four-room apartment in middleclass Jerusalem will sell for about NIS 2 million (approximately $ 550,000).The real estate market for this segment of the population has behaved like the real estate market in the Tel Aviv metropolitan area but with certain differences. Like the Tel Aviv metropolitan area, there is an acute shortage of land for building purposes. Demand has outpaced supply, thus prices have risen.In Jerusalem, the problem of insufficient supply is aggravated by geographical issues. Those who cannot afford the hefty prices in the middle-class neighborhoods of Tel Aviv can move to any of the satellite towns to the north, south or east of the city. Jerusalem has no such safety net, so pressures are somewhat higher and the upward pressure on prices is slightly more marked. The current middle-class alternatives are Motza and Mevaseret. The real estate scene in Jerusalem can be described as one of high prices, demand that outstrips supply, and lack of building land.Alyssa Friedland, owner of RE/MAX Vision in Jerusalem, believes like most real estate operators that prices in Jerusalem have reached their limit.“I don’t see prices falling because demand is still higher than supply, but I doubt that they will rise. They might creep up a bit, but that’s all. The same holds true for the rental market. Rents are high, and I don’t see them going up this year,” she says.Friedland’s assessment makes sense. In relation to average salaries in Israel, real estate prices are already beyond the reach of large segments of the community. It is difficult to see how they can rise much further.But leading Jerusalem developers are not so sure. Ariel Rahamim, VP of the Yehuda Rahamim Development and Construction Company, believes that real estate demand in Jerusalem is robust. “Lately,” he told Real Estate, “there have been some large tenders of land by the Israel Land Authority in Jerusalem. Prices reached a hefty NIS 800,000 on average for each apartment, which means that an average four-room apartment in Jerusalem will cost upwards of NIS 2.3 million, or approximately $630,000” the 1920 and 1930s. Some of these are being renovated and transformed into luxury apartments. These properties are very chic and stylish. Their price tags are correspondingly high and usually run in the millions of dollars.