No end to rising property prices seen in 2008

Construction in periphery expected to heat up as demand jumps.

tel aviv real estate 88  (photo credit: Ariel Jerozolimski)
tel aviv real estate 88
(photo credit: Ariel Jerozolimski)
Israeli real estate prices are expected to keep up their frenzied pace, rising by at least 15 percent in the coming year, on the back of ever growing interest by foreign buyers in the local market and strong domestic economic growth. "In 2008, the high level of property prices in the center [of the country] and Jerusalem areas will be maintained and prices will continue to rise," said Levi Itzhak, editor of the Property Magazine price list. "Tel Aviv has turned into a magnet for young people from across the country, while at the same time foreign residents are continuing to buy out property in the city, is expected to continue." Nevertheless, Itzhak doesn't believe the market is in a bubble. "We think it is a healthy market of buyers and sellers following nearly 10 years of recession," he said, calling 2007 an "exceptional year that changed the entire landscape of the real estate market as rich Jews flocked to Israel from France, Belgium, the UK, the US, Canada and South Africa buying up property in different areas and thereby raising the value of apartments and houses.... "For example, if a year ago, three-room apartments without an elevator and parking, at a price of between $220,000 and $230,000 were difficult to sell, this year prices in the center and north of Tel Aviv went up by more than $100,000." Jerusalem remains hot, according to Itzhak, and is set to bustle with real estate activity as the premier construction companies such as Africa Israel and Azorim start construction of luxury complexes in the capital in 2008. "Demand and prices remain very high in Jerusalem in the areas such as Rehavia, Talbieh or the German Colony and even in Kiryat Hayovel, which in the past was not popular, prices are rising with deals closing every day," Itzhak said. "As in Tel Aviv, engines of growth, are the foreign residents." Mark Zeevi, CEO of B.M.B.Y, real estate software systems adds that the company's advertising & marketing division, which also works opposite foreign sites, has received much interest from non-Jewish foreign investors. "There is a growing trend of Christian or evangelical real estate investors buying assets in sacred areas, mainly around the Kinneret, at prices of between $100,000 and $200,000," he said. Meanwhile, Shlomo Grofman, chairman of the Fair Fund, also forecasts that 2008 will be a year of growth for the real estate market as property prices are set to fall in the US and foreign investors continue to show interest here. "I expect property prices to increase by at least 10% in the center of the country," Grofman said. "Foreign investors will continue to show interest for projects in Tel Aviv and Jerusalem and I also expect them to move to other projects in Bat Yam, Petah Tikva and Holon located near the sea and well connected to transportation." According to Itzhak, 2008 prices in Bat Yam are expected to increase by 15% and in locations on the beachfront by 25%. Grofman identifies Ramat Gan, Hod Hasharon, Kiryat Ono, Holon and Ra'anana as cities with great investment potential next year, while Itzhak notes that the property market in the periphery, including Beersheba, Arad, Karmiel and Kiryat Shmona, is experiencing a shortage of demand mainly due to poor economic conditions. As a result, Itzhak said apartments were difficult to sell even at a price of $30,000 for a three-room flat - what one would pay for 1.5 meters in a Tel Aviv luxury home. A recent research report by Clal Finance Batucha noted that while apartment prices in the area of Tel Aviv rose by 19% over the 12 months to September 2007, apartment prices in the north of the country grew by just 1% over the same period. As result of the sharp increases in apartment prices in Tel Aviv and Jerusalem, young couples have been having difficulty buying even old apartments in these areas at prices of NIS 1 million or NIS 1.2m, and therefore they continue to live with their parents, Itzhak said. "Although it is, today, more difficult to buy in areas in which it was affordable two years ago, there are other areas to buy and I recommend to young couples over the next year to be more flexible and to seek for new areas to try and find 'the next Ra'anana,'" Bernard Raskin, general manager of Remax Israel, said. "Kfar Pardes Chana and other places in the country are better alternatives for young couples." Yuval Ben Zeev, manager of the Lagur real estate Web site, designed particularly for foreign residents, points to another trend. "The trend of foreign residents buying up properties in the large cities will continue to drive up prices in the center of the country, forcing Israelis who cannot afford rising prices to seek properties in the periphery," he said. This, said Yoram Avisror, sales & marketing manager at Avisror Moshe and Sons Building & Development Ltd., will result in changing trends, particularly in peripheral cities. "After nearly two years of a complete standstill of construction in peripheral cities, demand from the side of buyers has been building up," said Avisror. "Leading constructors in Beersheba, including Avisror, are already starting construction in the city." Looking ahead Avisror pointed to Rehovot as a city with great potential. "In the coming year, we are planning the construction of new projects in the city. I believe that people, who are looking for quality living standards and closeness to the center, will discover the attractive prices the city has to offer and come to seek residential properties." The sagging US dollar also has played an important role in the local real estate market as the shekel, which has appreciated by about 10% against the dollar in 2007, trades around nine-year highs against the US currency. "The sharp drop in the dollar in 2007 has led to a trend of various players in the real estate market to switch to alternative currencies," Zeevi said. "In 2008, this trend of pricing assets in shekel or euro instead of the dollar is expected to gain further ground. Today, the banks are also starting to build mortgages on the basis of euros."