In November, members of the Israel Land Authority (ILA) committee responsible for opening bid envelopes opened the tender box that had been placed in the ILA's Jerusalem office. It contained proposals for buying seven lots, intended for the construction of 400 apartments in the Har Homa neighborhood (or Homat Shmuel, as it is officially known), located in southern Jerusalem. The officials were astounded to discover that the box was overflowing - packed with about 150 envelopes. Most of Jerusalem's contractors, as well as large contractors from the center of the country, were competing to buy the seven lots. The next day, as is accepted practice at the ILA, the Tender Committee convened in order to sort through the proposals. The initial assessment immediately became fact: This was an unprecedented rush on the seven lots, without prior warning. The prices, of course, rose, because the contractors had heard by word of mouth that certain others had submitted bids, and understood that they had to raise the price in order to win the coveted lots. The inevitable result: About 20-22 contractors and developers competed for nearly every lot. The seven winners will pay NIS 88 million, equivalent to about $20.5 million (including development expenses), for the seven lots - an average of about $50,000 for land per apartment. Coincidentally or not, most of the winners were non-Jerusalem developers. The one who paid the highest price was veteran contractor and developer Ya'akov Engel of Herzliya, most of whose business is building apartments in Eastern Europe. Engel has not participated in the ILA tenders for years. This time, Engel not only participated, but also offered the highest price for land per apartment, $55,500. In second pace was Um Brothers of Beersheba, which bought a lot for 60 apartments for $54,000 per unit. Moshe Avisdor, the biggest contractor in Beersheba and the South, bought an 88-apartment lot for $51,000 for land per apartment. Efgad, controlled by veteran developer Efraim Henig of Ashkelon, bought a smaller lot for $49,000 for land per apartment. However, local contractors such as Haim Ma'atok and B. Yair also won, at prices about 10% lower than the highest prices. Indeed, new highs were reached, both in prices and in the number of participants. Just 10 months ago, the ILA sold four earlier lots by tender on Har Homa. Nine or 10 contractors competed for each lot. The Ozen Brothers, also from the South, bought the largest lot, for 88 apartments and paid, at the time $50,500, per apartment. Raz and Shahaf Co. Ltd. bought a 36-apartment lot for about $48,000 per apartment. In other words, within 10 months land prices soared by about 10% or more. The past year's phenomenon The increase in apartment prices on Har Homa is a phenomenon of the past year. When the ILA began selling lots on Har Homa seven years ago, most contractors paid between $35,000 and $38,000 for land per apartment, including development. Then came the Intifadah, shooting at the Gilo neighborhood and terrorists who lay in ambush for Israeli vehicles on roads near Har Homa. Demand for apartments plunged. The ILA tried to sell lots, but discovered that there were hardly any buyers, and that the prices being offered were low. ILA officials finally understood that sales had to be halted for a certain amount of time. About three years ago the area grew calmer, and the ILA resumed the sale of lots on Har Homa. Meanwhile, the neighborhood's name had also been changed to Homat Shmuel, in memory of a Jerusalem City Council member who had died. The public, by the way, continues to call the neighborhood by its original name. In February 2004, the ILA sold several lots on Har Homa. D. Rothstein Company, owned by veteran Tel Aviv contractor Ya'akov Goncherovsky, bought the largest lot, for 85 apartments. It paid NIS 13 million, which then was equivalent to about $37,000 for land per apartment. There were six to 12 bids for each lot. That was already an encouraging sign that developers were willing to build on Har Homa, though prices were still low. In July 2004, additional tenders were issued, with the same number of participants, more or less. Dalia Elispor Company bought a 98-apartment lot, and paid about $42,000 per apartment. Ramet, a company owned by Aliza Yafo and Miriam Doron, bought a lot for 77 apartments and paid about $40,000 per apartment. Other winners paid similar prices. A year-and-a-half went by without tenders, perhaps because ILA policy is to sell only planned lots with building permits, and time was needed in order to prepare additional lots. A year ago, in November 2005, the ILA put lots up for sale for hundreds of apartments. Moshe Avisdor, who two months ago paid $51,000 per apartment, a year ago won a tender for 55 apartments, paying about $45,000 for land per apartment. That means that Avisdor has now concluded that the value of a lot on Har Homa has soared 12% within a year. Jerusalem-based Heftziba Company, which has already built thousands of apartments in and around the capital, bought a lot for 78 apartments for $43,000 per apartment. The prices continued to rise in tenders issued in March 2006, and have now reached their peak. Winners and losers It must be noted, of course, that not all lots are equal: Lots at the top of a hill are the most expensive because of the view, while and lots with development problems (rocky earth) are, naturally, the cheapest. However, the trend is clear: Prices are rising, and at the same time the number of buyers has spiked. Is that good? Clearly not. Perhaps the people at the ILA are happy, because the coffers are being filled with tends and hundreds of millions of shekels. However, the public loses, since the contractors pass on the full price rise in the price of the lot to the buyers, who must pay thousands of shekels more for each lot. Why have residential prices risen so much? The calmer security situation is one reason, but it does not provide a complete answer. In order to understand what is happening, one must address three additional factors. First, the Har Homa neighborhood is still relatively inexpensive. Until recently, average, four-room apartments sold for about $200,000, and three-room apartments for about $160,000. Those who can invest $230,000 can even now buy a five-room apartment. In terms of Jerusalem, where prices of apartments in the city center increase at an insane rate, that is not a bad deal. Of course, that situation may change, and prices could rise soon. Second, public opinion perceives the neighborhood to be a religious one, at least to an extent. That attracts not only ultra-Orthodox buyers, but also groups. Some years back, the Mishav Construction Company, which builds for the religious public, had difficulty selling 50 apartments that it had built in the neighborhood. A quick-thinking developer organized an association of married yeshiva students, who bought a large number of the apartments. Last year, the Har Hamor Yeshiva (which years ago split from the Merkaz Harav Yeshiva), purchased a lot in the neighborhood for constructing the yeshiva's new building. Every developer can rest assured that building the yeshiva will bring in buyers yeshiva heads, rabbis, and married students. Third, the shortage of lots in Jerusalem is growing worse. In Israel's capital there are almost no private lots. All of the land is owned by the ILA or by churches, which never sell lots. Two years ago, a senior ILA official told this reporter that the ILA's supply of land was dwindling. True, Mayor Uri Lupolianski claims to have suspended the building plans for the western part of the city, and that Jerusalem has reserves for building tens of thousands of apartments. In actuality, however, these reserves will be created, if at all, only by changing the municipal building plan (taba), approving high-rise construction, demolishing old buildings and neighborhoods, and expropriating land. The shortage is leading to increasing prices of lots and apartments in other neighborhoods, as well. Boaz Yona is CEO and one of the owners of Heftziba, perhaps the largest developer and builder in Jerusalem for many years. Yona told TheBpost: "There is nothing that can be done. Prices on Har Homa are rising, and they will continue to do so." When asked why, Yona replied that "the supply of lots in Jerusalem has almost completely run out. In Gilo, Ramot, Kiryat Sharett, Pisgat Ze'ev, Neve Ya'akov and other neighborhoods there are no more lots. The ILA sold everything, and there is no private land. Only two neighborhoods remain with lots for sale - Har Homa inside the city and Ma'ale Adumim to the east. That will be the situation in the coming years. There is a big gap between talking about planning and freeing up land, and the reality on the ground." Yona added that the neighborhood on Har Homa is planned for 6,000 apartments. "The ILA sold land for 4,000 apartments, which means there are lots remaining for 2,000 apartments," he said. "It is impossible to sell all of them at once because planning has not finished. They will be sold in groups over time. The developers, who know that this is the last land within Jerusalem, will rush for it." Yona is certain apartment prices will continue to rise.