Jerusalem housing market- a city of contrasts and contradictions

 

Catering to both the bargain hunter and the high end luxury home buyer

From 3 room investment apartments selling for 15,000 NIS per sqm in the Armon  Hanatziv neighborhood to $15,000 per sqm, for a luxurious “state of the art” vacation home on trendy Emek Rafaim street in German colony, the Jerusalem real estate market is as confusing and diverse as the populations that inhabit this unique city. RE/MAX Vision real estate office in Baka reports last month record sales, ranging from small investment opportunities selling as low as 12- 15,000 nis per sqm in French Hill, Kiryat Yovel and Armon Hanatziv, to a luxurious 140 sqm state of the art , fully furnished “smart home” that sold for $2,100,000 ( $15,000 per sqm) and was bought by a British vacation home buyer. The contracts are astounding and definitely distinguish themselves from any other city in Israel, states RE/MAX owner, Alyssa Friedland . With 17 agents in her Baka office and being connected to over 100 RE/MAX offices throughout Israel, Friendland certainly has a finger on the pulse of the real estate market throughout Israel, and Jerusalem in specific.

Is the Jerusalem real estate market continuing to rise, or is it beginning to soften after a continual surge over the last 5 years?   What is really affecting the Jerusalem housing market and why is it so different from the rest of the country? For the last 5 years Jerusalem has been cited as one of the world’s hottest markets, with prices rising over 67% since May 2007, and 12% since August 2010. Does this indicate a bubble that is about to burst or the fact that Jerusalem has a unique attraction to a worldwide market and does not react to local economic fluctuations?

According to Friedland, Broker/Owner of RE/MAX Vision in Jerusalem, “ The end of  2011 and the start of 2012 , saw a slowdown in the number of buyers in the Jerusalem market, but by February ,the market started to wake up, and proved that buyers had no hesitations, as they had over the summer months of 2011. Though the social housing protests throughout the past summer did have some effect on many of the cities throughout the country, in Jerusalem the effect was minimal. Following these protests, the Housing authorities started  releasing more land to builders , easing restrictions and reducing the red tape , but this did little to effect the Jerusalem market since available land is extremely scarce in the city limits and therefore large new building projects are few and far between. High demand for housing and a low supply of available proerties will keep prices in Jerusalem from falling, as they have in other areas of the country.

Although many foreigners as well as local Jerusalem buyers hesitated and sat on the fence for a few months following the demonstrations, they eventually realized that the expected price reductions were not effecting Jerusalem ,and they began purchasing again by Nov 2011.   Although the busiest season in Jerusalem traditionally starts around Pesach ,with foreign buyers looking for vacation homes,

we are seeing a strong trend as early as February from the local buyers upgrading , and moving into larger homes. Attractive mortgage rates could be a strong factor for this increased movement in the market.  The  economic slowdown in Israel prompted the Bank of Israel to lower interest rates three times in the last 6 months in an attempt to stimulate the economy. This has had a positive effect on the purchasing power of the Israeli home buyer“

The Jerusalem market is also affected by the political and security situation in the country and foreign buyers ,who make up over 30% of the transactions in the city, tend to hold off from purchasing second homes in Jerusalem when the security situation is tense. With a relatively stable political and security situation today, there are more foreign buyers looking for homes. According to Friedland, the profile of the foreign buyer in Jerusalem is religious, usually getting close to retirement age, who  have budgets of $700,000- $2,500,000. The nationalities vary from American , Canadian, British, Australian , and French. Since they tend to use the property only a few months a year, many purchasers use short term management companies to rent out their properties and offset mortgages and maintenance costs while they are not using the property. These short term rentals can generate returns of anywhere from 6%-10% annually depending on the location and desirability of the property. “

Although market prices in Jerusalem have not seen the drop that much of the country has been experiencing, many savvy investors are still finding bargains in outlying neighborhoods and some of the underpriced neighborhoods that still have appreciation potential. Some recent sales that investors have purchased include : 3 rm ( 60 sqm) in Armon Hanztiiv , Avshalom Havov st. for 915,000 nis , 4 rms, ( 100sqm) renovated for 1,250,000 nis , and in French Hill on Bar Kochba street, 3 rms ( 70 sqm)  for 1,020,000 nis, and in Kiryat Yovel , 2.5 rms ( 55 sqm)  on Stern street sold for 785,000 nis ( needing renovation) . ( all sold between 12,000-15,000 nis per sqm) .

On the high end of the market, the vacation home buyers have purchased the following:

Lovely garden property on Reuven street in Baka ( 70 sqm) sold for 2,370,000 nis ( approx 33,000 nis per sqm), A lovely renovated 4 room ( 95 sqm) garden apartment in Rehavia ( on Alfasi street)  that sold for 3,000,000 nis ( approx 31,5000 nis per sqm) and in German Colony, the 4 rm “smart house” ( 140 sqm) on Emek Rafain street  sold for 7,875,000 nis ( 56,000 nis per sqm) .

To summarize the Jerusalem market today,it might be said that it is vibrant and active, with properties catering to a diverse and wide variety of buyers and budgets. Predictions in 2012 for Jerusalem will see a slight fluctuations in prices, depending on neighborhoods, but a strong and active market for both buyers and sellers.