Jerusalem’s Housing Market

A City of Contrasts and Contradictions

In the last week of February, the Chief government appraiser, Tal Eldorati, published quarterly figures on real estate prices for the last quarter of 2013 and for the year as a whole. The price of an average four-room apartment at the end of 2013 amounted to NIS 1.76 million; unchanged in relation to the average price at the end of the third quarter 2013 and a rise of only one percent compared to the end of 2012.

Averages have to be taken in their right perspective since they can hide large fluctuations at the extremes. The real estate market in Jerusalem is a case in point. It is a city of contrasts and contradictions. It caters to both the low income segment as well as the high-end luxury homebuyer. This is always true in any large city, but it is especially true in Jerusalem, which in the haredi (ultra-orthodox community) has a very large perennial poor community while, at the same time, it has a relatively large influx of very, very rich overseas buyers who are ready to throw millions of dollars in a penthouse or a single family home.

Prices vary widely depending on location, size & condition of the property. 3-room apartments selling for NIS 11,000 per sqm in the Katamon Area to NIS 85,000 per sqm in the very expensive “golden triangle” with the King David Hotel at its epicenter, illustrate the large range of prices possible. Or NIS 50,000/sqm for a luxurious “state of the art” home on trendy Emek Rafaim street in German Colony. Consequently, 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 record sales last month, ranging from small investment opportunities selling as low as NIS 12 – 15,000 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). The latter 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 26 agents in her Baka office, and being connected to over 100 RE/MAX offices throughout Israel, Friedland certainly has a finger on the pulse of the real estate market throughout Israel, and Jerusalem specifically.

In 2013, price rises slowed after a continual surge over the last 8 years. An average rise of only 1% compared to an average rise of nearly 5% in Israel as a whole. What is really affecting the Jerusalem housing market and why is it so different from the rest of the country?

For the previous 8 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. Do the 2013 figures indicate a balloon that is deflating or do the figures of hefty price rises indicate that Jerusalem has a unique attraction to a worldwide market and does not react in the same way to local economic fluctuations?

According to Friedland, “The end of 2012 and the start of 2013 saw a slowdown in the number of buyers in the Jerusalem market, but by February 2013, the market started to wake up, and proved that buyers had no hesitations as they had demonstrated over the summer months of 2011. Though the social housing protests throughout the past few summers did have some effect on many of the cities throughout the country, the effect in Jerusalem was minimal”.

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 and well into the following year.  The busiest season in Jerusalem traditionally starts around Pesach, with foreign buyers looking for vacation homes,

There is a strong trend from the local buyers upgrading, and moving into larger homes. Attractive mortgage rates are 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 uncertain. With a relatively stable political and security situation today, there are more foreign buyers looking for homes. The profile of the foreign buyer in Jerusalem is religious, usually getting close to retirement age, usually with a budget of $700,000- $2,000,000. The nationalities vary from American, Canadian, British, Australian, and Russian. 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.

The 2013 figures tend to suggest that real estate prices in Jerusalem are stabilizing at least for the time being. Despite the 2013 figures, experienced 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 rooms (60 sqm) in Armon Hanatziv (Avshalom Haviv Street) for NIS 945,000, 4 rooms (100 sqm), renovated for NIS 1,480,000 in French Hill (Bar Kochba Street), 3 rooms (70 sqm) for NIS 1,240,000 in Kiryat Yovel, 2.5 rooms (55 sqm), needing renovation, also in Kiryat Yovel (Stern Street) sold for NIS 985,000. All of the above sold between NIS 12,000-18,000 per sqm.

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

Lovely garden property in Baka (70 sqm)- sold for NIS 2,370,000 (approximately NIS 33,000 sqm). A lovely renovated 4-room (95 sqm) garden apartment in Rehavia that sold for NIS 3,300,000 (approximately NIS 34,700 per sqm), and in German Colony, the 4-room “state of the art” apartment (140 sqm) on Emek Rafain street sold for NIS 7,800,000 (NIS 56,000 per sqm).

To summarize, regarding 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 2014 for Jerusalem will see slight fluctuations in prices, depending on neighborhoods, but a strong and active market for both buyers and sellers.