A Quick Primer to the Israeli Real Estate Market

We’ve all been reading about how hot the Israel real estate market is today. At the same time, pundits are also speaking about “the imminent burst of the bubble”. So what’s really happening? Like all global real estate markets, Israel’s is not as simple as gleaning a few headlines, rather, to understand it one requires a bit of well done research and homework.

Most of us were affected either directly or indirectly as a result of the real estate market crash of 2007, where we saw the global economy going into recession, property values slashed, construction jobs lost, and investment drying up. Since 2007, however, Israel’s property market has risen, with the national average price increasing by 51%, a feet matched by no other country in the same period of time. In the last year alone the market has surged 22%, with us seeing today 6 consecutive quarters of double digit annual growth. To give you an idea of the overall property market here in the long run, the national market has risen by an average of 3% a year since 2000.

In the country’s main metropolitan areas of Jerusalem and Tel Aviv, the surge has been even greater, with a 15% and 47% increase in average price from 2009, ringing alarm bells all over the country, as these two markets are seen here as being the greater indicators to the overall strength of the national market. With little new construction, huge demand, and many home owners and investors strong belief that the rise will only continue, the market supply has become quite low. This quarter, when comparing to a year ago, as well as to last quarter, has seen a decline in every region and city in the country except in the suburbs of Tel Aviv. This is an interesting trend which I’ll comment further upon later in the week.

The Israeli government, led by Prime Minister Benjamin Netanyahu, along with the Bank of Israel, led by Stanley Fischer, have began to implement a plan to cool the market down, giving tax incentives to investors to sell their properties, by encouraging contractors and entrepreneurs to build new projects, and tightening mortgages, which is set (not for much longer) at 2%. Only the next quarter will tell us where these changes will take the housing market here in Israel. Will it continue to rise despite the government’s best efforts? Or will they cool it down, making prices drop, perhaps even plummet? What does this mean for you if you’re interested in buying now? It’s a tough call, even for a professional in the business.

If you’re looking for a solid investment, staying clear of Tel Aviv and Jerusalem may be smart, where the average returns come in at about 3-4%. Head the countryside, where 6- 7% returns can be found. If you insist on Tel Aviv, check out the south of the city, around Jerusalem Boulevard and Salame St, where gentrification is becoming a reality more and more each day, in part thanks tonew developments, high-end buildings, hot retail and culinary spots, the close proximity to the Mediterranean, and overall beautification projects being undertaken by the municipality of Tel Aviv-Yafo.

If you’re looking for your home, your decision will need to be based on where you’re looking to move. If it’s Tel Aviv or Jerusalem, be prepared for the reality that land is scarce, and despite the government’s plans, new buildings are not, and will not be plenty. While prices may go down, and it may appear to be a good idea to live as a renter while you wait for the market to turn, know that rentals won’t come cheap, with the average 1 bedroom going for 3,500 NIS with an increase to 4,000 NIS in the northern neighborhoods. My professional advice is that if you can afford to wait, and you haven’t found the ideal property, sit out for a few innings. That being said, however, if you find your dream home, move fast (yet steady, always steady!) I can promise you that if it’s in Jerusalem or Tel Aviv, it won’t be around for much longer, if it hasn’t been snatched up already. Weigh your priorities, knowexactly what you want, and how much you can spend, and you’ll never go wrong. For a quick guide to the property purchasing process here in Israel, check out this link.

An educated customer is the best customer, always. So do your homework, practice, and study up. I’m your coach, I’ll give you the tools for the test and prepare you, but at the end of the day, only you will take to the field. For the full 3rd Quarter report from the Israeli Ministry of Finance, click here.