Luxury housing prices in Tel Aviv and Jerusalem are at record levels and likely to rise further, thanks to a slew of high-tech millionaires and foreign buyers
Israel's high-end real estate market is sizzling, and even attracting developers such as Donald Trump. Earlier this year, Trump and condo developer Crescent Heights Investments paid $44 million for an old factory building in Ramat Gan, just west of Tel Aviv, where they plan to erect a 70-story Trump Plaza Tower. "We see a lot of potential in the real estate market and are planning to increase our investments in Israel," Trump's daughter, Ivanka, told a local business conference recently. Trump is also planning to build a resort hotel at Netanya, 30 kilometers up the coast from Tel Aviv.
Trump is just one of a slew of developers plunging into the market as wealthy Israelis and foreigners snatch up properties in the top neighborhoods of Tel Aviv and Jerusalem. In the past two years, prices have jumped by 60%, to record levels. Dozens of new projects are under construction or on the drawing boards to meet the demand of a growing number of local millionaires and foreign buyers looking for new digs. Even this summer's war along Israel's northern border did not put a damper on the market.
Among the big deals in recent weeks: A British businessman paid $16 million for a private residence overlooking the Mediterranean in Herzliya Pituach, a swank suburb north of Tel Aviv; billionaire Israeli-American heiress Shari Arison paid $13.5 million in preconstruction for a Tel Aviv triplex; and a group of American developers put up $5.4 million for a quarter-acre lot in Jerusalem's German Colony neighborhood.
Tech Industry Impact
"We're seeing an influx of Americans, Europeans, and Russians along with the local buyers driving up the market," says Kfir Zohar, manager of Anglo-Saxon Tel Aviv, one of the country's largest real estate agencies. Although he won't disclose numbers, he says his real estate sales have doubled this year.
The number of Israeli buyers has swelled due to the continued success of the local high-tech industry. A recent report by Merrill Lynch estimated the number of Israeli millionaires at 10,000. A vastly improved security situation inside Israel and an economic boom now in its third year also have contributed to the buying binge. The Israeli economy is expected to have grown by 4.6% this year, with foreign investment reaching an all-time record of $20 billion. In 2007, the economy is forecast to expand at an even faster pace.
The runup in prices has followed a decade in which the local real estate market was in a virtual deep freeze. Suicide bombings combined with a recession kept most buyers on the sidelines. "Even at current levels, prices here are still attractive compared to similar properties in New York, Los Angeles, Paris, and London," says Stanley Finkelstein, a veteran real estate consultant based near Tel Aviv.
Marketing to the Devout
Figures are hard to come by, but local real estate firms say that foreigners make up only about 3% to 4% of the 75,000 to 100,000 annual housing sales. But at the high end their impact is much greater. "They account for around 30% of the luxury market," estimates Hanan Schlesinger, managing director at Anglo-Saxon. Foreigners have sunk more than $1 billion in Israeli real estate in 2006, much of it in the housing market.
Some projects, primarily in Jerusalem, are marketed exclusively to foreigners, who are drawn to the city for religious reasons. "There is only one Jerusalem; even Disney couldn't recreate it," quips Bernard Raskin, chief executive of Re/Max Israel, the largest real estate agency in the country. Wealthy American, British, and French Jews have been picking up million-dollar-plus properties in the city's German Colony, Baka'a, Talbiye, and Rehavia neighborhoods in mostly small three- to four-story buildings.
The highest prices are commanded by projects like David's Citadel. Located just outside the Old City walls and within walking distance of Judaism's holiest site, the Western Wall of Jerusalem's ancient temple, apartments start at a cool $1.5 million. "Views of the Old City and the Temple Mount are a critical selling point that can add hundreds of thousands of dollars to the price of a property," says Yaron Tzuberi, marketing and sales director at Africa-Israel Housing, one of the country's largest developers.
Tzuberi's company is planning the largest luxury project to date, a 100-unit, nine-story building in downtown Jerusalem. Africa-Israel hasn't started sales yet but recently took a group of potential American buyers to an adjacent building to catch the view. "With that kind of location, the project almost sells itself," says Tzuberi.
Location also is a key factor in Tel Aviv, though the market in Israel's commercial and business capital differs greatly from ultra-conservative Jerusalem. Unlike Jerusalem, Tel Aviv has few limitations on tall buildings. Thousands of apartments in 30- to 50-story residential towers have been built, are currently under construction, or are in the planning stages—transforming the city into a mini-Manhattan on the Mediterranean.
The high rises are drawing many of the country's wealthy back into the city from villas located in suburbs to the north and west of the city. Returnees are being joined by a mix of Russian oligarchs and wealthy American and European businessmen. Seafront property commands a premium, going for as much as $12,000 to $15,000 per square meter. But with most of the land along the city's beachfront taken over by hotels, much of the construction is concentrated just to the north of the city's commercial center.
Boom Expected to Last
Local real estate tycoon Alfred Akirov started the trend in the late 1990s with a three-tower complex where apartments went for double the going rate, which at the time stood at $3,000 a square meter. The project offered top-quality services including doormen, electronic surveillance, underground parking, a health club, and a management company. These are now standard in all of the newer developments. A penthouse apartment in Akirov's complex was resold two years ago for $12 million.
Just down the road from the Akirov project, Israel's Habas Group is building its Yoo project. The two circular towers were designed by renowned French architect and designer Philippe Stark, in the first collaboration of its kind in Israel. The first building, which will not be completed until the end of 2007, is already 90% sold out. "We haven't spent a penny on advertising—the sales have all been through word of mouth," says Hertzel Habas, CEO of Habas Group. In an effort to drum up business, local developers and real estate agents casually leak to the press the names of those buying in various exclusive projects.
Both local and foreign developers appear to be betting on a continued upswing in the local luxury real estate market. Even with thousands of new units expected to come on the market in the next few years, the consensus is that prices will continue to rise, albeit at a slower pace. As Re/Max's Raskin sees it, "With supply still very tight and demand high, the chances of the bubble bursting anytime soon seem to be pretty remote."