A view of Jerusalem's Old City.
A view of Jerusalem's Old City. Photo by AP
Text size

The largest city in Israel, Jerusalem is also the most dynamic in terms of real estate activity. It is almost always in competition with Tel Aviv for the highest number of new housing projects. Jerusalem bested Tel Aviv in 2013 with 3,432 apartments under construction, compared to Tel Aviv’s 1,873. The Jerusalem Regional Planning Committee granted 2,668 new building permits, and the Israel Land Authority released plots for hundreds of additional housing units, mainly in the Pisgat Ze’ev, Har Homa and Ramot neighborhoods. New tenders have been issued recently in Ramat Shlomo and Pisgat Ze’ev in eastern Jerusalem.

This frenzied construction is still insufficient to meet growing needs. Between 2008 and 2012, the capital’s population grew by 55,600 people – from 759,700 to 815,300. Most of the growth was in the Arab sector, which grew by 32,200 over that period, compared to 23,400 for the Jewish population. The city’s Arab population has doubled in the last 20 years, reaching 312,500 in 2012.

The Jewish sector has undergone important changes in the last decade, with the secular proportion dropping from a quarter to a fifth of the total. The secular and moderately religious sectors have dropped from 56% of the total to 48%, while the religious and ultra-Orthodox proportion jumped to 52%, up from 44%.

These changes, along with the city’s charged national and religious aura, have combined to make Jerusalem’s real estate market the most intense and interesting in the country. This does not necessarily mean drastic price fluctuations, since Jerusalem’s population is one of the poorest in the country and has limited ability to pay.

One of the liveliest aspects of Jerusalem real estate is the high-end market catering to foreign residents. In the past, activity focused on prestigious areas in the city center such as Rehavia and Talbieh, which have plenty of old, single-family homes as well as some newer upscale projects. Such properties still interest foreign buyers, but there is also a growing demand for cheaper apartments.

Unfounded fears

Local real estate agents were concerned last year that the rush of foreign investors was receding, evidenced by an apparently smaller number of transactions. However, a count of the number of deals worth 8 million shekels ($2.3 million) or more shows this to be unfounded.

Rich iIn 2013, there were 36 such deals, compared to 26 in 2012, 32 in 2011 and 34 in 2010. So far, there have been two such deals in 2014, and local real estate sector sources are hopeful that over Passover – when many overseas residents come visit – more deals will take place. Much of the increased activity in upscale properties in Jerusalem and Tel Aviv occurred late in 2013, giving grounds for optimism.

The most popular project is the Waldorf Astoria luxury apartments, where 17 deals ranging from 8 million shekels to 27 million shekels have been signed in the past four years. In one deal, closed 10 months ago, the buyer paid $7.325 million for a 9-room apartment with an area of 468 square meters. A month later, another 9-room apartment (408 square meters) sold for 26 million shekels. However, the most expensive Jerusalem deal last year involved a 368-square-meter penthouse on Elisha Street, which sold for 30.7 million shekels.

The upscale market is obviously a marginal one, and most of the activity takes place in other sectors. Neighborhoods on the seam between East and West Jerusalem, such as French Hill and Armon Hanetziv (East Talpiot) feel the national and demographic pressures in the city all too well. French Hill – close to Mt. Scopus, the Hebrew University and Hadassah University Hospital – was built in the 1970s, and its oldest buildings are on Etzel and Hahaganah streets.

The price of 3-room, 70-square-meter apartments remained stable there last year, going for 1.1-1.2 million shekels. The price of 4-room apartments increased slightly, to 1.4-1.6 million shekels. The latter are very popular with investors due to their low prices and proximity to the university. In recent years, Arab residents have bought dozens of apartments in the neighborhood.

On the eastern side of French Hill there are split-level apartment buildings, built in later years. Most of their owners expanded them over the years, turning them from ordinary 4-room apartments into units with areas of 150 square meters or more. These can now sell for 2.3-2.5 million shekels.

Prices in Armon Hanatziv have also remained stable, and a 60- to 70-square-meter 3-room apartment costs around 1.1 million shekels. A 4-room apartment can cost up to 1.3 million shekels.

Kiryat Yovel, on the western side of the city, saw a 15% price increase last year, although things have settled down this year. A 3-room apartment costs between 800,000 and 1.2 million shekels, depending on the type of structure. Old-style tenements fetch the lowest prices (the neighborhood was established in the 1950s), while apartments in houses that have extension permits are more expensive.

In the south of the city, Arnona is going through a revolution in style – but not pricing. On land previously belonging to Kibbutz Ramat Rachel, there are 600 new apartments under construction, 100 of which have already been sold. Secondhand 4-room apartments in the neighborhood sell for 2.1-2.4 million shekels. The new apartments, which will be ready in 2-3 more years, cost 1.9-2.3 million shekels.

The Katamonim neighborhood, in the southeast, consists of tenements that were built 50 years ago. Their main value lies in the potential for urban renewal projects. Their prices did not change last year, ranging between 1.6-1.8 million shekels.

Slight price increases were registered in upscale Rehavia and Talbieh, where 4-room apartments sell for 2.6-3.5 million shekels. The range is wide, with prices depending on the nature of the building and the particular apartment, and on any upgrading that was done over the years.

Beit Hakerem and Ramat Beit Hakerem, in the southwest, are highly desirable neighborhoods these days, with very little land reserves left. Ramat Beit Hakerem is slightly more expensive because construction there is newer. A 4-room apartment in the neighborhood ranges between NIS 2-2.6 million shekels.

New projects

The demographic pressure is felt strongly in the ultra-Orthodox neighborhoods, where demand is high. This is partly mitigated by the extensive construction going on. Prices in Romema, in the northwest part of the city, were marginally higher, with 3-room apartments selling for 1.6-1.8 million shekels and 4-room apartments for 2.1-2.3 million shekels. The limited price increase is due to new construction projects in the neighborhood.

Ramat Eshkol, in East Jerusalem, saw significant 10-20% increases in real estate prices. Three-room apartments saw a modest increase and are now selling for 1.7-1.9 million shekels, whereas 4-room apartments saw a 20% rise, with prices now standing at 2.2-2.5 million shekels due to the high demand in the neighborhood. Developers are now looking into National Master Plan 38, which allows for strengthening existing buildings against possible earthquakes while adding additional floors. This might also raise prices in the near future.

The Sanhedria neighborhood, in the north, saw a 20% increase in prices, with 3-room apartments now costing 1.7-2 million shekels. Four-room apartments go for 2-2.4 million shekels.

Prices in Shmuel Hanavi remained unchanged, with 3-room, 75-square-meter apartments selling for 1.1-1.15 million shekels. The lowest priced apartments are in tenement buildings, in which a 4-room apartment costs 1.2-1.35 million shekels.

In Mea She’arim, prices went up by 5-10%, mainly for larger apartments. A 3-room apartment sells for 1.4-1.5 million shekels, while 4-room apartments are worth 1.8-1.9 million shekels.

Prices in Ramot (East Jerusalem) followed a similar pattern, and new projects planned for this neighborhood will dampen price increases. Currently, 3-room apartments there cost 1.3-1.45 million shekels and 4-room apartments go for 1.55-1.7 million shekels.

Causes for increased prices: A limited supply of housing projects in face of rising demand, on the backdrop of purchases by foreign residents and demographic pressure.

Factors that mitigate the increase: Very high prices and a poor population, as well as plans for extensive new construction.

The forecast: Prices will remain stable in secular neighborhoods and rise moderately in religious sections of the city.

 

Sources: Central Bureau of Statistics; Jerusalem Institute for Israel Studies; the Israel Tax Authority; Yad2 website; Itzik Levy from the Ambassador real estate agency; Elazar Elyakim from the ONE real estate agency; Oren Cohen from Century 21; and Ozma Nechasim.