Seven years ago, an investor inquired into purchasing a two-room apartment for approximately $350,000 in the Jaffa Andromeda Hill project. Shortly after initiating negotiations, the investor, faced with the events of October 2000, lost interest. Three years later, after the tense atmosphere relaxed, he decided to make another attempt at buying the apartment, but found that someone had beat him to it and bought it for $250 thousand. Today, the apartment is estimated to be worth more than $300,000.

Jaffa is indeed an extreme case of acute differences in culture, religion and economic capabilities between new and old residents; however, meetings between luxury and poverty also occur in other Israeli cities, and the market behaves differently in each location.

The Yaffo.co.il Web portal recently published a survey titled "Are you afraid to live in Jaffa?" Although the survey is not a statistically valid one, consisting of only 55 respondents, it can still shed light on why the Jaffa real-estate market is considered the most volatile in Israel. Fifty-six percent answered they were not afraid to live in the city; 30 percent were "a little afraid"; and 14 percent answered in the positive.

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This frame of mind explains why top-class projects in Jaffa are mostly gated and guarded. In general, the upper class prefer not to live next to slums. No one wants to see ugly or old buildings next to their costly apartment, and such proximity also makes people afraid. Residents of Caesarea were not comfortable with the distance between them and the neighboring Jisr al-Zarqa village, and three years ago they created a large dirt mound between the two communities. At the time, the Caesarea Development Corporation said all of Caesarea's neighborhoods, and the northern ones in particular, were suffering from the noise - the muezzins' call to prayer, loud music, parties, gun shots and fireworks coming from the village. According to the CDD people could not hold a conversation in the yard. Off the record, people in Caesarea talked of an epidemic of burglaries, and in some prestigious neighborhoods community, the demand for property dropped.

The luxury market is not the only one which reacts badly to socioeconomic tensions. A similar effect is visible in the in-demand Neveh Savion neighborhood of Or Yehuda, with prices reaching $55 thousand per built room on average, compared to $30 thousand per built room in nearby areas. Apartments at the edge of Neveh Savion, closer to ordinary Or Yehuda neighborhoods, cost 10 percent less than similar ones in its center. There is a similar divide in Netanya, where Ben-Gurion Boulevard separates the affluent Ramat Poleg neighborhood from the less well off Naot Golda and Kiryat Nordau. The price ranges speak for themselves: an apartment in one of Ramat Poleg's multistory buildings costs around $65 thousand per built room, while apartments in the neighboring areas go for about half that sum.

The existing gap between the neighborhoods is about to grow even wider, with the construction of the luxury Ir Yamim neighborhood, in which prices are expected to reach $80,000 per built room and more. Shikun Ovdim recently sold a penthouse apartment in the neighborhood for $1.2 million, while a block away apartments are sold for a 10th of this sum.

And another example: Apartment prices on Hanasi Street in Givat Shmuel's Giora neighborhood reach $80,000 to $100,000. "A whole new neighborhood was built on the same street, which has hundreds of housing units costing $220,000 on average for a four-room apartment," Levy Yitzhak, perhaps best known as publisher of the Blue Book on used cars but also experienced in real-estate appraisal.

How does it happen that luxury or expensive neighborhoods are built next door to poor neighborhoods?

"It's a matter of historical urban circumstance," says Yohanan Hess, CEO of Realty Executive. "Most of today's poor neighborhoods were built far from city centers and more affluent areas. However, after considerable real-estate development, the cities shifted toward the poor neighborhood, and so these meetings occurred."

Another example is the North Tel Aviv Neveh Sharet neighborhood, which is close to Tzahala and Ramot Tzahala, where prices for the most modest of properties start at $80,000 per built room. In some parts of Neveh Sharet, there are no apartments worth over $50,000 per built room.

What happened? Neveh Sharet grew out of a transit camp in the 1950s, and the luxury neighborhoods Tzahala and Afeka were built in the late Fifties for army personnel. Later on came newer neighborhoods such as Hamashtela, Naot Afeka and Ramot Tzahala.

"The opposite case, where a poor neighborhood is built next to a rich one, is nonexistent," notes Hess. "Even if such a thing were to be planned, the residents of the rich neighborhood would file complaints and prevent it."

Can luxury neighborhoods exert a positive effect on less affluent ones? The answer is not conclusive. Nof Yam for many years was known as the less successful neighborhood north of Herzliya Pituah, but a dramatic change took place, and it has experienced a nearly complete change in population and reputation, thanks to better-off neighborhood next door. The real-estate market of the luxury neighborhood had a considerable influence on the once poor neighborhood. Lot prices in Nof Yam still do not match those in Herzliya Pituah, but Lilah Rahum of Korat-Gag Real-Estate says they have recorded handsome price rises there.

A lot in Nof Yam may reach $1,200 per square meter, compared to about $2,000 per square meter on average in Herzliya Pituah. Despite the price gaps, Nof Yam's real-estate market enjoys relatively high prices.

Some expensive projects though, have no effect on their surroundings. Africa Israel's Savioney Gan project in Ramat Gan is situated on Jabotinsky road, which is considered to be one of the city's cheapest areas. Prices for apartments in the project reach $90,000 to $100,000 room, while run-of-the-mill apartments on the same street reach only $30,000 to $40,000 per room. Levy Itzhak concludes the costly project had no effect on its surroundings.

Old apartments on some streets in Tel Aviv (Uri, David Hamelech, Weizmann and Pinkas) have not had their prices affected by their respective nearby luxury projects (Migdalei Weizmann, David and Tzameret). When the neighborhoods at hand consist of attached-to-the-ground housing, it is much easier to wreck, add building rights, make changes and upgrade than in neighborhoods consisting of saturated apartment blocks where evacuation and construction is much more complex. "Old buildings, without an elevator or parking, even if they are next door to a new costly project, will not be affected in price or demand," sums up Yitzhak. And this is precisely the problem with upgrading poor neighborhoods in Israel, even those in good locations.