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According to the Central Bureau of Statistics, during the last quarter of 2007, it took 198 monthly salaries to buy a 3.5- to 4-room apartment in Tel Aviv.

The last time the ratio between housing prices and wages reached this level was in 1995, at the height of the real estate bubble. True, it rose even higher - to some 203 salaries - during the following two years, 1996 and 1997, but by 2001 it had dropped to 150. At present, it lies around 170.

The ratio between housing prices and the number of salaries it takes to buy your own four walls isn't a reliable gauge of the state of the housing market, but it does constitute good raw material for thought. At its current level, the ratio indicates that housing prices in Tel Aviv and other prime areas are more likely to fall than to increase.

Nor is Tel Aviv going to become the province of the rich, served by serfs commuting from the periphery, as the dire prediction of some social organizations would have us believe. There aren't enough rich people to conquer the Tel Aviv housing market, for one thing, and, in any case, most of the city's housing doesn't target the rich. But it is true that Tel Aviv's lively luxury real estate market has inflated the average.

The property market in Tel Aviv and elsewhere was and will remain the domain of the middle class, which has been signaling that housing prices have surged beyond reason. People are taking out mortgages amounting to NIS 400,000 and more to buy an apartment in central Israel, and they seem to have reached the limits of their ability.

Meanwhile, the rising input index of building costs is increasing uncertainty among homebuyers. After having signed contracts to buy a flat, they discover that the price has increased by tens of thousands of shekels, because it was linked to the index of building inputs (the main cost components when building, mostly wage and materiel expenses, not land).

Is Israel's real estate market about to change? It may well be, as the middle class runs out of steam. But academics and industry leaders warn against leaping to conclusions.

This may surprise you, but if you compare ordinary (not luxury) apartment prices from 11 years ago with today's prices, you will find that in most areas, the increase was gentle. In Tel Aviv, it is less than 30% and in Ramat Gan it's some 10% - not much for the period of time in question, especially given that the increase is in nominal shekel terms (not adjusted for inflation).

Places where prices rose the most include Netanya, Ra'anana and Ashdod, cities that have undergone dramatic changes in recent years.

In the last 2 decades, Israel's real estate sector has experienced two crises. One occurred in 1996-1997, following a great wave of immigration from Russia that sparked a building boom. The year 1991 marked a record number of building starts, some 83,500 apartments. In the following four years that number sank to 50,000, and in 1996-1997 building continued apace, but immigration didn't. Supply soared, demand dropped and so did prices.

In addition, inspired by the building boom, established home-owners developed a tendency to upgrade their housing, explains America Israel owner Shimshon Harel. They sold their old apartments to the new immigrants, a trend that further supported prices. But all that ended in 1996, when the wave of mass Russian immigration stopped. As a result, the real estate market slowed down and prices dropped by an average of 5% to 10%.

As the local market slumped, Israel's real estate entrepreneurs turned their eyes to foreign markets, mainly nearby Europe. At the same time, various suggestions were put forth to "cure" the moribund local housing market. One proposal, tabled time and again, is to recognize interest on mortgages for tax purposes. A scaled-down proposal to that effect was in fact passed - but only last year.

Anyway, other voices suggested that the market should be left to readjust on its own, as it had done during the great wave of immigration in the early 1990s. Within the space of two years, the building market doubled in scope and now had to adapt to the change in circumstance.

Ultimately, it wasn't legislation or artificial crutches that came to the rescue of the real estate market - it was economic processes, the same ones that led to the development of shopping centers and the high-tech boom.

"The rise of the high-tech industry boosted the demand for office space," Harel says. That, in turn, boosted the demand for commercial space.

Uri Dori, the owner of U. Dori Engineering, served as president of the Association of Contractors and Builders in Israel in 1996 and 1997, and insists on putting things into proportion: The market was far from collapse, he insists. "I agree that it slowed and prices dipped here and there, but no construction companies collapsed, which indicates that the slowdown was proportional," he argues. "In any case, the high-tech boom began in mid-1999 and real estate began to improve."

But neither Dori nor anybody else could predict just how short-lived that boom was fated to be. Israel's real estate sector suffered a double blow: the collapse of the high-tech bubble and the second intifada.

"You don't need to be a rocket scientist to figure out that the horrible terror attacks on Israel would hit all sectors of the economy, and us in particular," Dori recalls. "Building starts steadied at 30,000 [a year] but the terror attacks, which killed hundreds of people, frightened off foreign residents and entrepreneurs started to build in safer places, outside Israel. The [real estate] market sank into a recession, which worsened as the high-tech boom ended."

Shlomo Grofman experienced the 1996-1997 slowdown as CEO of Africa Israel. Come the next millennium, he and Israel's former ambassador to the U.S., Zalman Shoval, set out to found FAIRE, a fund to invest in Israeli real estate. It was anything but easy. Israel's economy was in rotten shape because of the intifada, the high-tech bubble's demise and bad management. Real estate firms that had been reporting substantial profit on paper started to fold. Mega-deals vanished into the ether, Grofman relates.

As the economy stuttered, property prices plunged, as did the number of deals. But this time the retreat in prices was steeper, from 10% to 15% on average, nationwide.

What about now? Are we facing a third crisis?

Harel: "Today, too, there are voices anticipating a crisis. But in my view, it's part of a psychological effect resulting from processes that have nothing to do with [Israel's] real estate sector. I am referring to the subprime crisis in the United States and the drop in the dollar's exchange rate, as a result of which the entire market has begun to speak in shekel terms."

The main effect of the dollar's decline was a decline in transactions by foreign residents, says Harel, which affects mainly the market for luxury housing. But the rest of the real estate market isn't affected by that. Demand for ordinary housing hasn't fallen and neither have prices, he says.

Dori agrees: "The luxury housing market is very limited. The critical mass lies in average apartments. I feel that people are confident enough to enter into long-term transactions." Ergo, he for one isn't predicting a crisis.

As for Grofman, unlike both Harel and Dori, he doesn't discern a slowdown in the luxury housing market either - in fact, he's expecting brisk sales to foreign residents this summer. A lot of tourists come to do business and buy flats, he points out.

'Something is happening'

The real estate market is a complex place that's hard to predict. Like any other market, pricing is a function of supply and demand, says Prof. Daniel Gat of the Technion - the Israel Institute of Technology in Haifa.

"Take Tel Aviv, for example," Gat says. "The high prices of the apartments in the luxury towers caused price hikes throughout the city. Lately it's been clear that something is happening. There are a lot of apartments whose construction is near completion and which haven't been marketed yet because demand is slumping. That could depress prices, a development that would encourage the middle and upper classes to buy housing in the luxury towers."

Dr. Yair Duchin of the Hebrew University of Jerusalem adds that the real estate market has a terrific shock-absorber: building starts. "The figures indicate that the inventory of new apartments is gradually diminishing, and is smaller than existing demand. Therefore, I don't see a significant drop in prices, rather a slowdown in the increase," Duchin says. "I can definitely say: Prices are continuing to rise, but not at the pace of 2007. The trend is slowing but it is absolutely not reversing."

Duchin isn't worried about the slowing sales of luxury flats to foreign residents - though he hastens to add that if oil hits $200 a barrel, there's no telling what will happen.

And one should never forget the usual economic and political uncertainties - governmental instabilities, negotiations with Syria, tensions with Iran - any and all of which can impact the real estate market.

So far 2008 hasn't fulfilled the fond hopes of Israel's builders, but don't write the year off just yet. What can be said is that a lot more evidence has to show up before we can declare a third crisis.