Sleeping beauty - for now

A year ago the Eilat real estate market was at its peak. Luxury projects were being marketed successfully at record prices exceeding $1 million per apartment, and projects still on the drawing board or just breaking ground were reveling in optimism, buoyed by demand from foreign Jews, particularly from France, who were enamored with Israel's hottest city.

Then the global economic crisis hit Israel's southern shore, sending the market into a tailspin. The crisis was most perceptible in the luxury market, which had been enjoying brisk business but reverted to the state of slumber that had prevailed for many years. Prices began to drop and the foreign residents, again mainly those from France, put their properties up for sale.

Developers stopped marketing luxury projects and the Israel Lands Administration had difficulty selling land in the upscale neighborhoods. Here are just a few examples:

A month ago the ILA published the results of a tender for the construction of 67 housing units in the Shachmon neighborhood (13 houses and 54 apartments). S. Noufi and Sons won the tender, bidding NIS 13 million, including landscaping and infrastructure costs. In addition to the relatively low price for the land, only two companies vied for the project, and the tender was issued three times before any bids were made.

That tender can even be considered a success, compared to last week's disappointment when the ILA discovered that after issuing a tender four times, not a single developer had submitted a bid on 22 dunams of land earmarked for 118 apartments, also in Shachmon. The ILA's sense of gloom is even greater, considering that the minimum price requested in this tender was 35% lower than the figure paid for adjacent land just last year.

Luxury property prices in Eilat have dropped 15% in the past year. Last month an empty half-dunam lot in the prestigious Shachmon neighborhood sold for just NIS 800,000 (with rights to build a 230-square meter house). A year ago a similar lot fetched NIS 950,000.

Developers have detected the downward trend and frozen plans for marketing new projects. As such, Aura Israel Investments had originally planned to begin marketing its luxury 28-apartment Atlantis project in the Shachmon neighborhood in the third quarter of 2008, but those plans are still on hold.

"The situation in Eilat over the past six months has been anything but good and I felt it was not worthwhile to start marketing," says Aura Israel General Manager Yaacov Atrakchi, hastening to add that difficulties in obtaining the necessary permits from Eilat city hall also caused delays.

Even so, Atrakchi notes that he will begin marketing the project next week. "Next Sunday a sales office will start operating at the building site," he says, "and we figure each apartment will sell for NIS 4 million - NIS 5 million. Based on the positive feedback I have received so far, we expect to sell the apartments at a reasonable pace."

Demand for affordable apartments

Not everyone shares Atrakchi's optimism. Eilat land appraiser David Shetrit says that if there is no significant change in the global economy, the local real estate market will continue treading water.

"Until the economy improves, the market will not move forward," says Shetrit. "The luxury market has been affected the most, because the foreign residents have disappeared.

"Activity is at a standstill in areas such as Shachmon and Ganim B, which were dominated by foreign residents in recent years."

Jacky Avisror, vice president of Moshe Avisror & Sons, recently told TheMarker why he thinks contractors are shying away from Eilat.

"The Shachmon neighborhood, where land is marketed via ILA tenders, is a luxury area, but activity has been stopped because all foreign residents have gone.

"As a result, there is no demand from buyers. Still, demand from local buyers continues in other parts of the city."

Shetrit concurs with Avisror that the local, non-luxury market is recovering. He notes, however, that this is not due to renewed demand for residential apartments in the city, or any improvement in the local economy, but rather because of rising demand from Israelis looking for inexpensive apartments as an investment.

"The past two months have seen an increase in sales of regular apartments in older buildings.

"Since banks are offering next to nothing on term deposits, many locals are looking to buy small rental apartments, which has boosted sales.

"Truthfully, I was quite surprised by this at first, but since the new projects are not being marketed, demand for second-hand apartments increased."

Realtor Nissim Harush of Unlimited Properties also notes that the current demand comes mainly from local residents.

"Americans, English and French have not been buying here in recent months," he confirms.

"The greatest demand lately has been for apartments in the older neighborhoods, such as Ophir, Arava and Dekel - where three-room apartments are selling for NIS 300,000 - NIS 350,000 and are renting for NIS 2,000-NIS 3,000, reflecting a yield of 5%-8%."

Even though the Eilat real estate market seems sleepy, local realtors are already getting ready for the hot summer months, in every respect.

"Not only is demand higher in the summer," says Harush, "there is a feeling that a new wave of buyers is on its way.

True, this is not reflected in the purchase of land by developers, but all other developments in the field indicate this, and could contribute to a rise in prices."