You call that a penthouse?

The Elad Group's Dankner Azor project is only seven minutes by car from the heart of Tel Aviv. The entrance is impressive, as are the picturesque paths and the large lawns. And the project is located next to low-rise, private homes, guaranteeing an unobstructed view of the Tel Aviv shore. Elad has finished building the project and it is occupied, but four penthouses are still unsold. This may not be by chance.

	A NAM Tower penthouse in Tel Aviv

Azor does not have a reputation for luxury, and the seven-minute drive to Tel Aviv is dwarfed by the fact that the project is located between two heavily-trafficked main roads, and two large industrial areas in Holon and Azor. Under these conditions it is no simple matter to attract people who can pay NIS 2.5 million for a penthouse.

Builders demand sky-high prices for penthouses. In Tel Aviv they can be more than NIS 10 million, while along the shore they can cost more than NIS 100 million. But prices decrease as one moves away from the shore and toward neighboring cities, and range between NIS 2.5 to 4.5 million on average.

It appears that these apartments are not being snapped up, however. The massive amount of construction in Tel Aviv and the financial crisis means that the supply of luxury housing is currently greater than the demand. Many builders are stuck with penthouses, and are offering substantial reductions, from hundreds of thousands to millions of shekels.

Many companies have been offering promotions in recent months, including Africa Israel, which is pushing two penthouses in the Savion Tower project and three in Savion Platinum, both in Ramat Gan. The company began selling apartments in these projects in 2006, and recently came out with a creative offer: buy a penthouse in either Ramat Gan project and receive a two-room apartment in the company's Florentin, Tel Aviv project for NIS 100,000.

Gindi Holdings has also launched a promotion, a discount of up to NIS 2 million on penthouses in its Sarona project in Tel Aviv, Gindi Heights in Ramat Gan, Gindi Vision on Emek Habracha Street in Tel Aviv, and Gindi Reserve in Tel Baruch. A total of about 20 apartments are being offered at 12 to 27 percent discounts.

A similar process is taking place at Elad in Azor, which recently held a sales fair and offered four penthouses at a 15 percent discount.

"The company's policy, like that of other companies, is to leave the penthouses to be sold later," said a source at the company. "Experience shows that premium products sell at higher prices at later stages, even taking discounts into consideration."

Upscale neighborhoods are in demand

One reason that builders have trouble selling penthouses is that people buying apartments in ordinary neighborhoods refuse to part with large sums of money for them.

"It's all a matter of supply and demand, and today it seems that the supply is too great and the audience is limited," says Liat Israeli, CEO of the real estate marketing firm Ambassador Israel. "Penthouse buyers prefer established areas. They are not buying the apartment as an investment and are less interested in future increases. Environmental irritants, such as factories, problematic intersections and undeveloped areas, will turn off potential buyers."

"Prices have limits," said architect Ilan Pivko. "In areas farther from Tel Aviv, the quality of the product makes no difference. A penthouse can be very well finished, but if the location is unattractive, the buyer will choose to spend the same amount for a lesser apartment in the center.

"In the outlying areas there is a glass ceiling beyond which buyers won't pay. The builders respond in accordance with this: it isn't worth their while to go crazy planning penthouses in Ramle, Rehovot or Azor, to build swimming pools and a jacuzzi, because no one will buy them."

Selling illusions

Another problem involves planning. The penthouses may not be well designed and may lack the luxury details that buyers expect. Also, despite the fact that the word "penthouse" appears in the prospectus, the apartments may be rather small and do not meet the accepted definition of the concept or buyers' expectations.

A penthouse is traditionally defined as an apartment taking up the entire top floor of a building, with a large terrace on the same floor as the rest of the apartment. Some consider a penthouse to be a villa floating in the air. Indeed, in recent years these apartments have become popular with people in the upper tax brackets and have served as alternatives to villas and cottages.

Penthouses began to appear in Israel in the 1960s, at first in north Tel Aviv and later in other Israeli cities. Over the last five years, the trend has been to build more, and now all new projects save the top floors for penthouses.

There are many versions being offered: mini penthouses, and even macro penthouses. Still, when the word penthouse is used to describe an apartment, it often simply means apartments with larger than average terraces, and not necessarily on the top floor.

It would seem that penthouses are no longer the domain of the very rich. But often what remains of the original concept is only the name - many so-called penthouses are not particularly comfortable and they are not as well finished as luxury apartments.

"Builders offer luxury apartments 'at a high building standard.' What does that mean? Is it standard or high?" asks interior architect Ronit Marom.

About a month ago, Marom accompanied a client seeking to buy a 150-square-meter mini-penthouse with a 50-meter terrace selling for NIS 4.5 million in Rishon Letzion.

"My client was excited about the apartment," Marom says. "When I entered the apartment I saw that the interior design would be appropriate for Amidar (public housing ), and they were asking NIS 4.5 million. The nine-square-meter bedrooms were tiny, with no room for both a bed and a closet, and the space was poorly divided. The window shutters were not electric, the kitchen was standard and could not be altered, the bathroom finishings were very low quality, and the flooring was available only in 40-centimeter tiles.

"After I saw the apartment, I understood why it had not been sold. It is simply scandalous. Where are all the millions going? I think the builder must have invested $1,000 per square meter or even less. When I saw the layout of a regular apartment in the same project, I advised my client to buy it. Why spend millions on an Amidar apartment at a luxury price?"

Aside from poor design, builders tend to market apartments as penthouses even when they do not meet the classic definition. For example, in the Em Hamoshavot neighborhood in Petah Tikveh, a 166-square-meter apartment with a 44-square-meter terrace is being sold for NIS 2 million. These specifications do not make it a mini-penthouse.

Even cheaper apartments labeled as penthouses are bait that may not be worth taking. A 99-square-meter mini-penthouse in the same project, with a 15-square-meter terrace, is being offered for NIS 1.3 million. For purposes of comparison, in the same project, a 118-square-meter five-room apartment and a slightly smaller 12-square-meter terrace is being sold for NIS 1.25 million. And many buyers prefer a larger apartment to a small mini-penthouse.

Obstacles on the way to the balcony

The chairwoman of the Association of Architects in Israel, Arielle Shneor, agrees that some of the penthouses for sale suffer from serious planning defects. "The builder doesn't always invest enough in the penthouses. So some penthouses, which are supposed to symbolize wealth and quality of life, contain significant defects. I have noticed that second-floor patios [in duplexes] are often only accessible by stairs or a side door. In other cases I have seen large patios in small apartments or large patios split into two, that large numbers of guests cannot be entertained there."

Another problem involves the lack of thought put into designing the apartment's inner space.

"A penthouse is supposed to be sold as a shell, to leave the buyer freedom to design. This demands flexible planning by builders, and flexibility in the placement of outlets and faucets. They have to install pipes within the walls and make sure there are no support beams in the middle of rooms. We see apartments divided up for an average family, with 10 square meter bedrooms and modest 15-meter master bedrooms, and obstructions on the way to the patio, so that the apartments lack any added value."

"For the builder," Ambassador's Israeli says, "special apartments are very lucrative. It doesn't cost more to build penthouses than it does to build ordinary apartments, but the former are sold at much higher prices. The higher price tag does not always mean the builder invested more in construction or planning, but it is means to brand the project as a luxury one."

"Today people understand it all," Pivko concludes. "People learn online, through television, magazines and trips abroad - it is harder to sell them stories. When buyers come to an apartment they see the product, look at the simulations, get advice from professionals, and leave. The cat's out of the bag, and the builders are beginning to understand this and give in."