They’re Ba-ack. Foreigners Return to Israel's Property Market

Diaspora Jews are buying apartments after the depths of the global economic crisis in 2009, but it’s not a repeat of the go-go years.

Tal Cohen

In mid-August, when the air force and artillery corps were bombarding Gaza and thousands of Palestinian rockets were targeting Israel, the real estate market entered a deep freeze.

Still, as the bombs fell, two major transactions were carried out in the Tel Aviv building Beit Hakshatot, the House of the Arches, on the corner of Hayarkon and Trumpeldor streets. It was put up in the 1920s and considered one of the city’s most impressive structures.

As part of a project by developer Acropolis Ventures, Beit Hakshatot will be renovated and turned into a boutique hotel, topped by a 13-story residential tower.

Meanwhile, during the Gaza war, a Frenchman bought a duplex apartment for 13 million shekels ($3.5 million), while an American snapped up two third-floor apartments, which he combined, for 10.5 million shekels. These transactions proved that foreigners are still a force in the Israeli real estate market.

Dan Keinan

They’re a force even though they’ve sharply reduced their presence since 2005, including in the first half of this year.

Tal Cohen

“According to what we hear, Jews living abroad feel less comfortable in their countries of origin and want to purchase a property in Israel that will serve as a safe haven,” says Michael Rottenberg, executive vice president at Acropolis.

“To wealthy foreigners, the prices that for most of the public are considered high aren’t expensive. And when they find a unique and rare product such as an apartment on the Tel Aviv seafront in a historic building, they’re willing to spend the money, even during the current period.”

But wealth and a Zionist awakening in the Diaspora aren’t the only explanations for Israel’s perkier real estate climate. After all, we heard those explanations the previous decade, especially during the real estate bubble in Western Europe and the United States. Those years reaped fat profits for Jewish developers, some of which were set aside for Israeli homes.

And don’t forget a less salubrious side of those investments — apartment purchases were a way to launder money.

At TheMarker’s request, the Finance Ministry has examined the patterns of apartment purchases by foreigners. The peak period was 2005 to 2006, with 5,000 apartments bought each of those years. Foreigners made up about 6% of Israel’s housing market.

But then came the sharp decline, especially during the global economic crisis that erupted in September 2008. That year 3,940 units were bought, and in 2009 — the depths of the crisis — only 2,800. In 2011 and 2012 there was a slight recovery to 3,500 units each year, while in 2013 the number slipped back to 3,200.

In the first half of this year — before the Gaza war started on July 8 — only about 1,200 apartments were bought by foreigners — a 25% decline from the same period a year earlier. Their share of the market dropped to 2.6% — the lowest level since 2002.

These figures suggest that apartments purchases by foreigners are more a function of their financial situation than anti-Semitism in their respective countries.

The ministry’s survey showed that foreign Jews are currently focusing on Jerusalem and Tel Aviv, with a corresponding decline in cities such as Ashdod and Eilat. So while from 2006 to 2009 Jerusalem and Tel Aviv accounted for about 47% of all foreigner purchases, they accounted for nearly 60% in the first half of 2014.

In Ashdod, the sharp decline since 2009 may stem from the rockets that hit the city during the Gaza war in the winter of 2008-09.

“Based on the prices of apartments being bought by foreigners in Ashdod and Eilat, which are significantly lower than those in Jerusalem and Tel Aviv, we can assume that the buyers are not as wealthy and may have suffered more from the global crisis,” the Finance Ministry says.

Price gap

Another possible reason is that the peak of construction of the Ashdod Marina neighborhood — the city’s most popular place for foreigners — happened around a decade ago. Now there’s virtually no new construction in the area, so the supply of apartments is small.

Meanwhile, according to the Finance Ministry, the average price of an apartment bought by foreigners in 2013 was 2.2 million shekels, compared with 1.9 million shekels in 2011. This is an increase of about 16%, similar to the rise in the home price index.

The average price of a home acquired by foreigners was 81% above the number for a home bought by Israelis, 1.22 million shekels. This difference stems only partly from the concentration of foreigner purchases in expensive cities like Tel Aviv and Jerusalem. 

In general, in outlying cities the price differences between homes bought by foreigners and locals are significantly smaller than in the center of the country. In Ashkelon, for example, homes purchased by foreigners are cheaper than those bought by Israelis. Apparently this is because foreigners are targeting the city’s marina area, where apartments are small.

Acquisitions by foreigners, which are concentrated on the coast and in central Jerusalem, have led to the construction of many projects — mainly luxury high-rises — designed especially for foreigners. Many of them weren’t even marketed in Israel. Examples are the Ashdod Marina, the Bat Yam beachfront and mega-luxury projects on Tel Aviv’s Hayarkon Street and the Netanya beachfront.

In these projects many apartments lie vacant during the year; the buyers show up during vacation periods — a phenomenon that has created so-called ghost neighborhoods.

This has stoked harsh criticism of the Israeli planning authorities for letting entire neighborhoods — especially in Jerusalem and on the coast — serve foreigners who are rarely around. These apartments aren’t even rented out; many foreign residents prefer to leave the properties empty.

There are still no official statistics for purchases by foreigners in recent months; for example, July and August when the Gaza war raged. But real estate experts say there has been a decline in interest among Jews from abroad. For example, the Anglo-Saxon real estate agency examined 80% of its branches over the past year; foreigners were responsible for 7% of transactions.

This figure, significantly higher than the nationwide number, might stem from the fact that foreigners more often use intermediaries than local buyers. According to the survey, 41% of apartments purchased by foreigners were bought by French citizens, 28% by Americans, 17% by British citizens and 5% by Russians. The remaining 9% were bought by residents of other countries such as South Africa, Belgium and South American nations.

In any case, the various communities have different tastes. For years the French have been known for their love of the beach; according to Anglo-Saxon they prefer Netanya, Bat Yam, Ashdod, Ashkelon and Eilat. Not surprisingly, more traditional Jews are more likely to prefer Jerusalem.

Meanwhile, English-speaking foreigners prefer Ra’anana, Modi’in, Tel Aviv, Herzliya and Jerusalem. Netanya, which for years was preferred by the French, is now a favorite of English-speakers too.

According to Anglo-Saxon, about 40% of foreigners buy an apartment in Israel as an investment, about 25% due to anti-Semitism in their home countries and about 35% in order to immigrate.

About 51% are couples with grown children out on their own, 35% are families with children, 9% are young couples without children, and 5% are singles in their 30s. About 30% are 60 and older, 19% are between 50 and 60, 39% are between 40 and 50, and 12% are between 30 and 40.

According to the Finance Ministry figures for 2011, there has been a drastic change in buying patterns. Foreigners are now less interested in large luxury apartments.

“If in the past Jews from abroad were looking mainly for private houses and large luxury apartments, now they want to buy more popularly priced apartments. This is a result of the economic situation in their home countries — in most cases it has worsened — and the price increases in Israel,” says Anglo-Saxon’s chief executive, Adina Chaham.

“In Netanya, for example, French people are coming to the sales offices with significantly less money than in the past. They’re no longer looking for expensive or beachfront apartments. They come with 1 million to 1.2 million shekels and are looking for three- to four-room apartments in the city. The British, on the other hand, come with 1.8 million to 2 million shekels and are looking for apartments of the same size near the sea. Currently there are fewer French and far more British than in the past.”

But Chaham says that in Jerusalem, Jews from abroad still seek to buy large luxury apartments. In Tel Aviv most foreigners buy three- to four-room apartments. Most are couples around 50 and older.

“They don’t buy an apartment in order to immigrate,” she says. “Rather, it’s an investment combined with fears of anti-Semitism abroad.”

The spontaneity method

To sum up foreigners’ purchasing habits, about 15% buy three-room apartments, 38% buy four-room apartments, 35% buy five-room apartments and 12% buy apartments of more than five rooms — penthouses, luxury apartments and private houses.

This mix is not very different from that of Israeli buyers, but foreigners are willing and able to pay more. According to the survey, 24% of foreigners spend up to 1.5 million shekels, 26% between 1.5 million and 2 million shekels, 18% between 2 million and 3 million shekels, 17% between 3 million and 4 million shekels, and 15% more than 4 million shekels. So foreigners are paying more than Israelis; the average Israeli apartment costs 1.3 million shekels.

About 41% of foreigners learn about Israeli real estate deals in the foreign press, and about 35% via family and friends who have bought in Israel or live here, or via their local Jewish community. Another 24% glean information on the Internet.

Chaham notes that some foreigners buy spontaneously. In the coastal cities tourists sometimes enter a real estate agency just to take a look and wind up buying an apartment.

The big question is whether the increase in anti-Semitism and violence against Jews, mainly in Europe, will trigger massive immigration and return the market to where it was a decade ago.

Again, the waves of purchases in the previous decade were accompanied by unique economic conditions that have changed drastically. Apartment prices have undergone a big change since the peak years of 2005 and 2006.

As a result, something else is probably needed to get foreigners to double their activity in Israel. An outbreak of anti-Semitism probably isn't enough.