Jerusalem Leads in Housing Starts but More Needed

Jerusalem, the largest city in Israel, is also the most dynamic from a real estate perspective. The city is almost always in a close competition with Tel Aviv for the most housing starts - and even won in 2013 with 3,432 starts, compared to only 1,873 in Tel Aviv. At the same time, the Jerusalem local planning and building committee approved permits for another 2,668 new housing units, while the Israel Lands Authority sold land for hundreds more, mostly in the Pisgat Ze’ev, Ramot and Har Homa neighborhoods of the capital.

But all this construction in Jerusalem is still nowhere near enough. Between 2008 and 2012, the number of residents grew by 55,600 from 759,700 to 815,300. Most of the growth was in Arab neighborhoods, which added 32,200 residents during the period, while the Jewish population grew by only 23,400. Over the past 20 years, the Arab population of the city has doubled in number and stood at 312,500 at the end of 2012.

There were also major changes within the Jewish population over the past decade: The number of nonreligious Jews shrunk to only 20% and the segment made up of the nonreligious, traditional and traditional-religious fell to less than half, from 56% to 48% over the decade. The religious and Haredi population reached 52%.

All this, combined with the traditional religious, nationalistic and political baggage the capital carries, have made the real estate market in Jerusalem the most intensive, pressured and interesting in Israel. It does not always express itself in drastic price changes, partly because the city is one of the poorest in Israel, and its ability to deal with rising prices is limited.

The luxury housing market is quite active, appealling mainlt to foreign residents. In they past, they were mostly concentrated in the “exclusive” neighborhoods in the center of the city, especially Rehaviah and Talbieh, where there are a relatively high number of old houses, along with the most luxurious new projects built in recent years. These properties still interest them, but demand has also grown recently for cheaper units.

In 2013, there were worries that purchasing wave by foreigners was ending, as the number of deals fell. But an analysis of the real estate transactions exceeding eight million shekels ($2.3 million) in the capital shows this fear was ungrounded. Thirty-six such deals were concluded in 2013, compared to only 26 in 2012, 32 in 2011, and 34 in 2010.

Only two such transactions have taken place so far this year, but local realtors expect many such deals to finalize during the Passover holiday, when many foreigners visit the city.

There are those who say the great recovery started toward the end of 2013, an interesting claim since Tel Aviv realtors also report an increase of interest among foreigners in luxury projects at the same time.

The biggest hit with foreigners is the Waldorf Astoria Hotel project, not far from the Old City. Seventeen sales were made over the past four years at prices ranging from eight million shekels to 27 million. The latest sale was made almost 10 months ago at a price of $7.3 million for a nine-room apartment of 468 square meters.

The most expensive deal in the capital last year was the purchase of two next-door apartments for 40 million shekels by Russian-Israeli businessman Leonid Nevzlin, one of the owners of Haaretz and a former senior executive at Yukos. Nevzlin apparently intends combining he apartments.

But the high-end luxury market in Jerusalem is really marginal; the true real estate business in the city is building for the rest of the population.

The so-called seam line neighborhoods between Jewish and Palestinian areas, such as French Hill and Armon Hanatziv - where the nationalistic and demographic pressures are strongest - saw prices remain relatively stable last year.

Kiryat Yovel in the southwest corner of the city saw prices rise 15% in 2013, though this trend had calmed so far this year. Arnona in the south part of town has seen a lot of construction - but not a rise in prices. Prices in the older, poorer neighborhoods of the Katamonim saw little change in price either, but are still desirable as they can be fixed up or rented out.

The more exclusive neighborhoods in the city center such as Rehavia and Talibieh saw prices rise 5% last year. Ramat Beit Hakerem and Beit Hakerem were much sought after, and have almost no reserves of unbuilt land.

The demographic push is being felt in Haredi neighborhoods, where there is great demand, and prices have been kept partially in check by the large number of housing starts. Prices in Romema rose by only a few percent, while in Ramat Eshkol prices climbed 10% to 20%. Sanhedria also saw price rises of 20%. .