Tel Aviv: The City That’s Ever Steep

From Ramat Aviv to Jaffa, housing prices are soaring. And, a big drop in construction starts last year means there will be little relief anytime soon.

Eyal Toueg

The overheated property market in Tel Aviv’s most expensive areas, such as the Old North, New North, downtown, Lev Ha’ir and neighborhoods north of the Yarkon River, seemed to be cooling off for a time last year. But not for long: In recent months, there’s been a significant shift in market dynamics, with buyers apparently ready offer unheard of prices in some areas for properties. High to begin with, prices in Tel Aviv are now reaching new heights.

Most real estate professionals in the city attribute this to the collapse of former Finance Minister Yair Lapid’s plan to exempt many buyers of new from the 18% value-added tax. Although very few properties in Tel Aviv sell for a low enough price to have met the criteria for the abortive Zero-VAT plan, Tel Aviv is feeling the knock-on effect of the market revival for lower-priced homes elsewhere in the country, so prices of apartments in the 2 million to 3 million-shekel $500,000 -$760,000) range that characterize much on the Tel Aviv market are climbing, too.

Nor will buyers won’t find relief in the city’s up-and-coming areas. Prices are continuing to climb at the same pace they have for the last several years in southern neighborhoods like Florentin, Kiryat Shalom and Jaffa, as well as areas in the city’s northeast, such as Neve Sharett and Hadar Yosef.

The question now is whether the latest surge in prices, which encompasses the entire city, is going to intensify. The extremely low number of housing starts in the city in 2014 -- a bit less than 2,000, which was only half as many as in 2012 – certainly makes any break in the rising trend highly unlikely.

The north: Year-end explosion

In the western neighborhoods north of the Yarkon, a stagnating market suddenly exploded toward the end of 2014, with prices jumping 10% or more compared with 2013. In Ramat Aviv Hayeruka (Ramat Aviv Alef), a 55-square-meter two-room apartment is selling for 2.2-2.5 million shekels. Similar apartments with building rights of up to 180 square meters go for 2.8 million shekels. Neve Avivim (Ramat Aviv Bet) has seen a sharp increase in the prices of four-room apartments, which now sell for 3.2-3.8 million shekels, an increase of 10-15% from a year ago.

In Ramat Aviv Gimel, second-hand apartments are a little less expensive: Four-room apartments in the neighborhood sell for 2.7-3 million shekels and five-room apartments for 3.5-4.5 million shekels, depending on the age of the building and what floor the apartment is on. Prices have changed little in the last year.

In the large new neighborhood under construction in the city’s northwest, known as Gush Hagadol, three-room apartments are starting at 2.5 million shekels, four rooms at 2.8 million shekels and five rooms at NIS 3.2 million. Here, prices are likely to rise as the new neighborhood continues to take shape.

Last year, the northeastern neighborhoods were identified as the city’s main area for new construction, primarily due to the new complex being built in the Hamashtela neighborhood containing several hundred housing units, as well as to the urban renewal projects in Neve Sharett. This year, the construction continues but the new supply is still far from being able to meet demand and no new large-scale projects have been added.

In Neot Afeka Bet and Hadar Yosef, several dozen apartments are being built at any given moment, largely due to Tama-38 projects, but here, too, the supply is negligible compared to the demand. Meanwhile, because of these urban renewal processes, the stock of second-hand apartments has been significantly depleted. Hardly anyone in these areas is selling these days, unless they receive an offer that reflects the property’s future value.

For example, in Neve Sharett, which in the long term will be torn down and rebuilt almost completely from scratch, old 50- to 60-square-meter, three-room apartments are selling for 1.5-1.6 million shekels, a 10-15% increase over last year’s prices. New four-room apartments in the area are going for 2.2-2.5 million shekels, and five-room apartments for 2.3-2.7 million shekels, also a 10% increase over last year.

And even though these are record prices for the neighborhood, which until not long ago was considered a low-income area, these prices still have plenty of room for to rise until they’re on a par with prices in comparable new neighborhoods nearby, like Hamashtela or Tel Baruch North.

When it comes to detached houses, the developments in Tel Aviv are even more dramatic. Prices for lots in neighborhoods, like Ramat Hahayal or Tel Baruch South that were considered a notch or two below the city’s most upscale residential areas, are reaching incredible levels, evidently due to the exceedingly low supply there. On the oft chance it happens at all 500-square-meter plot in Tel Baruch South could easily fetch 8-9 million shekels.

In Ramat Hahayal, where hardly any lots are being offered for sale right now, a 350-square-meter plot used to sell for 2-3 million shekels and a 500-square-meter plot for 4-4.5 million shekels. But in the past year, a 500-square-meter plot near Halamed Heh Street sold for 9 million shekels. In Shikun Dan, too, very few properties come on the market each year. Two-family houses on 350-square-meter lots are selling for 6-7 million shekels, depending upon their condition.

Center: Allenby coming to life

In the older central Tel Aviv neighborhoods – the Old North, the New North around Kikar Hamedina, Merkaz Ha’ir and Lev Ha’ir – prices have risen steeply over the past year, as the market comes back to life. Low supply versus high demand, from Israelis and foreigners alike, has driven prices in the area to unprecedented highs. In the last two years, the average price for a standard second-hand property in the area ranged from 30,000 to 35,000 shekels a square meter; today it’s 35,000-45,000 shekels.

In the Old North, the New North and the Bavli neighborhood, too, proximity to Hayarkon Park can drive the price up to as much as 60,000 shekels a square meter for properties closest to the park. Homes west of Dizengoff Street are priced by their proximity to the seafront, with the range from 45,000 to 55,000 shekels a square meter. Prices in buildings being built one block in from the sea along Hayarkon Street range from 60,000-80,000 shekels per square meter, while an apartment in one of the new luxury towers being developed right on the beach on Herbert Samuel Street are going for 100,000 shekels a square meter -- or any sum the buyer is willing to pay.

Another luxury area where prices have been steadily rising is Rothschild Boulevard and its surroundings, especially the northern section closer to Kikar Habima. In this area, prices start at 45,000 shekels a square meter. A relatively new development is the revival being felt on Allenby Street, a thoroughfare whose image is anything but upscale. Despite its somewhat tawdry, more and more developers are now calling it Tel Aviv’s “next big street” and are buying whole buildings for renovation or new construction. Properties along Allenby are selling in the range of 30,000-45,000 shekels a square meter, based on their condition and proximity to the sea.

South: Florentin, Yad Eliahu taking off

For many years now, Florentin has been a target for investors, but the series of new projects being built there in the last few years, combined with the influx of young people moving away from increasingly pricey downtown neighborhoods, has also sent apartment prices here to new highs. New two-room apartments of 45-55 square meters, or those built in the last five years, now sell for 1.5-1.6 million shekels and are being snapped up, according to one real estate agent in the area. At 30,000-35,000 shekels a square meter, prices are similar to what downtown properties were going for up until two years ago .

In keeping with the trends of the past two years, the neighborhood’s most in-demand areas are expanding eastward, toward the Levinsky Market, with Har Tzion Boulevard marking the new eastern border. The area taken being absorbed into Florentin, between Ha’aliya Street to the west and Har Tzion to the east, is in the midst of a demographic shift. Large numbers of foreign workers still live in the area, but they are being supplanted by a rapidly increasing young population.

Apartment prices in the area reflect this shift. About a year ago, a new, 70-square-meter, three-room apartment sold for 1.1-1.2 million shekels; the same apartment today would sell for 1.3-1.4 million shekels. This is also true in Kiryat Shalom, where today a renovated three-room apartment in one of the two-story buildings typical of the neighborhood would sell for 1.5-1.7 million shekels.

Jaffa has long been regarded as one of the safest bets in terms of rising prices, and nothing has changed in 2015. In the Flea Market complex in northern Jaffa, which for several years has been showing prices on a level to match the most sought-after neighborhoods in the city, prices have climbed 10-15% this year and are now hovering around 40,000 shekels a square meter, compared with 30,000-35,000 shekels only a year ago.

In Jaffa Dalet bordering Bat Yam, a very popular neighborhood with investors, prices have also jumped 10-15% this year. Apartments of 50 to 60 square meters in old housing projects are selling for 800,000 to 1 million shekels, depending on how well the property has been maintained and its floor. Just three years ago, these properties were selling for 500,000-600,000 shekels, meaning the value has nearly doubled.

In Jaffa Gimmel, the adjacent neighborhood to the west, prices have also been moving up this year, with an old, 70-square-meter apartment selling for 1 million shekels on average.