The Rise and Rise of Israeli Apartment Prices

TheMarker looks at the neighborhoods with the biggest and smallest price rises over the past eight years in Israel's three biggest cities.

Tal Cohen

“Home prices always rise.” That’s the conventional wisdom of the average Israeli and for the past eight years it’s been a fact. But even in a market like this, some properties have generated better returns than others. Some neighborhoods around Israel have seen prices more than tripled over the past eight years — an average rise of 25% a year — while others have seen only low double-digit gains.

TheMarker has looked at these neighborhoods in three of Israel’s largest cities, pinpointing where prices have risen the least (in percentage terms) since 2007 and where they have climbed the most. Overall, 10 cities have been surveyed by TheMarker and the Madlan real estate website.

As with every price survey of the Israeli housing market, this one shows the average changes in percentage terms, rather than in nominal shekel (or dollar) amounts. This method has a number of benefits, but it gives the advantage to neighborhoods where the starting prices in 2007 were especially low.

For example, in the more exclusive neighborhoods of north Tel Aviv a price increase of 300,000 shekels ($76,500) for an apartment might reflect a 10% to 15% rise; in a neighborhood in a town far from the center of the country this amount would have doubled the value of an apartment, if not more.

Hint of future trends

But TheMarker’s survey also shows neighborhoods where prices may rise faster in the future, or the opposite, where prices are likely to remain stagnant.

For example, TheMarker found that new construction almost always leads to accelerated price increases, including for existing homes. In almost every neighborhood that showed the most moderate price increases, there had been no new construction for years either in the neighborhood or nearby.

Another factor pushing prices higher was a high percentage of buyers purchasing homes as an investment. In neighborhoods where most purchases were made by people who planned to live in them, the turnover of properties was lower, which keeps prices down. Another factor tamping things down in certain neighborhoods was the local municipality’s failure to invest in parks, transportation and other infrastructure beyond the bare minimum.

To obtain the figures, Raveh Eytan, Madlan’s vice president of research and strategy, measured prices on all home sales reported to the Tax Authority in 2007 and from July 2014 through June 2015.

“Sales were divided up by neighborhoods, and within the neighborhoods into homogenous subgroups based on home types. In every subgroup that included a significant number of sales, we examined the change in prices,” he says.

“After that, we calculated the weighted average for the neighborhood, taking into account the number of sales in every subgroup. The municipal average was calculated using the weighted average for all the neighborhoods where the change in price was calculated, based on the appropriate weights.”

Eyal Toueg

Tel Aviv-Jaffa
Ramat Aviv Gimmel:A has-been brand

It may be hard to believe, but Ramat Aviv Gimmel — once so symbolic of north Tel Aviv hedonism that it was the name of a '90s soap opera akin to “Dallas” — is the neighborhood with most paltry rise in Tel Aviv home prices.

Paltry, in this case, is relative: Since 2007, the average price of a home in Ramat Aviv Gimmel has risen 69%, but that’s much less than the 123% average for all Tel Aviv.

This doesn’t mean Ramat Aviv Gimmel has suddenly become cheap: The average price for a standard five-room apartment, some 120 to 130 square meters, is 4 million to 5 million shekels. Four-room apartments, 20 years older or more measuring 90 to 100 square meters, can still be found for 2.5 million shekels, but they usually sell for 3 million to 3.5 million shekels.

The 1% stopped viewing Ramat Aviv Gimmel as a preferred location a long time ago, especially when more attractive possibilities arose in north Tel Aviv.

It was the city’s flagship neighborhood until 15 years ago, says Gabi Kalman, deputy CEO of the Yossi Avrahami construction company. Lots of new residents moved in back then, and the neighborhood underwent major development, but more and newer homes were built in surrounding areas with an even higher level of urban development, and close to the sea, he says. The neighborhood’s high-rise buildings are characteristic of the 1980s and ‘90s, without the balconies and storerooms that are standard today, says Kalman.

North Jaffa/Flea Market:
Rags to riches

Prices in north Jaffa and the Flea Market area have climbed up to 250% in eight years, more than anywhere in Tel Aviv. For decades a poor and neglected area, it has become one of the most exclusive in Tel Aviv.

But prices in the neighborhood are far from uniform because of the very broad range of properties. At the top are new units in boutique projects that start at 50,000 shekels a square meter, and at the bottom are old apartments, some in terrible condition, selling for less than half that.

Amit Shafran of the Anglo Saxon realty branch in Jaffa says the area has benefited from Tel Aviv’s southbound gentrification.

“If in the late 1990s and the early 2000s the price increases were in the Neveh Tzedek and Kerem Hateimanim neighborhoods, now they have reached the area of the Jaffa Flea Market,” he says. “The wave comes with a lot of new construction, and the apartments are selling at crazy prices that are constantly rising.”

Lots of foreigners and investors are buying, and people, usually older ones, are moving back from the suburbs into smaller homes in the big city. “Jaffa as a whole is in the midst of a demographic change, which in the Flea Market area is almost complete, with the entry of a stronger, better-off population,” Shafran says. “Restaurants, pubs and shops are open almost around the clock, and lots of people are looking for that.”

Jerusalem
Ir Ganim Bet: Middle-class frontier

The steepest price rises in Jerusalem — some 131% over the past eight years, compared with an average of 79% for the entire city — were strangely enough in one of the poorest areas in the capital. At least that was the situation until a few years ago in Ir Ganim Bet, but in recent years middle-class families have moved in. The area suddenly became much more attractive after the development of the new neighborhood Givat Massuah got underway in 2010, says real estate assessor Yair Yadid.

Ir Ganim Bet is characterized by high-density apartment buildings, as opposed to neighboring Ir Ganim Aleph with its single-family homes. It’s divided into two sections — an older area of mostly three-room apartments and an area of new construction, though it amounts to only a few hundred units.

Emil Salman

The older apartments can now reach 1 million shekels for three rooms, while the new ones, some of them in tall towers, average 2 million to 2.1 million shekels for four rooms, says Yadid. Five-room apartments are in the 2.5-million-shekel range.

Alongside the veteran residents, which include many immigrants, the newcomers are mostly religious and ultra-Orthodox young couples, with the new apartment blocks being filled by middle-class religious Zionists as well as the nonreligious, Yadid says. The new high-rise construction provides a great view from the top of the hills, and this, along with good public transportation to places like Malha Mall, has added to the area’s allure.

But Ir Ganim Bet is still one of the city’s cheaper neighborhoods; older apartments built in the 1970s are still Jerusalem’s cheapest at about 940,000 shekels for three rooms.

Har Nof:
Glass ceiling

When the first apartments in Har Nof were developed in the 1980s, most residents came from the religious-Zionist community. As the years passed the neighborhood turned ultra-Orthodox, Haredi, but unlike many Jerusalem neighborhoods that went through a similar process, Har Nof attracted a better-off population and prices climbed quickly.

But that’s history. In the last eight years, prices in Har Nof have risen only 44%, the lowest increase in the city.

The neighborhood is no longer attractive to the well-off or the young. A lack of new construction makes it uninteresting to Haredim with money, but it’s too expensive for young couples, especially relative to the other Haredi areas, says Oren Cohen of Century 21 Jerusalem. Average prices for a four-room apartment are now about 1.8 million shekels, while five rooms go for some 2.3 million shekels.

“Haredi foreign residents with purchasing power are looking for a more religious, relaxed place than Har Nof, whose character has become more extreme in recent years,” Cohen says. “Moreover, they prefer to be close to downtown and the Western Wall.”

For the well-heeled Haredim, neighborhoods like Givat Moshe and Kiryat Shaul with new construction have become more attractive, while young Haredi couples are moving to much cheaper places like Beit Shemesh and Modi’in Ilit outside Jerusalem. Prices in Har Nof have hit a glass ceiling. Only foreign residents can afford the expensive homes, says Ohad Saban of Dona, which is building a number of projects for the Haredi community.

Haifa
Hadar Hacarmel: Still cheap

Avishag Shaar-Yashuv

The title of Haifa neighborhood with the largest price increase goes to Hadar Hacarmel (or Lower Hadar as it’s also called). Prices have climbed 220% over the past eight years, more than three times as much as the average in the northern port city.

One reason they've risen so much is that they started very low. Still, they remain relatively cheap, says realtor Dror Aloni of Anglo Saxon. Hadar has attracted lots of investors, many of whom sell after only two or three years to make a quick profit. Often real estate agents approach homeowners and encourage them to sell.

Haifa home prices have traditionally been opposite the prices of a typical coastal city around the world, says Yaki Amsalem, CEO of the Almog Group. In Haifa, a home’s cost rises the further you are from the sea, with prices at the summit of Mount Carmel at the very top.

But despite the run-up, prices in Hadar remain low. Until four or five years ago you could buy an apartment with a balcony overlooking the port for 150,000 to 200,000 shekels, a sum many people could afford as an investment, Amsalem says. Even after a good eight-year run, Hadar is destined for further price rises, he says.

Hadar was once one of Haifa’s finer middle-class neighborhoods, but that goes way back to the days when Israel was founded. Over the years the middle class moved up Mount Carmel, and today Hadar is packed today with foreign workers. You can still find old two-room apartments in Hadar starting at 350,000 to 400,000 shekels; with three rooms in newer buildings from the 1970s and later it’s 500,000 to 600,000 shekels.

Carmel Tzarfati:
Asleep at the deal

Haifa home prices have risen less than the headline increase of 130% over the last eight years. TheMarker’s base year is 2007 when prices were just recovering from a steep drop after the Second Lebanon War and Hezbollah’s rocket attacks on the city. Still, Carmel Tzarfati (French Carmel) saw prices climb 77.5%, making it the city’s price laggard.

It’s hard to put your finger on the exact reason Carmel Tzarfati has trailed the rest of the city. This older neighborhood, characterized by standard three-room apartments, has suffered no particular setbacks, but there has been no major development or investment by the city, and no new construction. The average price for older apartments is about 950,000 shekels.

“Carmel Tzarfati hasn’t seen a lot of movement and we’ve done relatively few sales in the neighborhood,” says Dror Aloni of Anglo Saxon. “Supply and demand are about in balance and neither is strong. Most people who are buying apartments are buying to live in them — not to invest — and they stay there a long time.”