Between the Sea and a Hard Place

View is a big part of home prices, especially a view of the Mediterranean.

Of all the components of housing prices, the hardest one to gauge is view. The price of land on which a building stands is a given. Construction costs can also be quantified based on the quality of the interior finishing, and details of fixtures that are included.

But evaluating the view is more complicated.

The value of the view from a given dwelling is subjective. It depends on the eyes of the beholder, and other components too. Very few empirical studies on the value given to dwellings with an especially nice view have been conducted. There is one official study of this type in Israel, however, performed by the former chief government appraiser Yakov Odish in 2006.

In that study, Odish found that the city in which a view has the largest impact on housing prices is Tel Aviv, particularly when it comes to seeing the Mediterranean Sea from the window. Odish found that apartments overlooking the sea can be worth 48% more than equivalent apartments without that view. This is still true today, although this differential in price has climbed markedly since 2006. An apartment with a sea view in Tel Aviv today can currently cost nearly twice as much as a home without that view.

Erez Cohen, former chairman the Israeli Real Estate Appraisers Association, examined all the real estate deals between November 2011 and March 2012 in the Ne'eman Towers, near the sea in northwestern Tel Aviv. He found that apartments facing the sea cost NIS 63,000 per square meter, while the ones facing away cost NIS 32,000 per square meter.

But that's an extreme case. "The impact of a view on the price is, in turn, determined by how much value is associated with the property in the first place," says Cohen. "The more prestigious the building and the higher the value of the land it sits on, the more the impact the view factor has - reaching as much as an additional 100% of the price of a given apartment. But, whereas in the high-end neighborhoods of Tel Aviv the view factor can have such a substantial effect, in other places, such as in the Bat Galim neighborhood in Haifa, having a view to the sea is of little significance in determining the price of an apartment."

The manner in which developers of projects close to the sea do their price estimates takes into account many parameters. The geographical location is certainly one such element, explains Amos Dabush, vice president for marketing at IH Damari Construction and Development.

"Each city has its pricing range. The center of the country has a limited coastal strip, which is almost completely built-up. How many more 'front-line' apartments right by the sea can be built between Netanya and Rishon? Possibly NIS 1,000-2000 more, and that's about it," he says. "Furthermore, not all seaside locations are the same. For example, in Hadera such apartment buildings sit on a cliff, while in Ashkelon or Netanya you need to walk a short distance to get to the water's edge. This too plays a role in determining the price. However, in all cases, an apartment overlooking the sea will be 'upgraded' when it comes to setting its value, compared to one with no such view. We live in a country with a very limited coastal strip, and such apartments are a rarity."

Cohen reiterates that the added value of a sea view prices differs from city to city. As with the value of the land itself, this depends largely on the distance from Tel Aviv. Thus, for example, in Ir Yamim, the new residential suburb of Netanya, apartments overlooking the sea will cost 30-50% more than those facing. Similar differentials are expected in new projects in Rishon Letzion. In new construction taking place in proximity to the marinas in Ashdod and Ashkelon, this view-dependent difference in apartment prices will not be higher than 20%.

Cohen gives a partly psychological explanation for these extreme differences between cities vis-a-vis values of apartments with a sea view. According to him, "a sea view reflects prestige, so that upscale neighborhoods, where apartments cost millions of shekels, are the ones in which correspondingly higher values are attributed to the view, leading to the extreme differences in housing prices. In lower-end neighborhoods it is more difficult to add much to the price based on the view. Residents there will attach less importance to it."

What is the impact of a view onto empty spaces?

Cohen: "The impact of a view overlooking green spaces is much less substantial. It can bring up the value of an apartment by 10-15%, in comparison to that of one facing the opposite direction. This is the current difference in prices of apartments overlooking the Yarkon Park in the Bavli neighborhood in Tel Aviv, as compared to similar ones without the park view. It is important to consider what type of empty spaces one is talking about. If an apartment overlooks a so-called controlled space such as a park, this reduces the chances of future construction on it. If the empty space is used for agricultural purposes, its future is much more problematic."

Cohen's last comment brings us into the legal arena, which further complicates the issue of how much a special view adds to the value of a property. A buyer will often pay good money for the value added to his new home because of the view. But when this is compromised by construction of a new neighborhood or even by a sole tower built close by, it is not at all clear that he will be compensated. Some recent decisions handed down recently by district court appeals panels - in response to tenants suing for damages resulting from loss of property value due to adjacent construction - show that such compensation is indeed meted out very infrequently.

Thus, for example, an appeals panel recently rejected a claim by tenants of a residential tower in Giv'atayim, who argued that their apartments had been devalued by the construction of adjacent high-rises that were blocking the view they had previously enjoyed. This verdict was delivered even after Ascher Schulman, the appraiser assigned to this case, determined that several apartments in the tenants' tower would suffer an actual 6-12% decline in value, and recommended that the local building planning committee must compensate them by amounts ranging from NIS 125,00 to NIS 350,000.

In its final ruling, the panel, headed by advocate Carmit Fenton, rejected Schulman's findings.

"The appraiser made a fundamental error in his assessment, when analyzing the contribution of the view to the value of the apartments in question. He neglected to take into account the urban development envisaged by the same building plan that included the tenants' building itself. No legal, factual or developmental cause was given to show that the tenants had rights to a view based on their purchase, without regard to potential further development around their building, similar to the one previously carried out on their own building site," the ruling read.

"The fact that a view has financial value is true from an assessment perspective, but the issue of whether the public should compensate a person who formerly enjoyed a view that has now been obstructed by a new development is a legal issue," explains advocate Ofer Twister, who specializes in building and property development law.

"In recent years, the more popular view has been that in a land-starved country such as Israel, the answer to land shortages is to building up properties. This entails the by-now dominant opinion that tenants have no purchasers' rights to the view. The test of whether compensation for loss of view is due revolves around the probability that any future construction will occur at the time the property is purchased.

"Anyone who bought an apartment in the Lamed neighborhood in the northern part of Tel Aviv should have foreseen that eventually towers would be constructed between it and the sea, and that any view available on purchase would only be a temporary one. In contrast, the probability of future construction in Independence Park in Tel Aviv is very low, and this would be considered a possible basis for demanding compensation by affected residents," Twister says.

This trend, according to which developers and local authorities will not be required to compensate tenants for loss of view, is only likely to grow, he adds, when the law governing building and development is reformed. This reform will almost completely abolish the right to demand compensation according to article No. 197 of the relevant legal code, which is likely to be changed.

According to Twister, "this is a problematic clause, which has often been exploited by interested parties. Developers have had a hard time determining if they were liable to be exposed to claims made under this article, making it difficult for them to accurately price their construction projects. It could be argued that this article of the law even deterred some projects from getting started. By contrast, the law had an important role to play in what the Supreme Court labeled as a deterrence against harmful development. Sensitivity to ownership rights is not particularly evident in Israel. Whereas in the past this law served to curb developers and local authorities in their planning of projects that could negatively impact adjacent tenants - the new reform will leave considerations of fairness and decency in their hands. These are not usually weighty considerations in deciding on proceeding with new projects."

How can the ordinary purchaser assess the chances for preserving his view?

Twister: "Anyone purchasing an apartment these days, except one located right on the water's edge, should take into account the fact that any view currently available is only temporary - even when the person is purchasing an apartment in a high-rise. In any case, it is important to check current plans for development. It is quite likely that there already exists a plan to construct another tower directly across the way from you, which is only waiting for a final building permit. This information is accessible to the public, and anyone who finds it difficult to obtain can retain the services of a professional. Some people will invest millions in buying an apartment in one of these towers, but will not spend a few thousand shekels to check out the development plans around their property."