Damage Control in the South

Just wait a few months. Buyers will return to Negev cities after the fighting ends, realtors predict hopefully.

Despite the hail of rockets battering Israel's southern cities, any negative impact on prices is likely to be fleeting, real estate sources say.

Operation Pillar of Defense caught the south in the middle of a real estate rally, the result of surging prices around the country and investors searching for places to invest. Over the past year, more and more investors have found their way to these cities, and contractors are building there again.

"If you visit Sderot, Ofakim or Netivot you'll see the cranes," says one local industry source. "The construction companies sell an average of four to five apartments a month in these towns, mostly to locals, and the contractors are back. The real estate market was never like this before."

At the moment, prices in the south seem high given the rocket barrages from neighboring Gaza, but until the current flare-up, these prices conformed with the country's market dynamics.

Currently, a new four-room apartment in Dimona or Netivot is selling for NIS 800,000, while in Sderot or Ofakim it costs NIS 650,000.

"There has been a massive surge here over the past year, in terms of both the number of new apartments and prices," says a source familiar with the market. "We still don't know how the current round will end. There's no question that it'll slow things down or even freeze the market in the short term, and it'll take a few months for the market to recover. But the market always wins out."

The contractors' renewed interest stems from the combination of high demand, reasonable home prices and low land prices, he says.

People looking to buy homes for investment purposes started migrating to the south after the sharp price increases in Be'er Sheva and Ashkelon. Over the past two years, they've headed for towns including Netivot, Sderot and Dimona, which they figure are the natural progression of that trend.

"It's risky to invest in a place like Ashkelon, where a new four-room apartment on the western side of the city already costs NIS 1.7 million," says one investor. "That's why I chose to buy an apartment in Netivot for NIS 750,000, and I'm renting it out for NIS 3,000 a month."

Renters in these cities are generally local families who don't leave even when the security situation gets rough, which makes the rental market relatively stable. These families would have a hard time renting in other cities due to factors including price and availability.

"People looking to buy are concerned about the Qassams, but the market is picking up in Netivot in any case," says Sali Dahan, who runs the local Anglo-Saxon franchise. "For instance, [dairy company] Tara came and built a factory hear, the city is developing and the train is supposed to connect Netivot and Sderot to Tel Aviv by the end of 2013. That will give things an even stronger push."

Home prices in Netivot are up 15% to 25% over the past two years, he says.

"A five-room apartment in a new part of Netivot recently sold for NIS 880,000. It was bought two years ago for NIS 750,000," Dahan says. "I'm not worried at all because this area is developing nicely and lots of big factories are coming here, due in part to government incentives. That's helping give the market strength."

Dahan says it should take buyers about two months to return once the current round of fighting ends.

This optimism was much more rare in recent years. Economic distress coupled with a lack of security sent residents fleeing. In 2007 and 2008, Sderot residents had a hard time finding buyers from outside the city.

The only interested buyers were Palestinian families who had collaborated with the Israel Defense Forces and had Israeli ID cards. The state settled about 100 such families in Sderot, only a few kilometers from their relatives left behind in Gaza.

At that time, three-room apartments in Sderot were selling for $15,000 to $50,000, while four-room apartments cost $70,000 to $90,000.

Some Sderot residents complained that the low prices were drawing Palestinians as well as Bedouin from nearby Rahat, who offered to pay more than potential Jewish buyers. The influx of Arab residents led to social conflicts, peaking when the Palestinian residents sought to build a mosque in the town.