Pity the poor owners of homes in Israel worth 20 million shekels ($5.6 million). Those grandiose properties with Mediterranean seaside views, expansive spaces, home theaters, swimming pools and generous lawns, once in demand mainly by foreign investors, no longer have a market.
It’s not just property owners. The industry that once served the top end of the Israeli real estate market – builders, architects, relators and interior designers – has seen business evaporate.
“Neighborhoods and communities that were built for foreign residents have turned into ghost towns in the best case. In the worst case, properties have been converted into Airbnb offerings,” said Lior Shklarsh, who heads the real estate agency de-Botton in Savyon, an affluent municipality outside of Tel Aviv known for its villas.
However, demand for luxury housing at more modest levels, up to 8 million shekels, still remains. These properties are mainly bought by wealthy Israelis who are looking for a place to live rather than a second home or a tax shelter.
“It’s then hardest of all to sell grandiose properties by the sea, with gold faucets and imported tiles costing hundreds of thousands of shekels,” said Shklarsh. “Properties along the shore, like Herzliya Pituah, are waiting for foreign investors who have all but disappeared.”
Israel’s market for luxury housing went from boom to bust mainly because of the government. Finance Minister Moshe Kahlon eliminated the tax exemption for foreign residents buying real estate. Israel and foreign governments also began cracking down on tax evasion and money laundering, which deterred many well-heeled foreigners from buying property.
Under orders from the treasury, banks began demanding more money down, while a plethora of high-end Tel Aviv apartment towers decimated the market for second-hand homes.
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“I have a villa valued at 12 million shekels that I haven’t been able to sell for a year and a half, and I’m not the only one,” said one property owner in Herzliya Pituah, one of the towns once favored by foreign bankers along with Savyon, Caesarea and Kfar Shmaryahu.
“In negotiations I’ve had with the few people who’ve been interested, no one has been ready to give me more than 8 million shekels,” said one real estate agent, who asked not to be identified. “Any foreign investors willing to pay the asking price see how [the authorities] get involved and demand to know where each shekel is coming from and were scared off.”
In cases where the sellers need the cash quickly, he said, homes in Herzliya Pitauch and Kfar Shmaryahu fell to from 35 million shekels to 25 million.
A survey by Israel Yaacov, a property appraiser and manager, found that the number of home sales in Herzliya Pituah fell from 100 in 2015 to 50 last year. Almost none of last year’s sales amounted to more than 20 million shekels. Today, Yaacov estimates, about 250 luxury properties are on the market awaiting buyers.
“Wealthy foreign residents almost never come, except if it’s a vacation property by the beach or well-established investors with a Jewish connection,” said Yaacov.
Eitan Blumberg, who owns the Herzliya Pituah and Kfar Shmaryahu franchises for the nationwide Anglo-Saxon real estate chain, said that these days its easier to sell a penthouse or luxury apartment than a villa or a lot in a luxury neighborhood.
“In the last few years we’ve seen more and more people looking to downsize because their children have left the nest. They’re ready to give up their big villa for an apartment in Tel Aviv, which is easier and more convenient,” he said. “But these downsizers are often frustrated because of the price differentials. In Kfar Shmaryahu and Herzliya Pituah the lower priced properties go for 5 million to 10 million shekels, which is about the same for a new apartment built to a high standard in a Tel Aviv residential tower.”
Tamir Minz of the MMM Real Estate Group said French investors were big buyers of seaside homes but exited the market about four years ago. No one has replaced them. “In their places we hope and expect to see wealthy Brits in the post-Brexit era,” he said. “In the meantime, many of these kinds of houses are standing empty.”
Yaacov said most of the sales today are in the range of 5 million to 6 million shekels – older homes on two-dunam (half acre) lots that will require another 1 million shekels in renovations. The buyers aren’t the foreign oligarchs of the past but wealthy Israelis, who typically take a small mortgage to finance the deal. Another type of buyer is a senior manager of a foreign company working in Israel.
The Keller Williams agency in Raanana, which is managed by Avi and Roy Salzman, has had a 15-million-shekel house on the market for more than a year without receiving a single offer. The property includes a 40-meter pool, home theater and huge basement situated on a 530-square-meter lot. Another home on a 300-square-meter lot was put on sale for 5.9 million shekels and sold only a year later for 4.85 million.
“The number of sales in [Raaana] has been in decline since 2014 and many properties have been on the market for months, even years,” said Omri Shpagat of Keller Williams. “Some prices have fallen sharply and others have been pulled off the market after they didn’t find a buyer at their asking price. It’s the cheaper homes that have enjoyed stable or even somewhat higher prices.”
The market in Savyon, however, has been more Israeli and less foreign over the years and has been felt less of a downturn, said Shklarsh. “Even when prices in Kfar Shmaryahu, Caesarea and Herzliya Pituah were going up and up, the Savyon market was steadier,“ he said.
“Savyon has no beach or funky restaurants. Its residents are looking for quality of life,” he added. “In Herzliya Pituah and Kfar Shmaryahu they put money into gold faucets and marble. Most Savyon residents aren’t interested in what kind of return they’ll get on their property.”
Africa Israel Investments, which developed Savyon, sold the last 300 lots it owned last year.
“There are almost no land sales these day and that has created expectations for higher prices,” said Shklarsh. “Savyon is experiencing an almost opposite trend from what’s happening in the luxury market. We are in the middle of a golden age.”
Minz describe the situation in Kfar Shmaryahu and nearby Rishpon in similar terms, thanks to the market being mostly Israelis buying and selling. These towns are more like communities than enclaves of the very rich, with youth groups and school enrichment programs. “It’s true that among older residents, there are those who have apartments in the towers for weekends, but most of the residents of Savyon see the community as their social and cultural anchor,” he said.