Jerusalem Real Estate
Call Us: 972-545-341-403

The Jerusalem Real Estate Bubble?

Article by:  Ilana Nelson

Many of our clients have been increasingly turning to us with the question, “Nu, how is the market? Has the bubble burst? Are prices going to fall now?”

We are passing through an interesting period. Israel has been enjoying economic growth and relatively high employment, while facing a public call for a solution to the high cost of housing in urban centers.

For the past 8 years, Jerusalem’s housing prices have been steadily rising with strong demand from local and foreign buyers for low to high-end properties. The city’s real-estate market has been termed a “seller’s market” because the housing supply has not been able to keep up with the high demand.

The current, however, has started to turn; the global economy and local political events of this past summer have dramatically altered the real estate climate. The continuing recession in the United States has significantly lowered the number of foreign real estate investors coming toJerusalem. The buyers who do come are more conservative than in the past, and are certain to ensure that their investment is financially sound. The impact of fewer and more conservative buyers is felt in the middle to high-end of the market in central Jerusalem, where prices have reached a plateau.

For local buyers, the appreciation ofJerusalemproperties has risen much faster than the average Israeli income. This gap has pushed local families to the periphery in search for affordable housing and has contributed to the mass social protests of this past summer. Young couples and families—who until now were racing to buy apartments at “reasonable” prices before the market went up any further—are now slowing down and taking a step back. People are waiting to see how far the national government and local authorities will go to provide affordable housing for its citizens. This combination of factors has produced a lull in the lower-middle range of the real estate market in Jerusalem.

The question is whether these national and global factors are strong enough to drive down prices and signal the end to theJerusalemreal estate “bubble”.

Only time will tell.  However, in my professional opinion I do not think that these factors are sufficient to cause the dramatic fall that property owners fear.  Here are two reasons for my position.

First, Jerusalem holds a special status in the world. The Jerusalem market is unique, as people from around the world want a home within walking distance to the Old City and will continue to pay a premium for that privilege. There are areas ofJerusalem, such as Yemin Moshe, Shaarei Chesed and Talbieh, that will maintain a very high price per square meter regardless of the economic climate.  – These neighborhoods can be compared to certain areas of Manhattan, London or Paris where property prices have not been affected by the down-turn in the global economy. In addition, many new high end projects, such as the Waldorf-Astoria, are also continuing to make sales in the millions albeit at a slow but steady pace.

The second factor is inventory. There are simply not enough new building projects in centralJerusalemoutside of the luxury market. Government efforts to ease building rights and sell land to developers will perhaps affect prices in the long term (10-20 years), but in the mean time, a serious housing shortage in Jerusalem will force prices to remain high.

In addition, what we witnessed in the United States will not happen here despite the high prices in Jerusalem as there is no mortgage crisis. Loans are given in Israel only to a maximum of 70%, safeguarding the banks and homeowners from over-extending and resulting property devaluation.

I think we can anticipate that prices will no longer continue to rise at the rate they have been until now. Property values will be stabilized by the balance imposed by the lack of inventory and conservative consumers. Until there is a dramatic increased in the number of properties entering the Jerusalem market, prices in the Holy City will remain sky-high