The government's austerity measures against buyers of luxury homes, the economic crisis in Europe and the US (and on the euro and dollar), together with uncertainty in the Israeli real estate market have made life difficult for sellers of luxury homes in the country.
Despite reports about the difficulties in selling luxury apartments to both Israelis and foreign residents, Dan Public Transportation Ltd. subsidiary AMD Real Estate Development Ltd. this week unveiled "Israel's most expensive project", a new high-rise that it is building at 17 Arlozorov Street in Tel Aviv. In late 2010, the company hinted that this would be an especially luxurious project, in which it will offer for sale an 850-square meter penthouse, covering the building's entire the 29th floor, for NIS 200 million. Since then, no buyer has appeared, but a study by "Globes" has found that AMD is not alone.
Many people will undoubtedly remember the glitzy press conference at the Israel Museum three months ago by buyers group organizer Inbal Or to launch the Or Bavli tower in Tel Aviv. Or announced that she would offer a luxury pemtjouse in the project for NIS 176 million, and that she was "in negotiations with a foreign investor." Since then, we haven’t heard a word about the project, this or any other penthouse in the two opulent towers, or about buyers of any apartment in the project in which the starting price is NIS 3 million.
No buyers have been found for the expensive duplexes in the Meier on Rothschild Tower for whichBerggruen Residential Ltd. (TASE:BRGN.B1) and Hagag Group Real Estate Development Ltd. (TASE: HGG) have been asking NIS 170 million for the past two years. Nearby, at 96 Hayarkon Street, "Israel's most expensive penthouse" is also waiting for a buyer.
The problem is two-fold: the slowdown in Israel and other countries in the past few years have shrunk the fortunes of many tycoons; and at the same time, those with money in their pockets are not in any hurry nowadays to buy such a glittering apartment, which is liable to arouse the public's envy. It can only be imagined what would be the response if Israel Corporation (TASE: ILCO) controlling shareholder Idan Ofer, who paid NIS 67 million for a penthouse in the Meier on Rothschild tower in 2007, on top of his mansion in Arsuf, were to make such a purchase today.
Jerusalem's YMCA project on the brink
Possibly more than anywhere else, the stagnation in the luxury home market is felt in Jerusalem. Reality is forcing developers to forego revenue to tempt hesitant buyers.
Sources inform ''Globes'' that Jerusalem's best-known luxury project, David's Crown, being built by Isras Investment Co. (TASE: ISRS) unit Rassco Ltd. on the site of the legendary YMCA lot in the city center, is only marketing unfinished apartments in the project's second stage. Only the balconies are finished, and the buyers will receive only the four walls, ceiling, and sand floor.
The YMCA project was launched over eight years ago ("Heavy demand for luxury Jerusalem project," states a "Globes" headline from May 2005, a few weeks after the marketing began). Last week, Rassco told "Globes" that 90% of the 100 apartments in the project's first stage had been sold, and that the company had recently decided to begin marketing 40 unfinished apartments in another wing of the project. "We're talking about empty space with concrete walls and gravel floor, with a systems infrastructure. The buyers will have to complete the finishing themselves, including the interior walls," said a company source. "Most buyers willing to pay up to $8,000 per share meter want to finish the apartment themselves, and we propose to them contractors, interior decorators, and everyone who is necessary."
In other words, on the brink of the abyss of financial losses, the company prefers offering "a new product" in the luxury residential market, in which the buyers will pay according to their means and a finishing deadline that suits them.
Rassco says that the difference between a finished and an unfinished apartment is around $250,000. The company says that it is marketing apartments in the same way at its Aviv tower in Tel Aviv's Park Tzameret.
Why is Israel's luxury housing market floundering? Rassco says, "This is not really been haapening for long. Each apartment sold costs more than $1 million, and we sold 8-10 apartments in the past year. We don’t invest heavily in external marketing, and in any case, the current recession is affecting all new luxury projects in Jerusalem."
"The luxury housing market in Jerusalem is at a complete standstill. Not even one luxury apartment has been sold in the city for three months," says a Rassco executive. "This is largely because of the government's austerity measures, which are intended to weigh on purchases of apartments for investment by foreign residents, which is unjust. The purchase of an apartment in Israel by a foreign resident is the start of immigration to the country. Furthermore, when a foreign resident buys an apartment in Israel, he indirectly pays the Israeli authorities and gives the municipality all the advantages of the purchase and taxes on it, without imposing any obligations by the municipality on the residents who live in the apartment."
Ambassador Jerusalem Company CEO Isaac Levy believes that the slump in the Jerusalem luxury apartments market and nationwide is partly due to the strengthening of the shekel against the dollar and euro in recent months. "At the prices for luxury apartments, the drop in the exchange rates amounts to a lot of money," he says. "This means that a luxury apartment, even if offered to a buyer in dollars, is ultimately converted into shekels, and when the dollar falls, you have to pay more. This is not just for the price of apartments, it's true for everything. If the purchase tax was $80,000, it's now $90,000. The mortgage financing restrictions, the purchase tax hike, and the double arnona (local property tax) exacerbate the situation, and cause foreign buyers to take a step back. The slowdown in just felt in the number of deals, but also in their size."
The luxury housing market in Tel Aviv has also been stagnant for a while. Gindi Holdings Ltd. is asking NIS 38 million and NIS 16 million for two penthouses in its Sarona project, even though the entrance date to the buildings is drawing closer.
It seems that developers' dreams of marketing luxury apartments "on paper" even at the earthworks stage are no longer possible.
The trouble is not limited to high-rises. In late 2012, Adv. Maimon Avitan, on behalf of a foreign resident, offered a property for sale in Tel Aviv's Neve Tzedek neighborhood for NIS 8-9 million. The house on Neve Shalom Street was the site of the city's first café in 1917. The 167-square meter three-floor house was renovated in 2010-11.
"Two or three years ago, a property in Neve Tzedek would have been grabbed," says Avitan. "But in the past year there has been a total freeze in purchases of luxury properties by foreign buyers. The asking price for the property is now NIS 6.7 million, and there are still now buyers."
New blows to luxury homebuyers
The new 8% purchase tax on homes costing over NIS 5 million in the 2013-14 Economic Arrangements bill consolidate affect foreign residents buying property in Israel. The tax is on top of the capital gains tax, and also applies to the purchase of a single home costing more than this amount. The bill states that foreign residents will not be exempt from the capital gains tax or the low purchase tax bracket for the purchase of a first home, unless they immigrate to Israel within two years of the purchase, in which case they will get a refund. In addition, Minister of the Interior Gideon Sa'ar has doubled the arnona on empty apartments, including homes owned by foreign residents which closed for most of the year.
The Ministry of Finance says, "The tax break on purchases was granted in order to facilitate the housing shortage for young couples, Israeli residents, who do not own an apartment, and is not intended to encourage investment by foreign residents." It adds, "The tax breaks were also exploited to buy empty apartments, which boosts housing prices."
Published by Globes [online], Israel business news - www.globes-online.com - on June 17, 2013
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