Jerusalem has been a real estate investment target for wealthy foreigners for two decades, who buy very luxurious housing at prices of NIS 10 million or more. In recent years, however, with the increase in taxes and implementation of the Prohibition on Money Laundering Law, the number of such investors has dropped noticeably. In 2010, foreign investors accounted for 10% of the Jerusalem market, but this dropped to 6% in 2016 and to only 3% in 2018, according to figures published by the Ministry of Finance chief economist. Foreign investors, however, are still closing 40-60 deals a month in the capital.
The chief economist found that the prices paid by foreign residents for housing in Jerusalem were still much higher than the prices paid by Israelis in 2018. While the median price paid by Israelis is less than NIS 2 million, a large proportion of purchases by foreign residents are for more than NIS 3 million. Late last year, foreign residents bought 100 housing units, with the median price being NIS 5 million. Even though the number of deals by foreign residents is much smaller than in the past, it cannot be said that they have completely left the market.
The luxury housing market in Jerusalem is divided into local luxury housing priced at NIS 5-8 million and mega-luxury housing, for which most of the buyers are foreign residents. Both groups bought fewer housing units in 2018 than in 2017.
Only 14 deals in a year
Only 14 deals took place in Jerusalem last year at prices of NIS 8 million or more. The most expensive deal was on Carmiya Street in German Colony, where an 11-room, 680-square meter house with a 312-square-meter yard sold for NIS 58 million. In the second largest deal, a six-room, 267-square meter apartment sold for NIS 27 million.
Luxury pyramid in Jerusalem
These deals, however, were exceptions; the state of the luxury housing market in Jerusalem is far gloomier than they would indicate. "There is a big downturn in the luxury market among both foreign residents and Israelis," says real estate appraiser Oren Iluz. "It is true that there is an increase among Israelis in comparison with 2013-2014, but if you compare 2018 to the preceding years, the decline is clear. The market is stagnating, and it's very difficult to sell housing units. The prices in this segment are also very static; they have barely risen at all in the past four years."
"There are luxury deals, but the sellers have to compromise. The stringent Prohibition on Money Laundering Law and the purchase tax on foreign buyers is very high, but there is still a market for luxury housing, albeit not at the prices there once were," says real estate agent Ahituv Getz.
Disappointed developers: Prices fell 15%
One of the most prominent luxury sites in the past decade is 25-dunam (6.25-acre) Bloc 50, which lies between Jaffa Street, Hanevi'im Street, Harav Kuk Street, and Strauss Street. The site was neglected for many years until 12 years ago, when luxury housing developers trained their sights on it. Apartment prices on the site are NIS 35,000-40,000 per square meter. Africa-Israel Investments offered a penthouse in the project at 7 Harav Kuk Street for NIS 20 million, but failed to attract buyers.
One apartment there was eventually sold in 2015 for NIS 12.1 million. A nearby apartment in shell conditions (naked walls without flooring or cladding) was sold in April 2017 for just NIS 8.5 million. The state of the apartment is not enough to explain the huge different in price between the two apartments, and certainly not the difference between the initial asking price and the final price.
The biggest deal in 2018 on the site was for a nine-room apartment at 45 Hanevi'im Street, which was sold for NIS 7 million.
Another example cited by Iluz is a luxury apartment in a building at 28 Keren Kayemet Street in the Shaarei Chesed neighborhood, designated primarily for foreign haredium (ultra-Orthodox Jews). The apartment was put up for sale by a receiver. Iluz appraised it at NIS 7.4 million, but the first two attempts to sell it attracted no offers whatsoever. Three offers were made in October 2018, with the highest of them, the winning bid, being NIS 6.25 million.
Getz tells of a penthouse in a new project on Disraeli Street in Talbieh, which was sold two years ago for NIS 12 million. Six months ago, a similar apartment was sold for only NIS 10.5 million, and this is no exception. "I estimate that prices of luxury housing in the city have fallen by 15%," he says.
He nevertheless mentions a house on Yam Hamelach Street in the Arnona neighborhood that was sold for the asking price - NIS 15 million. "It was a unique case of a buyer who found exactly the property he wanted, down to the last detail," Getz explains.
Sellers vanishing with the buyers
In the current situation, there is not much chance of foreign residents returning to the market here in the near future. Quite a few real estate deals were made in the city using unreported capital, and there is no chance of this happening again. Furthermore, the high purchase tax imposed on investors by Minister of Finance Moshe Kahlon also applies to foreign residents. In cases of especially high prices, purchase tax can reach the 10% bracket, with tax in excess of NIS 1 million. No one likes paying such a tax.
What is to be done? Not much. Iluz says that together with the vanishing buyers, sellers are also disappearing. They are simply canceling the sale of their properties, because they realize that there is no chance of obtaining a price that appears reasonable to them. Getz says that there are still foreign residents searching for luxury housing in the capital, but that they are more choosy than ever, and are not as quick to buy as they once were.
Published by Globes, Israel business news - en.globes.co.il - on April 1, 2019
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