Eilat's luxury housing market fails to take off

Eilat homes Photo: Shutterstock

In years gone by some homes in the Red Sea resort sold for around NIS 10 million but last year there were only three deals of NIS 4 million or more.

More than a decade ago, in late 2008, the highest-priced housing unit deal ever recorded in Eilat took place - NIS 12 million was paid for a house in the Shahamon neighborhood of the city. A house in the same neighborhood was sold for NIS 9.2 million in 2010, and another house was sold in the same neighborhood in 2013 for NIS 10.3 million. There were three deals in Eilat for over NIS 8 million each in 2015. Since then, it has been difficult to find a deal for over NIS 4 million in Eilat.

"Eilat is not a luxury town; the socioeconomic status of its residents is not high," says appraiser Idan Azulay. "Foreign residents have affected the volatility of housing prices. A decade ago, people from France were the leading players in the city, acquiring many properties. In recent years, they have been largely absent, which accounts for the steep drop in the number of deals at high prices."

"The French and the Russians, who previously made the market, disappeared, and the city is not attracting Israelis the way it used to," adds Anglo-Saxon Real Estate Eilat franchise holder Shmuel Rosenfeld.

There were only three deals of NIS 4 million or more in Eilat last year. The first was the sale of a seven-room, 250-square meter house at 6 Habesamim Road in the luxury Area 6 overlooking the port for NIS 4 million. The second was the sale of an eight-room, 290-square meter house in Mishol Tlatan in the Amdar neighborhood near the sea and the hotel district. The biggest deal in 2018 was the sale of a seven-room, 180-square meter house in Simtat Zukim for NIS 4.25 million.

"Globes": What is special about these properties?

Azulay: "One is the new Area 6 neighborhood, and the other two were thoroughly renovated."

The biggest contractor building in the city is Yossi Avrahami, who says, "Most of the customers who buy a luxury apartment in the city are Eilat residents or foreign residents who want to enjoy its unique climate when they are in Israel. In any case, it is a very limited group. We've been seeing a change in the trend recently, with growing demand for luxury housing units in the city, mainly apartments for over NIS 3 million, but we have yet to reach the level of demand we got used to a few years ago."

Avrahami, who has built over 1,200 housing units in Eilat, says, "Eilat is an unusual city in the real estate market. On the one hand, it is far away from central Israel, ostensibly isolated and unaffected by neighboring cities. Real estate prices in the town are expensive, however, at over NIS 2 million per apartment. The reason is a very low supply of housing in the city. This certainly belongs to the luxury housing category."

Peak in luxury-light deals

Despite the decline in the number of luxury deals, 2018 had the most deals that could be called luxury-light - properties at prices of NIS 2 million or more - in at least eight years. 74 such deals were signed last year, compared with 55 in both 2016 and 2017.

Most of the people making deals for NIS 2-2.5 million are Israelis. Azulay believes that a large proportion of the deals in this range were closed in new projects being built in the Shahamon and Area 6 neighborhoods, where A. Levy, Peretz Luzon, Blustein Hai, and Yossi Avrahami are building. Half of the deals at these prices were purchases of new apartments, but why has there been a breakthrough in recent years?

Most of the local market takes place in apartments for less than NIS 1 million. No real socioeconomic change capable of putting large parts of it into the luxury market has taken place in the local population in recent years.

It appears that the dynamics of the luxury housing market is dictated more by external factors, foreign concerns, or Israeli investors who do not reside in the city. If foreign residents buy few luxury housing units in the city, the key probably lies in the Israeli investors.

"Eilat is a closed economy in which outside people get the real estate market wheels moving," says Azulay. "I believe that residents of central Israel are buying for investment. You could once get a 6-7% annual return on renting out apartments; today, it's around 4%."

"In my opinion, the reason involves the new tourism that will come to the city," Rosenfeld says. "The city isn't prepared enough for the low-cost tourism that will arrive here, because most of the hotels here are four or five stars. The people coming here on charter flights are looking more for Airbnb apartments. It leads certain investors to buy houses and large apartments costing around NIS 2-2.5 million."

What about the owners of luxury properties in the city costing over NIS 3 million? "It's very simple - they're stuck, and can be left for years with the properties for sale," Rosenfeld answers.

Published by Globes, Israel business news - en.globes.co.il - on May 21, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Eilat homes Photo: Shutterstock
Eilat homes Photo: Shutterstock
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