The first lesson that every real estate appraiser learns is the difference between value and price. Market value is an objective concept defined as a reasonable amount for which the rights to a property can be sold by a willing seller to a willing buyer. On the other hand, price is a subjective concept that does not necessarily reflect the value. For example, when a buyer has a special, emotional or economic interest in a property or there is a special relationship between the seller and buyer. So how does an apartment get priced at $65 million? Is that the market value or the price?
There have been recent reports that billionaire Valery Kogan has put his Tel Aviv seafront penthouse up for sale for $65 million (NIS 220 million), reflecting a value of NIS 180,000 per square meter.
The penthouse is on the 23rd floor of the Sea1 building on Herbert Samuel Street on the seafront in central Tel Aviv. The 1,200 square meter apartment covers two floors and includes balconies and four rooms designed as a separate suite. A third unit has balconies looking west, north and south and from the top floor there is a 360° panorama. Millions have been invested in the apartment in interior design and furnishings.
The Sea1 building including the Royal Beach hotel was built by Electra Ltd. (TASE: ELTR) and Oranim. In 2013, Electra sold its 50% share in the building and two apartments to the Amoyal family for NIS 209 million. Kogan bought his apartment in 2009 for NIS 110 million, which at the time made it Israel's most expensive apartment.
There are very few residential real estate deals in Israel for more than NIS 200 million. It was recently reported that the US Ambassador's residence on Galei Tachelet Street in Herzliya Pituah was sold to the billionaire Sheldon Adelson for more than NIS 250 million.
To analyze whether the price being asked gives value, we analyzed residential real estate deals over the past three years in Israel's most expensive locations. Homes sold at a value estimated at more than NIS 25 million and a value of more than NIS 100,000 per square meter.
There have been 15 deals with an average price of NIS 45 million and an average of NIS 115,000 per square meter. There were only three deals of more than NIS 75 million where the average price was NIS 110,000 per square meter.
So the bottom line is that there is no justification, on a comparative basis, that reflects a value of NIS 180,000 per square meter. There has never been a sale in Israel reported (including the asking price) that has reflected such a market value.
According to research published by Swiss investment bank UBS last month apartment prices in Tel Aviv are overvalued and 'out of balance.' The research found that of the cities examined over the past 30 years, Tel Aviv has seen the highest growth in prices. The issue of prices is subjective, if a property is unique, a collector's apartment with limited supply, and the price includes psychological and emotional elements, then it can be marketed for a sky high price.
The author is a real estate appraiser with SK Real Estate Appraisal, which specializes in financial support for projects for financing companies.
Published by Globes, Israel business news - en.globes.co.il - on October 8, 2020
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