When Nathan and Sharon Laufer began looking for an apartment in Jerusalem four years ago, times were different. It was the tail end
of the second intifada (“bombs were still
going off,” said Laufer), and real estate prices, for both rentals and sales, were pretty reasonable.
At the time, the Laufers and their four children — 14-year-old triplets, two girls and a boy, and an 8-year-old son — were in Israel on a trial basis. They still owned their home in Teaneck, N.J., and rented a 1,720-square-foot, four-bedroom apartment in Jerusalem’s popular German Colony neighborhood.
But “once the bombs stopped,” and quiet began settling on the security-conscious city, Jewish foreign buyers from France, England and the U.S. began looking for their piece of the rock in Jerusalem, and prices started to rise.
An apartment on the Laufers’ block that was listed as $775,000 in 2005 rose to $900,000 in 2006 — and finally sold for $1.55 million last year.
During the last two-and-a-half to three years in Jerusalem, there was a “kind of craze in prices, from the never-ending demand of foreigners who wanted an apartment in Jerusalem,” said Benny Loval, who runs the Anglo-Saxon Jerusalem real estate office. “It was an emotional, not a purely financial, investment, although many understood that it was a good real estate deal.”
In response to the demand from foreign buyers, local developers began building luxury apartment buildings throughout the city at an unusual rate, added Loval. “It’s never been like this,” he said. Now there are more than 1,000 units under construction that will be ready within the next two years.
It’s a “glut of luxury housing,” said one agent who is marketing one of the complexes. In this city of 800,000, which has a large number of Arab and ultra-Orthodox Jewish families and is considered one of Israel’s poorest, the luxury buyers, she said, are American, French and South American, as well as a few locals who are downsizing.
“It’s very ‘in’ to have an apartment in
Jerusalem,” said Loval, referring to the
foreign buyers.
The new developments are termed “luxury” because of the prices, added David Benninga, another local realtor. “But what’s luxurious about a 265-square-meter to 300-square-meter apartment?” he asked. “What’s luxurious is the prices, which start at around $800,000. There are no prices for locals. If you want to spend $400,000 to $600,000, you have to go to Mevasseret,” a suburb outside Jerusalem.
That thought had crossed the Laufers’ minds, although they were also considering Modi’in, a suburb located between Jerusalem and Tel Aviv where there is a synagogue similar in spirit and community to the one in which they are members in Jerusalem.
When they began looking to buy, they knew they wanted to stay in the general area of German Colony or Baka, two quaint, adjoining neighborhoods that are dotted with standard Israeli apartments as well as the more desirable Arab-style houses and houses that have survived from the German Templar settlement dating from the 1870s. With two main streets — Emek Refaim and Bethlehem Road — lined with cafes, bakeries, restaurants, boutiques and markets, as well as several popular synagogues, German Colony and Baka are both popular with the local English-speaking population.
The problem was, the Laufers couldn’t afford them. “We have four big kids, and we need space for them,” said Laufer. “In Israel, kids come back home, even after they’ve gone to army and university.”
They found that even in Arnona, a nearby neighborhood that is on the other side of Hebron Road, a street that is considered the outer limit of Baka, prices were in the $800,000 range, pre-renovation.
Some locals who want to stay in Baka and the German Colony end up buying apartments in the “projects,” large apartment blocks that were hastily built in the 1950s and 1960s to house the then-large influx of immigrants.
“It’s a great option for young families who want to stay in these neighborhoods but are willing to walk up three flights in buildings without an elevator,” said Alyssa Friedland, the proprietor of Re/Max Jerusalem. “It’s not as expensive. I just sold a three-room for $195,000 and another four-room for $300,000. They’re good starter apartments.”
That wasn’t an option for the Laufers, who recently decided to continue to rent after finding a four-bedroom, three-and-a-half bath, multi-balcony rental in a new elevator building in Baka.
The price is around 3,000 shekels (about $840 USD) per month. It’s tied to the dollar in the owners’ favor, in case the dollar strengthens and falls against the shekel, for a year-and-a-half lease with two one-year options. The family said they feel they are paying what the market is bearing in the neighborhood.
Rentals in Jerusalem can be preferable because the cost of rentals “is very low compared to the cost of property,” said another local who is also on the hunt for an apartment in similar neighborhoods. “You get a lot more for your money, but that does hurt your pocketbook eventually.”
Still, prices may finally be beginning to soften, according to realtors.
“I don’t know if it’s a rationalization from the prices being too crazy, or the subprime situation in the States, or the shekel-dollar rate,” said Loval. “It could also be seasonal.”
“The market is always quiet seasonally,” added Benninga. “The winter is not the time to buy a home, so it’s hard to know if there’s a new trend, or if it’s just a quiet time. It’s hard to say what will be in six months.”
Come Passover in mid-April, Re/Max realtor Friedland will have 15 to 20 American clients coming to look at apartments. But she is also concerned about the effect of sellers quoting their prices in shekels instead of dollars because of the weak dollar.
“The drop in the dollar is increasing the need for the buyer to add more money to the price,” she said. “I take the shekel price and instead of dividing by 4 (the long-standing rate of exchange), I divide it by 3.6 (the current rate), and that’s a big change in price for them. I have a feeling that money is drying up for Americans, and all of a sudden they’re not going to be buying these second vacation homes.”
The process in which sellers will be willing to lower their asking prices to sell to locals, to Israelis and not just foreigners, is one “that takes a long time,” said Loval. “It’s hard to imagine a developer selling for $4,000 a meter instead of $8,000.”
And it’s not much different in Tel Aviv, said realtor Rona Zetuni.
“Maybe it’s the recession in the U.S. Because if there’s something going on in the States, especially New York, we eventually feel it here. It doesn’t mean there aren’t deals being closed; there’s just more of a limit of what people are willing to pay, even for the miracle of having a place in Israel.”