By Shia Getter
If you are considering buying in Rechavia, Talbie, or Old Katamon, be aware that a few hundred apartments in Jerusalem, mostly in those neighborhoods, are owned and leased to Israel by various churches.
The Greek Orthodox Patriarchate has the most extensive property holdings in Jerusalem and throughout Israel, but actually a number of different churches own land in Israel. Most of this land houses the churches’ religious buildings, but significant land has been leased to Israel. The Knesset building, Israel Museum, and the Great Synagogue, for example, are built on Patriarchate land, as well as a significant portion of the Old City historical buildings, and residential buildings in the high-end neighborhoods we mentioned.
Buying up land and endowing the rental payments to finance the church and the needs of the pilgrims is traditional. Some of this land was bought as early as a few hundred years into the Common Era, but most was sold by the Ottomans. In the early twentieth century, the church faced bankruptcy and the British Mandate pressured them into selling lands. This land was extremely significant in building Jerusalem’s new settlement in the early 1900s.
Since then, however, the church has not agreed to sell its lands to Israel. Instead it has leased lands to the Jewish National Fund and the Israel Land Administration, leasing its lands for ninety-nine years.
A century-long lease sounds like a long time – long enough to build residential units, hotels, and government buildings. But now that the lease contracts for about fifty residential apartments will be drawing to a close in twenty years, their market value has plummeted. The JNF has a lease on a large plot in Talbie that expires in 2050. Another batch of lease contracts is up in 2069, mainly in Givat Oranim (near Katamon). What will happen then? Well, most of these leases have already been renewed, however, be careful. Not all of them have been, and the church, as a private entity, is under no obligation to renew your lease.
The direct significance of this to lease-holders and potential buyers is clear. A property that in 20 years will need to be “re-bought,” or, perhaps, may even revert back to the church, will be worth significantly less than market price. For people looking to invest in real estate, this is a big gamble. Real estate experts are unsure how to price some of these units.
Let’s look at the sale prices of apartments built on church land. Apartments recently “sold,” under a lease contract with the Vatican that expires in 2035, and a question mark for the future, went for 30% under the market price for the area. Obviously in a few years, no one will be interested in buying that property at all, unless the lease contract has been renewed with reasonable terms.
The many apartments whose lease ends in 2069, are going for about 12% under the market price, according to the algorithm drawn up by real estate assessor and lawyer Koby Bir (published on Globes in 2010).
What will happen when the lease is up?
This was a matter of great concern for Israel for the last few decades. In fact, as the Patriarchate is very pro-Palestinian and for a while was under pressure not to renew the leases with Israel’s JNF, there was real fear that these areas may be leased or sold instead to Palestinians. In 2011, a group of private investors finally came to agreements with the Greek Patriarchate to renew the leases on most of the lands in question for the next 140 years.
These are lands that have been leased to the JNF, and managed by the Israel Lands Administration. The ILA will have to sign the renewed leases with the group of investors who now holds rights for the next lease, beginning in about forty years. This makes the deal risky for the investors, but they stepped forward to save the lands from the possibility of being sold to Palestinians.
Other land, in the area of King David St., was actually sold (not leased) in 2012 to the Israeli company who had developed the King David Residence, a luxury apartment building on that land. This was the first sale of land from the church to Israel in many decades, and hiked up prices on those properties, now securely owned by Jews.
What about lands leased from other churches?
Potential buyers in Rechavia, Talbie, and the San Simon area in Old Katamon, should simply be aware that various churches own some of the properties there. If you are interested in such land, check out what kind of lease contract the land has, and from which church, as these things all will come into play when you decide if it is a worthwhile investment.
For example, a renewal clause in such a lease contract can be significant. Land leased directly from the church may be more problematic than land that has been leased by the government from the church and sub-leased via the ILA. The type of church owning the land will play a part in the bureaucracy involved. Transactions with the Catholic church, for example, must be signed by the Pope himself.
Shia Getter is the CEO of the Shia Getter Group, a full-range real estate services firm in Jerusalem catering to the Anglo investor. He is a noted expert, columnist, and author of The Guide to Investing in Jerusalem Real Estate. He and his professional team manage many upscale Jerusalem properties and have helped countless people buy, sell, and renovate property in Israel.