The price on the 100 sq. meter empty lot kept rising – every few days the seller would hike it up another $10,000. In fact, the price on this Nachlaot, Jerusalem real estate property rose with such frequency that we joked it might as well have a dot-matrix money meter on the For Sale sign, displaying the changes in real time. Like the US National Debt Clock in Times Square.
An abandoned space, the property did offer an enticement beyond its 100 sq meters: Another 300 sq. meters of building rights. But still, who wants to spend a large sum on potential, when you still have to fork out the money to build? Even if it is worth the investment, it remains a hard sell. In the end, a buyer – one of those who just buys from the gut – settled for $400,000. The starting price had been $310,000. The seller figured he had a winner, and the money meter stopped. That was June, 2006.
But if you know even an iota about real estate in Jerusalem, you’re probably already laughing at another joke – the price in 2006.
Fast forward to today. Absolutely nothing has been done with this lot. Nothing. The joke now is that the money meter did keep running – running with such alacrity that the property value skyrocketed to a whopping $1,000,000. (In this case, Austin Powers, that IS a lot of money). Let me be clear: That’s a 250% price increase in 7 years.
The clincher is that it’s not an anomaly. The reason for the value increase has nothing to do with the property being a good investment, given its potential for building. Rather, many property values in Jerusalem have risen at similar rates, whether empty lot, apartment, or detached house. Same goes for many other locales in Israel, from Tel Aviv to Beer Sheva to moshavim in the Golan.
A rule of thumb worldwide is that real estate is a solid investment, whose values double every 20 years. But in Israel in general, and Jerusalem in particular, we’re beating that in about one-third of the time.
Why the steep property values rise? It’s basic economics of high demand, and low supply. The Jerusalem Municipality does encourage razing and high-rising, i.e. knocking down existing structures and building new complexes (the official Hebrew term is a cutesy, rhyming phrase: Pinui U’Binui). The trouble is that high rise tends to mean high end – prestige luxury projects whose prices usually only suit foreign pockets.
You’d think that even your standard 2, 3, or 4-room apartment would still be out of reach for local natives to purchase. And it often is. But most of these purchases are made by sabras who manage to scrape together the 30-40% down, and then make ends meet on the mortgage. Or, they purchase a property in Nachlaot or surrounding areas, and then rent it out, while they live elsewhere for a lower rent.
Given this trajectory (and no changes on the horizon for the housing supply), real estate in Israel, and certainly in the holy city of Jerusalem, will continue to keep money meters running.
Interview and write-up: Chaya Kasse Valier