Tel Aviv is Different | Why Property Prices Aren’t, and Will Not Go, Down

If you’re reading this, you’re probably interested in the real estate market as a buyer, homeowner, or property investor. If you’re a buyer, you’ve most likely been sitting on the sidelines since last summer’s social protests. Nobody wants to be the one who buys at the top of the market. If you’re a homeowner trying to sell at least year’s prices, you’re probably annoyed at this “fence” that everyone is sitting on; you may have even taken your property off the market for the time being.

Both of you are about to get back into the property market, aren’t you? You may have heard and read that prices have dropped 10-15%. Not only are the prices down, but the number of sales are also in the bucket. Rents are on the rise, mayhem in the property market is taking hold. This must mean that things are better, or are progressively going to get better, right? Tel Aviv just simply cannot sustain such high prices!

Wrong. Anyone that tells you that prices are down 10-15% is gravely mistaken. This number, while true when looking at it from a skewed point of view, is a gross and dangerous exaggeration for anyone serious about entering or exiting the property market. While the volume of sales in indeed down over 80% in Tel Aviv, prices are greatly unaffected, with the average prices going down only 2.2% over the past 6 months. Let’s break this number down some more, shall we?

3 and 4 room (2 & 3 bedroom) apartments were indeed down by 14% in the fourth quarter of 2011 when compared to the third quarter. 5 room (4 bedroom) apartments, however, saw an increase in 8% from the third quarter, and an even greater 20% increase from the corresponding period in 2010. These numbers include new apartments, by the way, which has more to do with the number of completed units, and less to do with the market conditions whatsoever. These numbers also are not divided by neighborhood in anyway, with almost half of Tel Aviv living outside of the city’s north and center, where the high demand apartments are. If you’re looking to buy between North Jaffa and Herzliya, from the Sea to Derekh Namir, these numbers are vastly different, with numbers indicating a 2.5% drop in sale prices over the past year. This, of course, doesn’t amount to much money when the prices are in excess of 2.5 million NIS. In real terms, it’s the price of a motor scooter. Anyone who lives in these areas can certainly vouch for this. In fact, according to a recent article in the Israel business daily, Globes, the greatest drop in the past 20 years was in 2003, 5.9%, at the height of the Second Intifada.

Another problem with many of the numbers is that they don’t take into account the apartments themselves. What makes up the value of an apartment to begin with? More often than not, two neighboring apartments can be vastly different from the other for any variety of reasons. The simple virtue that they are both the same number of rooms has no real bearing on the value of the apartments; square meterage, quality, amenities, views, and exposures have a much higher value than the sheer number of rooms. Quality of finish and use of space, is most often far more important to buyers than quantity of rooms.

At the end of the day, the real value of an apartment is the highest price that someone is willing to pay for it. Haven’t sold your apartment in over a year? It’s most likely severely overpriced. Have you bought an apartment in the last year? Why did you buy it? Probably because it was a a good combination of being a quality deal and you fell in love with the property. I’ve seen in many times in my line of work; a person falls in love with the apartment or house that’ll be their home, they ask the price, and if it’s not completely and insanely out of the general price range of similar apartments, they buy it.

Tel Aviv is an in-demand place to live and due to Israel’s booming economy, there are many people who can afford to pay the prices that the city commands. But why is the city, and specifically the central and northern neighborhoods, in such demand? The answer is simple: this is where the Municipality invests the most money. It’s in the city’s best interest to make these places expensive and desirable. They earn more money from parking tickets, property taxes, licenses, and everything else that a city makes its money from. To develop the outlying neighborhoods simply doesn’t serve much of a purpose, from a business stand point at least. The further away you drive from Dizengoff Square, the cheaper apartments cost. It’s a simple fact.

The government in Jerusalem isn’t helping much either, though. The nation invests much into Tel Aviv being the center of life, being “the big city”. Great, but what about those who can no longer afford to live here? They move to other surrounding cities and towns like Ramat Gan, Givatayim, Bat Yam, Rishon leTzion, and others. Despite the close proximity to these places, however, the trip is long and hard. It can take up to an hour depending on where in these cities you’re coming from. Pair this with the fact that these cities aren’t as well developed as Tel Aviv in regard to public services, culture, commerce, & quality of life, and it’s no surprise that everyone wants to come to Tel Aviv to live. The moment that the government begins to make access to Tel Aviv easier, and creates a sustainable and pleasant suburban life and culture, making the suburbs a desirable place to live, than we will see prices dropping. Than, and only than will apartment prices in all of Tel Aviv reach levels that are sustainable for all.