Israeli property market is hot…maybe too much so

October 18, 2010 - 5:27 PM by Brian Blum

Going up...and up...and up

When my wife Jody and I were first thinking about buying an apartment a decade back, we were livid that Israeli banks demanded at least 40% down for a mortgage, and usually much more. Where was the easy financing of the old country, where all you needed was 5-10% and that nice little tract home in the suburbs was all yours?

Of course, in hindsight, we now realize that it’s been Israel’s lack of sub-prime mortgages, credit default swaps and money doled out without even checking if the recipient had a job that have been a big part of why the country has been sailing so smoothly through the global economic crisis.

But now our “success” is coming back to bite us: in a world where foreclosures are rampant, Israeli housing prices in the second quarter of 2010 rose sixth fastest in a ranking of 36 countries, according to a study released last week by the trade magazine Global Property Guide. Indeed, property values in Israel have jumped some 30% since 2008.

That’s great, right? A sign of a robust economy? Not necessarily.

As Ynet reported yesterday, both young and even some veteran Israelis are being priced out of the neighborhoods they desire. A three-bedroom apartment in Tel Aviv can cost $560,000. In relatively “poorer” Jerusalem, prices rose 19% in the last year to $403,000 for an average apartment in the holy city. We are regularly hearing of apartments – not mansions or free-standing villas, just decent apartments in a nice neighborhood – going for well over $1 million.

But why have prices skyrocketed just as the rest of the world tanked? One possible reason: Israel’s economy has taken an entirely different track than pretty much anywhere else in the last two decades. What other Western country has had the privilege to welcome over a million new immigrants – 15% of its total population – since the early 1990s?

The influx of Jews from the Former Soviet Union created an intense demand for real estate. But why are prices spiking now, 20 years after the initial rush? Here’s a speculation: maybe it’s the kids of those immigrants who are now graduating from university with plum jobs in Israel’s booming hi-tech industry who are now ready for their own starter home?

Whatever the reasons, beleaguered, bullied little Israel, under threat from multiple fronts, has one of the hottest property markets in the world. Hey, things could be a whole lot worse.

Share with others