by Merav Levkowitz
HGTV recently aired the Israel episode of House Hunters International, where two Chicago sisters with a $500,000 budget searched for an apartment in Tel Aviv. After being shown the three options available, they found themselves seriously debating between a rooftop duplex that was smaller than what they were looking for and a vintage apartment that was in such bad shape it would require at least $100,000 worth of repairs.
Ultimately they chose the duplex, but the fact that a crumbling apartment with a price tag of half a million dollars was featured hints at the real estate markets in what was recently declared the nineteenth most expensive city in the world—a whole ten spots ahead of New York! How did Tel Aviv become so expensive?
For one reason, on a broad economic scale, Israel’s banking practices tend to be more conservative than those in the U.S. while its financial sector is not completely entangled in the mortgage market. In Israeli real estate there is a trend of larger down payments and less reliance on mortgages. As a result, Israel managed to maintain relative stability amid the heat of the global economic crisis. The boom in real estate prices has been driven by low interest rates and a shortage in housing. So while much skepticism lingers toward real estate in the United States in the aftermath of the subprime mortgage crisis, real estate prices in Israel, especially in Tel Aviv, remain on the rise.
The desirability of a Tel Aviv address is another reason for its robust real estate market. Home to many high-tech companies and venture capitalists, the city pulses with energy, innovation, and life. Given its population of young, successful professionals working in casual, but demanding, start-up environments, the city is alive at all hours of the day. In fact, it is not uncommon to find traffic jams and packed cafés at 2 AM on most days of the week. Tel Aviv caters to a young, vibrant population with disposable incomes, few attachments—it is known as a “city of singles”—and hyperactive desires for movement and change. New bars and restaurants open daily, but it is also not unheard of for bar and nightclub owners to “close” their operations at the end of a season only to reopen shortly thereafter with new names and décor. Naturally, the proximity to the beach and the near-constant sunshine add vibrancy and a sense of frivolity, which draw many to the city.
One of the key reasons, though, for the continued real estate boom is that Israelis are not the only ones drawn to Tel Aviv. In recent years, there has been a great influx of foreigners, mostly French and American, buying up properties in the city. “Absentee owners,” as they are often known, live overseas and come for occasional visits, leaving their apartments empty for most of the year. For some of them, owning property is a tangible display of support for Israel and a way to live as locals during their frequent visits. Ownership may also be a step in the gradual process toward aliyah (immigration to Israel). Regardless, these vacation-home buyers have altered the real estate scene in Israel’s biggest cities and particularly in Tel Aviv. With their deep pockets and few demands, including a willingness to wait longer for construction to be complete, these buyers have garnered the attention of luxury developers. Consequently, there is a new growth of highly-priced developments, which remain out-of-reach for many Israelis. At the same time, foreigners’ purchases have removed properties from the markets. Many absentee owners leave properties empty throughout the year in order to maintain the flexibility of coming and going as they please and to avoid dealing with tenants from abroad, but by doing so, they further decrease the supply of rentals available.
Rising real estate prices in Tel Aviv are both a source of pain and pride in Israel. On one hand, locals are resentful about the housing shortages and rising prices. Looking forward, there are also worries about an imminent housing bubble burst and the consequences it might induce. On the other hand, according to Ynet News, “for Israel, where high-tech and science are booming businesses, the property price spike is the latest claim to fame,” especially given the current global economic climate. Still, this facet of “pride” does little for the local consumer simply looking for a home. Is he or she doomed to paying a million dollars just to “live in a doghouse?” This facetious video clip, making the rounds among Israelis, suggests they might.