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How’s the real estate market in Jerusalem?

luxury-penthouse-for-rent-in-jerusalem-talbieh-600x310The real estate market in Israel, particularly in Jerusalem, has steadily increased for quite some time.  In fact from the year 2008 until the middle of 2011 prices skyrocketed to almost 49%.  The beginning of 2011 seemed to be a continuation of this trend. Prices continued to climb, local and foreign investors continued to invest, and foreign buyers continued to purchase vacation homes.

In the summer of 2011 there seemed to be a revolution in Israeli real estate.  Suddenly the Israeli public decided to take to the streets and demonstrate against the high real estate prices.  This certainly led to a reduction not in prices per say, but in the amount of transactions.  Transactions decreased to 30% by the end of 2011.  Ultimately prices rose in 2011 due partially to the high prices of land.

Israel’s Land Commission continues to implement a land release policy that barely frees up new land to meet the ever-growing demand.  This is especially true in the central areas of Israel where the demand is greatest.  It is a pure snowball effect; Contractors have to pay high prices for the land because there are so few available lots for sale, which ultimately translates into high prices for those buying apartments.  The government has promised to change its policy and release more land in 2012, create more low-income housing and incentives for contractors to build more cost-efficient housing.

Thus far there has not been much progress made in this department.  By mid 2012 we are seeing a serious awakening in the real estate market in Israel, and especially in Jerusalem.  The amount of real estate transactions has increased dramatically, some experts claiming a 25% increase since 2011.  Prices in the central areas of Jerusalem have also increased by 5%.  The public demonstrations had no lasting effect thus far on the market.  Even the government’s latest incentive of abolishing property gains tax on investment properties has not succeeded in overcoming the housing demand throughout the country.

Will the prices ever go down in Jerusalem?

As long as there are no external factors affecting the market i.e., G-d forbid, terrorism or war there is no reason for prices to drop.  Firstly there are very few empty lots in the central areas of Jerusalem.  Jerusalem is a unique city that attracts Jews from all over the world.  Owning a piece of Jerusalem is more than just a good real estate investment.  It holds serious sentimental, religious and nationalistic value to so many.