Opportunity for Americans: Israeli Luxury Home Market: Turning Normal?

Israeli real estate market has been in an upmarket phase for over two decades. Luxury homes and apartments were the engine that drove building and architecture fields into a strong and growing market segment. Luxury construction has even become a vital export segment. Israeli architects and builders are exporting construction services due to their luxury construction experience. Finally, luxury construction has been a key Israeli success story, to the point, of attracting investors and individuals to buy homes in Israel, bringing in dollars and euros. With all that, it seems like the luxury propery party is over, or at least taking a rest. Luxury apartments in the Tel Aviv area are not selling in 2012 as fast as they did earlier. Also, high visibility projects with very high price units (above 100 million shekel per property, about $50 million) are also sitting without much interest. (where are Ellison, Brofman, and Adelman when you need them?) 

The first question to ask is: “did builders reached the peak of luxury and price?” If a 200 million shekel penthouse does not sell, it does not mean that a 20 million shekel unit just two floors down will not sell. Another question: “is the luxury property market saturated?” But sales are not totally dead, just not keeping up with construction output. Whatever the answers, everyone is worried about possible collapse of prices, similar to the US and Europe. The Israeli real estate market is not driven by speculation and is less leveraged than other markets. For the most part, large inventory is not sitting around empty (like in other markets.) Finally, the amount of defaults by individuals and more important by builders and investors, is not increasing at an alarming rate. More important, banks are not suffering (and closing) as in other countries. Obviously, some architects and builders have invested and are leveraged heavily. They are stuck and are sometimes forced to re-negotiate their credit terms with investors and banks. What we see so far, is simply people “sitting” on their properties. When a building is not selling, prices are reduced by only a few percentage points (3% to 10%), or attractive incentives are offered.

Just to get a feel, here are a few developments we see. Buildings in construction, within a year of finish are offering 20% down payment and the rest at delivery. This is a new development in our market, where full payment was usually required six months before a building is finished. One project in Ramat Gan has stopped interior finish work and is selling “4 walls and sand floor” at 500,000 shekel discount. They claim an apartment can be finished for as little as 200,000 shekels. Would luxury apartment buyers or investors want to manage final construction on their own? (see, Globes article: Israel's Luxury home market stagnating: http://www.globes.co.il/serveen/globes/docview.asp?did=1000853188&fid=2167 ) Finally, finished apartments, especially in larger developments, are being offered in “sales fairs”. Some are targeted at specific segments like government workers, young families, or independent workers. Targeted marketing seem to go with some financing deal the government or a bank has to offer.